The debate around the future of electricity market design is not a new one. Renewable energy developers, utilities, and policy makers have been grappling for years with a key question: in a global system that was designed for the trading and distribution of fossil-fuel generated power, how can we make the transition to one powered by renewables? With the renewables industry quickly gathering momentum, and electrification set to trigger huge changes in power consumption, it’s a question that requires an urgent answer. The time has come to embrace a new kind of power system, one that builds on the extensive insights being uncovered by the renewables sector.
Although many governments are now increasing their decarbonisation ambitions, the scenarios outlined in this year’s International Energy Agency World Energy Outlook show that we have a long way to go. In the journey towards net zero, questions around power system flexibility, balancing energy supply and demand, and overall market design will be brought into sharp relief. The onset of electrification alone will create countless touchpoints for consumers to interact with the grid. If we’re serious about getting to carbon neutrality, we don’t have much time to find answers.
We need to consider a new phase in the design of power systems. Net zero emissions by 2050 will necessitate a sharp rise in renewables-generated power, and also require a tripling of capital expenditure in modernising electricity networks. If this investment is going to work, it needs to be in service of a decentralised model. More renewable energy calls for more digitally interconnected power networks, where variable power production, new consumption patterns and innovative technologies can operate in harmony with each other. A decentralised system can weave together digital data streams with physical assets, and embrace a multitude of touchpoints, ranging across power consumption, generation and storage. Instead of thinking of electricity networks as unidirectional, we need to start thinking of them as a web, where both power and data flow in multiple directions in real-time.
Net zero by 2050 will necessitate a sharp rise in renewables-generated power and also require a tripling of capital expenditure in modernising electricity networks
The renewables industry is ready to support this new reality. Vestas, for example commands a global footprint that could readily provide the digital insight needed to support decentralised and interconnected systems. Recently, we became the first wind energy supplier to surpass 100GW of wind turbines under service, a milestone that follows 100GW of installed capacity in 2019. With such an extensive foundation of assets under service comes an unparalleled level of data insights, and a promising critical mass for the industry. By channeling streams of data from across a global network of assets, renewables are now at a stage where we can support utilities and grid operators to better understand how to align production more closely with demand, and with grid conditions, at any given moment.
Importantly, this technology is already available, and the key to addressing variability. Supported by the right policy frameworks, it could support a consistent flow of both power and data between all the active touchpoints of a decentralised grid system, at a global scale. If we keep increasing the share of variable renewable energy without adapting the system, rules and regulations, a fully decarbonised electricity system will remain a fantasy. As an industry, we’re already supporting pioneering nations like Denmark, where increasing power system flexibility is not only feasible, but working to enable a high penetration of renewables. Now it’s time to build on this experience, to apply what we’re learning in more nations, and to forge a global pathway towards decentralisation.
System flexibility, however, is just the beginning. Taking the next step towards decentralisation is all about nurturing smart grids. Imagine grid systems smart enough to support energy corridors that connect to distant assets when nearby ones are generating low levels of power. Or grids interconnected enough to help consumers adapt demand to supply.
Smart grids would signal a new era for the energy market model. Decentralising the power system would support flexibility within the market, which could in turn lead to more diversified consumption and production patterns. What if markets that currently operated around commoditised kilowatt-hours were transformed to accommodate models where consumers play a more active role in the system, modulating their consumption and choosing renewable power through incentivisation? It might sound like another dream scenario, but the truth is, the renewables industry is growing in scale and volume at a rate fast enough to support this future. At Vestas, we have already structured our business to ensure that we can continue to service the world’s expanding network of renewable energy assets, whether they were manufactured by us or not. And we are poised to take on more growth, and therefore glean greater insight.
Ultimately, embracing decentralisation will carve out new possibilities for emission free energy consumption. In energy systems with developed pathways for electrification, the opportunity to introduce more touchpoints across the power system increases, leading to a broader penetration of renewable power. To make this work, we need an acceleration of technologies like EVs, electrified heating, or Power-to-X. Naturally, industry leaders have a duty to step up here and lend their resources to the collective push towards innovation, but from the industry perspective, we can only take this so far.
Collaboration can carry us along this journey. Of course, we need policy makers to reconsider the frameworks that govern grid management and system integration in favour of decentralised models. But this will require updating power system regulations and should be carried out with input from a variety of actors across the sector, from OEMs and power plant operators through to ministries, think tanks and academia. Meeting decarbonisation goals means reimagining the way the world trades, values, and regulates energy, and the only way to get there is align policy interventions with investment, and to promote competition at the level of systemic value, not just on price. As industry leaders, we’re ready to take the next step. Our question is, is the rest of the energy system ready to take it with us?
· Christian Venderby is executive vice president of service at Danish wind OEM Vestas, which has set itself a 2030 carbon-neutrality goal