Tuesday, March 23, 2021

Principles for the effective integration of renewable or low carbon energies into national or regional power systems.

This is the substance of a recent talk I was asked to give at a recent COP26 roundtable in Turkmenistan. It is an attempt to summarise, for policy makers, some of the general principles we have learned in the course of the Oxford Martin School Integrate project.


First, the context. A low carbon power sector has a central role in reducing CO2 emissions and making progress towards zero carbon. This is not just because fossil-based power has high emissions and we already have numerous technologies for low carbon generation. A low or zero carbon power sector means we can progressively use electricity solutions to reduce CO2 emissions in other major categories, notably transport and heat.

The task then is developing and integrating renewable and other low carbon energy resources into power systems that deliver what we need and expect. The main factors that have to be respected and reconciled are the following:

·         Power systems require flexible responses to balance real time supply and demand.

·         Low carbon sources (mostly) lack the flexibility of traditional thermal generation plant using coal oil or gas.

·         Renewables output can be intermittent and unpredictable

Today I am going to summarise some of the general principles we have learned in the Oxford Martin School. The principles apply not just to the UK but in virtually all power systems. However, lesson one is that every country and every network is different, in terms of its available resources, its climate, weather and seasonal effects, and the needs of its consumers. So the best choices for the future will also be different.

Framing the Policy Choices

We have used this diagram to represent the task, and the large number of questions that need to be addressed. The potential resources and activities that we can manage, the options available to the power sector, are shown in the top row - generation, storage, networks and consumption. Costs are generally coming down.

The policy instruments that we have to manage these options can be categorised, in the left-hand column, in terms of technology and innovation, the wise use of markets and price signals, social engagement in the process of change, and finally the whole framework of law, organisation, policy, regulation and governance on which the sector depends.

There are 16 cells in this 4x4 matrix, and there will be important questions in almost all of them.

Starting with the resources, choices involve selection from a long menu, much of which I am showing on this slide. Virtually all the items here feature in the UK as part of our likely solutions, and they are all potentially important. I will just comment on a few highlights.

·         When we look ahead to planning the power sector, we have to look not only at the current use and applications of electricity but also at its substitution for other fuels in new applications, especially transport and the provision of heat. This implies coordination across sectors.

·         Electric vehicles especially have the potential to play a huge part in the operations of the power sector.

·         Interconnection. The recent power crisis in Texas has highlighted the importance of interconnection and the risk of isolation.

·         Solving the storage problem is one of the most challenging parts of the exercise, at least from a technical and economic perspective.

·         Consumers are also a vital part of the system, technically, economically, and politically. They merit a separate conference on their own.

Technical and technology choices

The choices have to be complementary rather than exclusive. This will involve substantial computer modelling of alternative combinations to find out what works best.

So the balance, getting the right mixture, of solar, wind, biomass and other sources is essential. For the UK, for example, meeting seasonal variations is very important, implying a higher ratio of wind to solar.

Storage is going to be important everywhere. Battery technology and pumped hydro, possibly some interconnection, combined with the ability to make use of more time-flexibility in consumer demands, will mostly be more than adequate for smoothing daily variations. But inter-seasonal storage is potentially a much bigger problem, unless the capital cost per unit of energy stored can be greatly reduced. The most promising answer appears to be conversion of renewables output into high energy forms which can be stored more cheaply. Hydrogen may be the preferred long term storage option at the present time, but there are other contenders.

In the UK, a bigger issue than seasonal storage may turn out to be risk of prolonged periods of low wind. Some modelling has simulated the effects using weather data over the last 40 years, and this has proved a useful exercise.

Markets and prices

These issues have related to technical planning, and available innovations, but there are also major implications for markets, governance, and the management and control of the sector. Turkmenistan and the UK have very different starting positions. Turkmenistan starts from a position of government ownership and control of the power sector, and supply to many consumers has been free. The UK has private ownership and some market structures but also has increasing government involvement in underwriting new low carbon investments, and in ensuring coordination within the sector. Despite these differences, I believe that there are some important common principles.

One is how to choose the most efficient plant to operate. In the UK we call this the merit order. As we progress towards low carbon economies, this will normally imply the plant with lowest CO2 emissions per kWh. In the UK and Europe this means that a price has to be attached to emissions and that must impact on the economic choices made for the sector. But it is also true that the task of managing power systems effectively with high renewables presents new challenges. In the UK we are also having to re-examine the methods that we use to get the most efficient operation of the system. The optimisation methods designed for a world of coal and gas generation are not necessarily the right ones for a low carbon system.

Consumer tariffs are very important. They are central to the ecology of the power sector as the primary means of communication between production and consumption. The priority attaching to reduced emissions is such that this should be reflected in cost reflective pricing. Tariffs are even more important if we need to promote more flexible demand. We expect to see some profound changes in the nature of the services provided by electric power in meeting consumer needs.

Finance and Governance

My last big economic issue is financing. It is widely held that collectively the world has a glut of savings waiting to be invested in useful projects. Also, the cost of capital is at historically low levels. But to access that capital, for any country or industry dependent on external or private finance, it will be essential to demonstrate that the investment is going to be well managed. The institutional structure is important for that and also for successful implementation.

This means ensuring a good and stable legal and institutional framework within which low carbon investments can be delivered, and one that banks, the World Bank and others, or other investors, can rely on. That of course depends on the commitment of governments, in the UK as much as anywhere, to low carbon objectives.