18 Feb 2016

Clean power forces utilities to accept a new role

John writes*

Historically, utility companies have planned operations on the basis of peak load from previous years. If they anticipate electricity demand will rocket on a hot summer day, they simply fire up a few more power plants. However, with the onset of an energy transition to clean power, companies will be forced to adapt to the technical barriers of “plugging-in” renewable resources.

Now, well oriented with the weather in the Netherlands, we are very familiar with the feeling of being deprived of vitamin D. Just as the sun isn't shining when we would like it to be, this resource and other renewables aren't always available during peak demand hours. When the wind is blowing at night and electricity demand is low, we must store the surplus energy that we do not immediately consume for when demand rises. Obviously, there are great capital costs associated with storing energy on such a large scale. However, these costs may be relatively small compared to the expected costs of our continued reliance on fossil fuels.

Nonetheless, most utilities, whose main objectives are safety and reliability, see these clean technologies as a threat to the grid. A grid dominated by renewable resources would require greater coordination on the supply side given how difficult it is to forecast the amount of energy renewable resources will produce days in advance. This would be a steep learning curve for utilities who are accustomed to increasing supply with the flick of a switch. Ironically, consumers have been paying coordination fees all along which often appear as “Ancillary Charges” or “Supplier Services.” Perhaps, these money collected from these fees should be put to better use to allow for the deployment of renewable energy technologies on a greater scale.

Though, given utilities are monopolies they can impose these charges, while the labor involved in coordinating the supply of power from a few conventional power plants is negligible. Unfortunately, when you purchase a house, you don’t get to choose which utilities power lines you want running to it. Nor, do you get to choose whether you want your energy from a wind farm or a coal power plant. We are yet to see people buy homes based on their utilities endorsement of renewable energy, but this may become a necessity for home buyers in the future - especially those who are looking to invest in rooftop solar panels.

Bottom Line In the United States we beginning to see conservatives ally with green party members in support of investment in renewable energy. In the near future, electricity companies must either accept a more limited role - allowing people to install their own power systems or a larger role - coordinating electricity supply from grid scale clean power plants.

* Please comment on these posts from my microeconomics students, to help them with unclear analysis, other perspectives, data sources, etc.


Corneill Spaapen said...

Definitely an interesting read!

I agree with the point that a huge infrastructural redesign is required in order to incorporate renewable energies into the majority of peoples homes, and that there a lot of political, structural and monetary issues with this happening quickly.

I also feel that the current price of oil is exacerbating this problem - since it is on the decline, people are not driven to buy (for example) hybrid/electric cars, and might be inclined to drive more, and perhaps not be as particular about their energy consumption as a whole. Given that a lot of people tend to realise things before it is too late (read: do not realise the need to switch from fossil fuels to renewables), I would be interested to see what governments do to incentivise people to do so given the situation.

However, I am not sure how near in the future people would be to installing their own systems - the process of installing solar panels and selling excess energy from this back to the grid is one thing that I have read which is fairly interesting, but I do not see this happening on a global scale for a while. But definitely, government and the utility monopolies need to find a way to create a more sustainable and renewable way to provide the population with stable energy.

Corneill Spaapen said...

I agree with the point that a huge infrastructural redesign is required in order to incorporate renewable energies into the majority of peoples homes, and that there are a lot of political, structural and monetary issues which currently prevent this from happening quickly.*

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