Everyone is talking about the transformation of the energy system. But what exactly does this transformation involve?
Sure, getting out of coal, nuclear power, oil. Eventually, natural gas. Towards photovoltaics, wind power, bioenergy and hydroelectric power. But what effects does the change in energy production have beyond the mere exchange of energy sources and business models based on them? What else is being transformed? This is certainly an incomplete list (and one that is random in the order of the thoughts listed), but it is also a first attempt to get an overview:
In Germany, there were about 1000 electricity producers on the grid in 1990. Today there are about 1.8 million. So for every electricity producer in 1990, there are 1800 in 2019. Imagine that in 1990 you needed one ingredient for your favourite dish, but today you have to mix 1800 ingredients when cooking. But then how can it be that you still manage to cook your favourite dish with all these ingredients, uh sorry, that the electricity still flows out of the socket every day? There are of course many reasons for this, but let's take one of them out: digitalization. In contrast to 1990, our societies have an incredible computing power. And the ability to exchange data in real time for little money. This also allows millions of power plants to be coordinated in a decentralized electricity system. And with great success: the SAIDI index, which measures the average duration of power failures in households, has been falling (!) in Germany for years.
A coal-fired power plant is more similar to a nuclear power plant or a gas power plant in its generation profile than a wind power plant is to a photovoltaic plant. Grid operators today are therefore confronted not only with a higher number of electricity generators, but also with a greater diversity of generation types. Here, too, we use digital technologies to at least obtain reliable feed-in forecasts from the various sources. In addition, the different sources of renewable energy vary greatly in their capacity - from a 4 kW photovoltaic roof-mounted system to a 400 MW offshore wind farm. Also, some renewables, especially photovoltaics, feed into the distribution grid - so far only consumers have been found here. Not to mention EV batteries, which will also be used in the future to provide reserves for the power grid - also from the distribution grid. All of this radically changes the demands on the structure of the power grid.
Technology instead of extraction
Carbon-based energy systems live on continuous extraction and constant consumption of the energy resource. This is changed by the use of regenerative energy producers. Anyone who manages to reliably handle the plurality of production and ownership, of different technologies and different capacities in their supply area - by building smart grids, interconnectors, intelligent automatic billing systems and much more - has a decisive advantage. Because it is no longer the excavator that is needed, not the drill, not the turbine in a large power plant, but the antenna mast or electricity pylon in the right place, the smart transformer station, the reliable algorithm.
Electricity from photovoltaics and wind power is unbeatably cheap in more and more regions of the world - but it also fluctuates. Sometimes the sun does not shine, sometimes the wind does not blow. Sometimes there is even too much electricity in the grid. The technologies to absorb these fluctuations are already available, but of course they are not yet fully developed. Why should they be? Almost nowhere is the share of renewables in a country higher than 50 percent, so the problem does not yet arise with ultimate consequence, as the flexibility options available to date are still sufficient. What is more important, therefore, is the transformation in the minds of those involved: The idea that large power plants capable of meeting base load requirements but unsuitable for peak load are following a more or less constant consumption is obsolete. In the future, all other players in the electricity system will organise themselves around the cheapest - and most volatile – technologies: photovoltaics and wind. A heliocentric view of the world is thus finally finding its way into energy supply - after decades of thinking, particularly in the coal and steel industry, that the world of electricity revolves solely around coal, oil and gas.
This also entails that some consumers are transformed from passive to active participants in the electricity system. Some consume more electricity when it is available in abundance and postpone their power consumption to later times when there is too little electricity in the grid. Today, this is already happening to some extent with industrial and commercial consumers, but in an intelligent distribution network this will also be possible with household electricity consumers. What is still needed for this is data exchange at shorter intervals between consumers, producers, grid operators and electricity markets in order to deliver price and grid signals to the consumer, as well as regulation that is rewarding flexible electricity consumption rather than penalizing it.
If there is one lesson to be learned from the last two hundred years of the history of technology, it is these two: On the one hand, industrialisation and the associated availability of power, and the relief from manual labour, has made life exorbitantly easier for us humans and led to technological and medical developments that actually only allow the conclusion to be drawn: At no time in history have people on Earth been better off than today. On the other hand, we are beginning to understand that this availability of unlimited power is so detrimental to the planet that at no time since the Stone Age has the survival of mankind as a whole been so threatened as it is today. A dilemma from which we should learn. Even if we succeed in the transformation to a world of 100 percent renewable energies, we should use the energy available to us more efficiently. After all, renewable energies also entail environmental risks. Quite apart from the fact that our energy systems will change more rapidly if the target level - our energy consumption - is set lower.
What has the oil industry had to do with the coal industry in the past? What did the car industry have to do with a large energy supplier? Not much. Now, however, there are signs that the energy system of the future will be much more dominated by electricity than in the past and that entire branches of industry will either (want to) become completely part of the electricity industry or at least move closer towards it. The effects of this development would be gigantic. Six of the world's top ten companies in terms of revenue are now oil and gas companies, and only one comes from the electricity industry. If the "transport" and "heat generation" sectors of the global economy are based in future on (renewable) electricity and no longer on oil and natural gas, huge new sales markets will open up for electricity companies. Technological advantages also result from sector coupling, for example to counteract the fluctuating power generation from photovoltaics and wind power - for example with power-to-gas systems or the batteries of electric cars.
It is no longer the domination of space and the licence to extract hydrocarbons that is decisive for producing energy, but the possession and mastery of small-scale, relatively inexpensive technology. You can buy a PV system from IKEA today. Energy cooperatives jointly operate wind farms. This is the energy companies' nightmare, as has often been noted before. The ownership structure of energy production will therefore be much more pluralistic than in the past, and in Germany it is already increasingly so today. Buyers will become sellers and self-sufficient. Power monopolies will decrease over the course of time. More people will benefit from the (today) lush margins of energy production.
The import dependency of those states that were unlucky in the past not to have oil, coal or natural gas will decrease as the sun shines on every country in the world and the wind blows everywhere. This will also reduce the foreign policy and diplomatic dependency of today's energy importers - and incidentally, the economic costs of providing energy will fall in the importing countries. If there is to be something like a successor to the petrostate, these will probably be countries with exorbitantly good locations and free areas for solar and wind power, which can then export either green electricity or hydrogen. Or they will be countries that have the raw materials that are needed for photovoltaic systems and batteries. The geopolitically neuralgic points of energy supply may soon no longer be large power plants or the straits through which oil tankers sail, but the power grids themselves. After all, they are the only element in a decentralized energy system that can be put out of action, at least temporarily, with major system damage following suit.
Today, about one fifth of world trade is accounted for by trade in extracted hydrocarbons. If the demand for oil, coal and, at some point in the future, perhaps even natural gas falls, huge gaps will appear in the balance sheets of today's extraction companies. The investments already made in exploration, extraction, transport, processing or combustion of hydrocarbons will then have to be increasingly written off. During the transition period, there is therefore a high risk of speculative bubbles in this case carbon bubbles.
Attitude towards change
The transformation of our energy system towards more sustainable forms of energy production and consumption also needs a pretty radical change in the way we expect that change to happen. Historically, the energy industry is a conservative industry – thinking in very long investment and development cycles, not moving before every step of the process (of building new power stations, of developing new sources of energy etc.) is clearly laid out and tested by engineers and business economists alike. Embarking on a path to entirely switch energy sources from conventional to sustainable sources in electricity, transport, industrial processes and heating, is not only a gigantic undertaking. It is also one that needs to be done incredibly quickly due to the havoc that climate change could do. This requires a way of thinking which is rather new to the energy industry: work in progress. We do not have all the precise answers to the challenges and transformations-of-the-second-degree laid out above yet, but we do not have the time to wait for definitive answers until we start the necessary transformation. More importantly: We do not need to have all the answers yet. It will take (at least two to three) decades anyway to change all the infrastructure that needs to be changed. And most of the technologies that will probably be used to that end are modular, combinable, and quickly scalable due to their comparably smaller size. It just takes a lot longer to build a thermal power plant than a wind farm. Don’t get me wrong, it would be better to have all the time in the world to plan the whole thing out thoroughly. But there just isn’t.
Despite all the wrangling over the transformation of our hydrocarbon-based energy system to a system based on renewable energies, we sometimes forget the dividends of this transformation. It is above all the preservation of a habitable planet by stopping global warming through switching to CO2-neutral technologies. But not only that. Air quality will improve and avoid tens or even hundreds of thousands of deaths every year. Access to electricity will be available to many people who do not have access today. Wars over fossil resources will decrease. We will be prepared for the time when fossil resources will be exhausted. In other words, our approach to risks to which we have either become accustomed or whose urgency we are only just beginning to understand will also change. For we will significantly reduce these risks or, in the best case scenario, simply eliminate them.