The global electricity market is worth around $3 trillion a year and is only likely to get bigger. But if electricity power generation fails to keep up with demand securely and flexibly, what trade-offs need to be made for which devices gets what level of allocation?
These are some of the questions keeping politicians, regulators and the industry awake as people look to electrification to help resolve the global climate challenge.
But, first, the industry has to get through immediate challenges from another hot summer in the northern hemisphere and incipient threats from cyberattacks and solar storms that could put utilities out of business and leave consumers without power.
As the Economist noted, Pacific Gas & Electric (PG&E), whose customers suffered blackouts as wildfires raged in northern California in the past two years, may need to pay fines and legal-settlement fees of nearly $150m for alleged mishandling of those outages. Utilities in New York are threatened with $140m in penalties for alleged failures in responding to storms and demand spikes.
The International Energy Agency (IEA), a France-based oil watchdog, has mapped out a pathway that it says is “narrow but still achievable” if the world is to cut carbon dioxide emissions to nearly zero and limit global warming to 1.5ºC, according to the Financial Times.
Total energy consumption in 2050 would be less than it is today because of improvements in efficiency, even though the global economy will be 40% larger than it is now.
Most of the energy would come from renewable sources, including nuclear, marine, solar and wind, but electricity use would also grow. Currently, about 20% of total energy consumption is electric, according to the IEA. By 2050, this would rise to 50% to meet the watchdog’s pathway to sustainability. Total capital investment in the energy sector would need to rise to $5 trillion a year, including investment in transmission and distribution grids of $820bn in 2030 from its current $260bn.
Electric utilities are tackling the issues in three ways: bringing on more production across a wider geographical area for transmission, using distributed energy storage and developing demand management software with customers to smooth peak periods.
The UK and US have generally spent less than their peers on research and development in these fields, according to IEA data supplied to the Economist, but relied on market forces and openness to new entrants to meet the changing environment.
First, in adding more power production capacity, utilities are especially targeting renewables, such as solar and wind, in the hope modular nuclear reactors might develop sufficiently to be used based on existing fission technology. Longer-term, even nuclear fusion could output more power than it consumes.
The US’s solar capacity has more than doubled in the past four years to 100 gigawatts (GW). But solar and wind power are intermittent sources that require a mix of long and short-duration energy storage mechanisms as well as “firm energy production”, such as natural gas with carbon capture technologies, to meet demand spikes and therefore reach net zero.
The Economist noted Southern California Edison, a utility serving the Los Angeles area, added 1.4GW of battery capacity last year. The state as a whole could have more than 2.8GW of storage on its grid before September, nearly five times more than in 2020. Similarly, Texas could have about 1.4GW, an eightfold increase.
But long-duration energy storage is proving complicated to achieve at suitable cost and efficiency, according to a recent paper in Nature by a Massachusetts Institute of Technology team (thanks to David Roberts’s Volts blog for the tip).
This pushes energy storage for the grid to shorter-term solutions, such as lithium-ion batteries used in electric vehicles. Tesla, an electric-car maker, has been secretly developing a 100-megawatt grid battery project outside Houston (code-named Gambit), the Economist added.
Tesla intends to produce three terawatt-hours of battery capacity within a decade, more than 12 times the goal of Germany-based carmaker Volkswagen. Besides bringing the cost of cars down to $25,000, the batteries will also go towards Tesla’s home-energy-storage business.
Tesla’s home power storage device, along with people using their car batteries to store electricity, means power supply is closer to demand and offers potentially more resiliency to the grid.
The growth in electricity sales from vendors is lessened by significant growth in onsite generation in the residential, commercial, and industrial sectors. Installation of rooftop photovoltaic (PV) systems, primarily on residential and commercial buildings, and combined-heat-and-power systems in industrial and some commercial applications, will account for more than 7% of total electricity generation by 2050, almost doubling the 2020 share of onsite power generators, according to the US Energy Information Administration (EIA).
Using software to control and manage demand brings opportunities for startups. Venture capital firm Westly Group has 15 of the world’s larger energy and auto companies as limited partners. Danny Cotter, a partner there, said when his firm backed WeaveGrid, which supplies vehicle power to the grid: “Every automotive manufacturer is moving all-electric. Energy utilities need a way to support this transition without significant impact to their infrastructure.”
OhmConnect, a California-based startup backed by Alphabet gives away smart thermostats and aggregates the energy saved by remotely turning down thermostats and otherwise cutting demand when the grid nears overload. OhmConnect can then sell the electricity at peak prices to utilities and share the gains with consumers, while Leap creates a “virtual power plant” by aggregating output from distributed power.
In the UK, electricity tariffs allow customers using “vehicle-to-grid” chargers to top up their batteries when electricity consumption is low and sell it back at a profit when demand is higher. “Best performing customers are making a net benefit of over £500 a year and the extreme examples quite a bit beyond that,” Conor Maher-McWilliams, head of flexibility at energy supplier Ovo’s technology arm Kaluza, told the Financial Times.
UK-based Ovo and Octopus Energy are the biggest of the new energy suppliers whose “intelligent” software platforms now control more than a fifth of the market, according to the local regulator Ofgem, and are now attracting unicorn valuations.
In December, Japan-listed energy utility Tokyo Gas invested $200m in Octopus Energy Group at a $2.1bn valuation and said it would license the UK company’s technology platform, Kraken. Another utility, Australia-based Origin Energy, agreed in May last year to pay approximately $327m over four years for a 20% stake in Octopus.
In 2019, Japan-listed conglomerate Mitsubishi paid $256m for a 20% stake in Ovo Energy, which planned to use the funding as the basis for an expansion from Germany and its home country of the UK into markets such as France, Australia and Spain. In March, Ovo also announced an agreement with Australia-based AGL to provide access to the UK group’s Kaluza technology platform.
A series of market reforms to improve competition in the UK household supply market since 2010 has helped Ovo and Octopus but other startups have been winnowed away.
Toby Ferenczi, director of Ovo’s international business, told the FT the UK market had become a test bed for energy technologies because it was one of the first in the world to liberalise. “There has been a few companies like Ovo and Octopus that have had the time to build up the scale and the technology necessary… to enable this [energy] transition to happen.”
But as well as internal liberalisation, countries and states are working on connecting their grids to smooth supplies.
The world’s longest undersea electric cable was switched on this summer for testing. The 720km interconnector that will trade power between the UK and Norway, according to the FT.
The €2bn North Sea Link between the UK’s National Grid and Norway’s Statnett is due to begin formal operations in October, two years before a similar one between the UK and Denmark becomes operational. Even bigger interconnector projects, such as the Sun Cable between Australia and Singapore and the IceLink between Iceland and the UK, are under development.
Nigel Williams, construction director of the North Sea Link, told the FT the cable would allow the UK to “maximise the use of renewables and the extensive hydro power network in Norway”, replacing electricity from fossil fuels.
The cable can carry as much as 1.4GW of power. On windy days when the UK has excess power from offshore wind, the cable will allow it to export power to Norway. Interconnectors supplied about 8% of UK power in 2019, a figure that could more than double to 19% within the next five years and could require 18GW of capacity by 2030.
Beyond the challenges of laying these cables under water, there are other hurdles to jump to deliver green power the cities where two-thirds of people are expected to live over the next few decades.
“There will be no renewables without networks,” says Armando Martínez, who leads the grid business of Iberdrola, a big utility, told the Economist. The IEA said annual spending on electricity grids should more than triple by 2030.
One of the hardest challenges is disagreement over the siting of transmission lines from wind farms. In the US, for example, a transmission line must receive approval from each state it crosses and, in some states, approval from each county. This might slow US president Joe Biden’s plan for decarbonisation of key sectors, such as power and agriculture.
Biden has been seeking $2.3 trillion from Congress for legislation that would go to electric charging stations, laying out an efficient new national electrical grid and capping abandoned oil and gas rigs and coal mines. This focus on spending and tax could see “$7.5bn on electric-vehicle infrastructure, $73bn in overhauling the electrical grid, and nearly $50bn in making infrastructure resilient to climate change”, according to the Wall Street Journal.
Ultimately, the White House wants 80% of retail power to come from zero-emission sources by 2030 and has promised $8bn to build transmission lines to help effect this.
But this is just a fraction of the expected $100bn in costs and so the government wants to crowd in private capital. In particular, the Clean Energy for America Act could consolidate current energy tax incentives into emissions-based provisions, available to all energy technologies such as transmission rather than just wind or solar.
The promised $8bn will go on high-voltage direct-current systems to connect offshore or midwestern wind plants by using infrastructure located along railroad and highway routes with the lines running underground. To get around planning permissions, Transportation Secretary Pete Buttigieg said the use of public highways and other transportat rights-of-way would speed siting and permitting of transmission lines.
The White House has also announced 22 shovel-ready transmission projects to spur $33bn in investment, create 600,000 jobs and help update much of the country’s transmission infrastructure built in the 1950s and 1960s.
As former California governor Arnold Schwarzenegger once said: “You could have all the renewable energy in the world. But if you do not have the transmission lines, you have nothing.”
In Vietnam the growth of solar power in recent years has overwhelmed the country’s ability to transmit it to consumers, while in Germany disagreements over the transmission of clean energy between north and south has kept coal-fired plants open longer than expected. The national elections coming up this autumn will turn in part on which party is seen as more capable of carrying out the Energiewende, the policy to decarbonise Germany’s energy consumption, according to the FT.
Coal and nuclear turbines provide this stability because they have large rotating masses that, connected to the grid, resist power fluctuations with “inertia”, the FT noted. The German Greens’ parliamentary energy spokesperson, Ingrid Nestle, acknowledged this problem. “The current government could have been more proactive in providing alternatives for grid security. Security of supply cannot be a question.”
This is creating optimism for startups in transmission, such as Veir, which uses high temperature superconductors for electricity transmission and in March raised $10m from VCs Breakthrough Energy Ventures, Congruent Ventures and The Engine; WeaveGrid, a developer of software solutions for the scalable deployment of electric vehicles on the electric grid that in May raised $15m from Coatue, Breakthrough Energy Ventures and others; and Smart Wires, which in late 2019 raised $75m for its modular power flow control solutions to help electric utilities and grid operators.
Most recently, Mainspring Energy, a US-based power generation company, raised $95m in its series D round from corporations including Chevron Technology Ventures, AEP and Equinor.
In April, LineVision, a US-based provider of power line sensor technology, completed a $12.5m series B round that included National Grid Partners (NGP), the corporate venturing arm of electricity provider National Grid, while car parts maker Toyota Tsusho invested in electricity trading platform Digital Grid in 2019 and Schneider Electric’s SE Ventures backed distributed grid software provider Autogrid the previous year.
To protect the infrastructure, NGP has also been investing in CNIGuard, an internet-of-things cloud sensor provider for utility-critical infrastructure.
And organisations are working more closely together through the Global Power System Consortium to speed progress toward a carbon-free power system by 2035.
Reliable, abundant energy has powered the world’s growth and development. Its successful transition to a lower-carbon footprint will help underpin the next generation’s challenges of responsible innovation.
Tesla has shaken up carmakers over the past decade by bringing software and electrification into the mass market. Now the industry is looking at how electronics companies, such as US-listed Apple and Foxconn (the Taiwan-based maker of Apple’s iPhones), might go even further in disrupting the incumbents.
Foxconn has assembled more than 1,200 member companies in its industry alliance, MIH, from software developers, such as Arm, to auto suppliers, including Germany-based plastics parts maker Konzelmann. It is very active in the space: setting up joint ventures with Chinese and Taiwanese carmakers; working on a partnership with Stellantis, the car group formed by the merger of FCA and PSA; reaching a co-operation agreement with Chinese electric vehicle company Byton; and signing a deal to manufacture for US electric vehicle designer Fisker from late 2023, according to the Financial Times.
Although EVs look similar from the outside and perform a similar function for consumers, they are different on the inside. The electronics companies targeting the automotive supply chain need to pick up new mechanical capabilities and entirely different safety concepts while carmakers (the original equipment manufacturers) and tier one suppliers have to learn software and electrical engineering.
The recalibration of the two industries is set to bring disruption on a grand scale, the FT noted. The electronics industry was valued at an estimated $2.2 trillion last year and employs up to 18 million people, according to the International Labour Organisation. The revenues of the carmakers alone were $2.2 trillion in 2019, according to S&P Global Market Intelligence, and the industry employed close to 14 million people in 2017, according to the UN Industrial Development Organisation.
Most nuclear power plants are light-water reactors (LWRs), a technology that was developed in the US in the 1950s. They use ordinary water to cool the reactor core and to increase the intensity of the chain-reaction by moderating the speed of the neutrons that are emitted when uranium atoms split. These neutrons are more likely to go on to split more atoms in turn, the Economist’s primer on the topic notes. But these LWRs are housed in big sites by the sea and cost billions to install, run and decommission.
Startups think there are better ways to tackle the challenge of developing effectively limitless, always-available, carbon-free power more. TerraPower, a US-based company founded in 2008 by Bill Gates, co-founder of software provider Microsoft, last month said it would build a demonstration of its Natrium reactor by 2028. The technology replaces the water with hot, liquid sodium to heat a tank of molten salt that acts as a giant battery.
Liquid sodium’s high temperature – about 500°C – should make the reactor more efficient while being less corrosive to pipes than hot water and require only a fifth of the concrete required by an LWR of equivalent power. Sodium slightly damps the chain-reaction similar to water but if bubbles of vapour form in the coolant the damping effect would diminish and risk a dangerous feedback loop of rising temperatures and growing power output, the Economist said.
The molten-salt, energy-storage system uses a separate set of pipes to remove heat and produce electricity and so has more flexibility on when power is available, depending on price.
This is helpful to utilities managing power demand. But LWRs’ long history means countries and companies are still keen to build them. A consortium led by Rolls-Royce is hoping to build a fleet of mini LWRs across the UK. The consortium, which also includes Jacobs and Laing O’Rourke, hopes to be the first “small modular reactor” (SMR) developer to put its design through the UK’s nuclear regulatory assessment to develop a 470MW pilot plant by the early 2030s.
UK prime minister Boris Johnson backed SMRs as part of his 10-point plan for a “green industrial revolution” last year. Proponents say they are a more affordable alternative to large-scale reactors such as the 3.2GW plant under construction at Hinkley Point C in Somerset,UK, which is expected to costup to £23bn.
Rolls-Royce, which has been working on SMRs since 2015, expects the first five reactors to cost £2.2bn each, falling to £1.8bn for subsequent units. Tom Samson, chief executive of the Rolls-Royce-led consortium, told the FT: “The way we manufacture and assemble our power station brings down its cost to be comparable with offshore wind at around £50/MWh.”
Others are looking to fuse atoms together rather than split them in order to release energy.
A fusion reactor uses heat and pressure on hydrogen atoms to break them into plasma before reforming as helium. There are two obvious issues – heating the hydrogen sufficiently takes energy and containing the super-hot plasma is difficult.
Stars, such as the Sun, use gravity to contain the plasma but magnets could theoretically work for a short amount of time while lasers could potentially heat the atoms to form plasma.
Different startups are taking varying approaches. Tokamak Energy, a UK startup, and General Fusion, a Canadian peer, plan to build their pilots at the UK Atomic Energy Authority’s campus outside Oxford, also home to the Culham Centre for Fusion Energy, which operates the Joint European Torus – the world’s largest working fusion reactor.
US-based Commonwealth Fusion Systems meanwhile will test over the next decade a set of magnets in a ring to form a reactor in Massachusetts.
The biggest project is under way in southern France, where a consortium of countries is building International Thermonuclear Experimental Reactor, a giant reactor that has, so far, cost billions of dollars to build and is running years behind its original schedule.
While invisible and harmless to anyone on the Earth’s surface, the geomagnetic waves unleashed by solar storms – technically a coronal mass ejection – can cripple power grids.
The sun began a new 11-year cycle last year and is expected to peak in 2025. It could cost the US power industry $27bn to defend against it by integrating non-magnetic steel in transformers and installing more surge protectors in the grid.
A 2017 paper in the journal of the American Geophysical Union predicted blackouts caused by severe space weather couldstrike as much as 66% of the American population, with economic losses reaching a potential $41.5bn a day.
Within the past 15 years, the US and UK have built space weather forecasting centres that looks at the regular shift in polarity of the Sun’s magnetic field and if plasma is being released into outer space and potentially triggering storms on Earth.
In 1859, a solar storm known as ‘the Carrington Effect’ electrified telegraph lines, setting offices alight in North America and Europe.
The Colonial Pipeline, the US’s largest conduit for refined products, transporting almost half of the fuel consumed on the east coast, was closed in early May after its operator said it had fallen “victim to a cybersecurity attack”.
It said that the attack involved the use of ransomware – hackers seize control of a victim’s computer systems or data by installing illicit software, and only release the assets once payment is made.
Darkside, a Russian hacking group, has now attacked US oil and gas infrastructure four times in the past six months, according to cybercriminal investigation firm DarkTracer.
The attack on the pipeline, which spans more than 5,500 miles from Pasadena, Texas, to New Jersey and New York Harbor, comes amid growing concerns about cybersecurity vulnerabilities in North America’s critical infrastructure after last year’s SolarWinds attack.
In that incident, Russian hackers gained access to the US commerce and treasury departments, among other government agencies.
The number of ransomware attacks has exploded in recent years as criminals have used cryptocurrencies, such as bitcoin, to receive extortion payouts without being tracked, and have increasingly rented out their expertise to others.
While such attacks have tended to target corporate information technology systems, experts warn that instances targeting operational technology – the computerised systems that are used to control operations – are becoming more prevalent following the Russian attacks on three energy distribution companies in Ukraine in December 2015, the first known successful cyberattack on a power grid.
While solar and wind energy technologies have very successfully scaled up and raised billions in recent years to move from pilot to commercial scale, the marine power of the tides and waves to generate electricity has struggled to gain traction.
A high-profile £1.3bn tidal scheme in Swansea Bay, South Wales, which involved constructing a 9.5km breakwater, was rejected for funding by ministers in 2018 because of the cost.
Several corporate-backed startups seeking to harness wave power, such as UK-based Aquamarine Power and Pelamis, have collapsed but local peer Orbital Marine Power, which is based on the Orkney Islands, finally piloted a 2MW tidal energy turbine in April.
Although its capacity is modest compared with the latest offshore wind turbines, which are pushing 14MW, Orbital is one of 45 UK companies that make up the tidal and wave power sector hoping for a change in fortunes.
The UK Marine Energy Council said the sector could be worth £76bn by 2050 as governments turn to a range of clean energy sources. Despite the challenges, 124MW of tidal projects are ready to bid in the UK government’s 2021 auction with a minimum 100MW commitment.
Tidal power developers have proposed guaranteed prices in the region of £250 a megawatt hour (MWh) for the auction but the Marine Energy Council said a price below £90/MWh was “eminently achievable” if the sector could deploy 1GW of projects and beyond.
Offshore wind developers have guaranteed prices as low as £39.65/MWh, while the UK government provided a £92.50/MWh guarantee to the Hinckley Point C nuclear power station’s developers.
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