Renewables are now undoubtedly the future of our power system. In 2017, the net increase in installed capacity for solar alone almost reached 100 GW, outnumbering the increase for all conventional non-renewable power sources.
For utilities all over the globe that own a large amount of conventional capacity, they now face one grave question: how could my conventional fleet survive alongside those growing renewables as long as possible?
The Choices of the Conventional Utilities
In the past, utilities tried to stop renewables from growing to a size significant to the grid, claiming that serious grid issues would follow.
They no longer can do that. Now there exist only two main strategy for them:
- To promote more flexibility of conventional power plants
- To promote more storage in the power system
I have been thinking about these two options for a while, and came to the conclusion recently that ideally it would be best (as a renewable advocate) to build all the system scale storage as fast as possible.
Since batteries are the most flexible in providing ancillary services and residual load flexibility, we could build all the storage necessary for renewables integration as we expand our wind and solar capacity.
For every 1 MW of storage we installed on the grid, we can simultaneously get rid of the need of another 1 MW of conventional power plant. In the end we could get a grid with 100% renewables plus some storage to do the necessary power control.
All sounds wonderful, and it seems to be what some of the people from the conventional utilities in Taiwan have been suggesting. The only problem is that this is not what the advanced nations in energy transition are doing.
Instead, they promote the boost of flexibility of their own conventional fleet before beginning the mass deployment of storage. I mean, you heard the Tesla mega-battery in South Australia only when the province already had had 40% of renewables penetration.
Does that mean that the conventional utilities in Taiwan are more “pro-renewables” in this particular case?
The Mainstream Interpretation of the Situation: Cost Effectiveness
Along the energy transition experts, to prefer flexibility (and demand response) before storage is a natural decision: it all comes down to the cost effectiveness of the measures.
Cost effectiveness is a common term when discussing the economics of policies. Put it in another way: what is the cheapest pathway you can choose, if you want your power system to have as much renewables as possible?
Many experts agree upon the following order of cost effectiveness: demand response> flexibility of conventional power fleet> storage.
This is of course a good explanation itself. However, the cost effectiveness we considered above concerns the system costs, not the costs any individual player has to pay. Which means that sometimes conventional utilities might think twice before agreeing with this rationale.
Why so? Let me begin by telling you some Chinese history…
The Story of Water Canal Zhenguo
Between 9th to 3rd century BC, the then-known China was nominally ruled by the dynasty Chou, whereas in fact there were hundreds, if not thousands, of principalities that were de facto autonomous (it was much like the Holy Roman Empire).
By the second half of the third century B.C., however, this region was about to be unified by the Principality Qin. The six other remaining principalities became frightened of being annexed, so they came up with a lot of ideas to prevent just that.
One of the plans they came up was to send a hydraulic engineer to Qin to persuade the king into building a water canal. The rationale behind this plan was that in order to build a water canal, Qin would have to divert its resources from military practices, thus it would slow down the nation’s pace to annex other nations.
The plan worked. The king of Qin agreed to build the canal, and that saved the other six nations for about two decades.
But when the canal was completed (it was named after the engineer, Zhenguo, who planned and led the project), it made Qin a richer nation.
So now the nation was in a better position to raise its army. It would annex all other six nations in less than a decade.
The king, Yin Cheng, who agreed upon the project, became the first Emperor in the Chinese history.
Battery Storage Options are the Water Canal Zhenguo for Renewables
Interesting, but what does it have to do with our flexibility/storage dilemma?
Here is my insight: storage options, especially battery storage options, are the water canal Zhengguo for renewables.
Think about it this way: if we promote battery storage right now, it would immediately lead to higher upfront costs for the system, and the conventional utilities could also shift all the flexibility burden to renewable projects.
For example, they could lobby to make it mandatory for every renewable project to install or buy some backup sources. They could call for more storage investments to divert the investments on renewable deployments.
Doing all this during the cradle stage of renewables would definitely slow down or even kill the growth of renewables. Meanwhile, without the flexibility burden utilities can run their inflexible conventional power plants with higher capacity factors, or even find the possibility to call for new projects inflexible plants. These are all desirable results for conventional utilities.
But what would happen if renewables plus storage keep on thriving? Promoting storage options means that its learning curve would drop faster. To some critical point (i.e. when renewables plus storage has a lower LCoE than conventional gas power plants) this would also mean a disruptive decline on the need of conventional power plants in the grid.
That would be the beginning of the end for all conventional power plants.
Now let’s look at the other strategy: promoting the flexibility of conventional power right now. It would mean a greater integration of renewables in the very near future, so the conventional utilities would have to gradually lower the capacity factor of their conventional power plants.
But as conventional utilities learn to operate their plants more flexibly, they are also learning to adapt to a power system with higher renewable penetration. This might enlong the operational lifespan of their conventional fleet, and slow down the speed of deep decarbonization.
The uncertainty is however greater for this strategy. With greater flexibility from the conventional power plants, there would be less demand for storage, but more renewable penetration in the first place could also lead to a more mature market for such development.
Below is a simplified chart that describes the situation from the viewpoints of both the conventional utilities and renewables advocates. Plus signs mean advantage, minus signs mean the opposite, and question marks mean uncertainties (the quantitation is of course my own raw evaluation). The results of who chooses which strategy is thus then described by game theory.
With this theory in mind, we can now explain the behavior of conventional utilities of different nations.
For conventional utilities from advanced nations in energy transition, the growth of renewables is beyond evident and thus it would be more preferable for them to promote the flexibility of their own power plants to ensure a longer future. This work best for those who own conventional gas power plants.
Battery storage solutions, however, are nevertheless now on the rise in these nations due to rapid cost drops. Just like the deployment of renewables, the deployment speed of storage is also beyond previous expectation. So empirically speaking, this strategy might not be working that well after all.
All of this would not have happened, were it not for the rapid expansion of renewables. Seeing that, conventional utilities from nations just starting their energy transition might think twice before promoting flexibility too soon. Maybe that can stop renewable expansion a little bit longer, right?
The debate over nuclear depicts the difference of the two strategies very well. While the nuclear advocates in the US are promoting the potential for nuclear to ramp up and down as flexible as their conventional gas, energy transition skeptics in Taiwan still claim that we need some inflexible power plants (nuclear or coal) plus a lot of storage before we can expand our renewables to 20% ratio of electricity mix (the goal in 2025).
What (As a 100% RES Advocate) Should We be Promoting Then?
The world is not merely black and white. I think the best strategy we renewables advocate should be pursuing is mainly the flexibility of conventional power plants with also some strategical storage options (and don’t forget demand response!).
The rationale for this strategy is simple: we should promote for a policy that not only 1) leads to rapid integration of renewables in the near future but also 2) prevents over-capacity and stranded assets in the long run.
We have to persuade the conventional utilities to operate more flexibly in order to do task number one.
We have to persuade the government to build sufficient storage and ensure sufficient demand response, such that new fossil fuel projects (like the one in Shenao) become unnecessary for task two to be achieved. It makes sense to build storage systems when they are more expensive if in return, more losses in the future due to lower capacity factors and stranded assets can be prevented by doing so.
Of course, determining how much attention on flexibility and how much on storage requires a deeper analysis of the cost effectiveness of different policy mixes.
Ultimately, I am still quite optimistic about the situation (globally or in Taiwan). I think sooner or later, conventional utilities like Taipower will start to change their narratives into embracing the concepts of flexibility, a change AEMO,CAISO or other nation’s grid operators and utilities have also gone through in the past (for those operators and utilities, the current task is actually to embrace the next phase, where storage comes into the scene to allow further renewables penetration).
We just need to make sure that the policy makers remember to count in reliable demand response and strategic storage into their reserve margin when they try to legitimize new (and more flexible) conventional power projects.
One thing is certain: renewables plus storage will takeover the power system anyway. The only difference is the time it takes, and the true question is how to make this transition a more meaningful and just one.
