The creation of an offshore ‘super grid’ and a major upgrade of energy interconnections are not the silver bullet solutions to Europe’s energy needs, an independent study has found.
The report by Pöyry, one of Europe’s leading advisers in the energy market, has found that the introduction of improved connectivity would only partially alleviate the volatility of increased renewable energy generation.
The consultancy has conducted detailed market analysis of the future impact wind and solar energy will have on the electricity markets across Northern Europe as it heads towards the 2020 decarbonization targets and beyond.
It builds on a report the company published in 2009 regarding the impact of wind power on Britain and Ireland’s electricity markets. Pöyry analyzed over 100m hourly demand, wind and solar records to advise investors, energy companies and policy makers.
James Cox, Pöyry’s Principal Consultant said: “The purpose of the study was to develop a sufficient understanding for investors and participants in the energy markets to take a view on their assets and investments on the path to decarbonization, and for policy makers to understand the consequences of the key decisions still to be taken.
“The report highlights the need for utility companies and policy makers to look more closely at the viability of renewable energy for the future and take steps to address how Europe will manage the less predictable nature of sustainable energy production.”
Increased use of renewable energy generation will create peaks and troughs of electricity production which are likely to conflict with customer demand. For example, when supply is at its lowest on a calm and cold day, demand may be greatest.
Pöyry says that while improved interconnectivity between countries could help protect supply and provide support to regions that are facing shortages, often multiple countries across Europe experience similar weather patterns and so several could face shortages at the same time. Better interconnections in isolation would therefore not be an effective solution.
James added: “A high pressure weather system in winter can extend over a thousand miles, bringing cold and calm weather to much of Europe at the same time, along with high electricity demand.
“Interconnecting countries with lots of wind generated electricity potential together helps when it is windy in some and still in others. However, when it is calm in lots of countries together, it does not provide an effective solution to supply challenges.”
The report highlights that there could be political and consumer resistance to interconnection. Countries, such as Norway, that have low electricity prices may see their prices rise significantly as their cheap electricity is exported elsewhere. When you interconnect two countries together, there are winners and losers.
Although the total costs will be lower, the benefit may lead to lower electricity prices in one country but increased prices in the other. In addition, generation companies in one country may benefit from higher electricity prices at the expense of consumers who have to pay more for their electricity.
The study has also suggested that one of the most effective ways to mitigate the intermittency of wind is via demand-side management. There is enormous potential in making demand more flexible, so that energy can be stored when plentiful, for example when it is windy. This could be in the form of heat in hot water tanks or in future electric vehicles.
James continued: “One of the remarkable findings from this study is the fact that you do not need huge amounts of flexible demand to make a difference. You are aiming to reduce demand at the couple of peak hours in the evening when the system is most stressed”.
The impact of the weather on the generation of renewable energy is not only expected to lead to more unpredictable prices but will also see greater importance placed on thermal capacity to act as a back up, causing significant dilemmas for investors, the report has found.
These plants become more important to maintain system security, but will find themselves operating less and less, and hence becoming less profitable. However, in countries where hydro accounts for a significant percentage of renewable energy such as those in Scandinavia, there is much less of a requirement for thermal to provide back up support.
The report says: “We have little doubt that investors will face major challenges developing appropriate investment and divestment strategies to deal with this kind of future ahead. Thermal assets may be highly valuable if the market evolves in one direction, but they also face the strong possibility that the intermittency from wind and solar can create power stations that for most of the time do not make a profitable contribution.”
Unlike previous European studies which have attempted to set out whether, in principle, demand can meet supply – usually by massive and possibly unrealistic increases in interconnection and electrification – Pöyry’s report has drawn on a deep understanding of the economic character of such markets and takes realistic views on the outlook for current and future investments and developments.
Its findings will be made available to major utility companies and policy makers and could help shape future energy strategies.
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