Today, many countries are chasing ambitious renewable energy targets. This challenges the energy systems as more variable renewable energy (VRE), such as wind and solar, needs to be integrated. Specifically, as VRE makes up an increasingly larger share of the generation mix for electricity, less generation capacity becomes dispatchable and hence, the flexibility required to accommodate wind and solar in the grid when production exceeds or falls short of demand is going to increase drastically over the coming years.
The challenges associated with further VRE penetration in energy systems can broadly be categorised as pertaining to either the electricity market’s (lack of) transmission capacity or a lack of political will to drive the necessary investments and/or regulatory changes. In Northern Europe, the main challenge in reaching the VRE targets is the lack of transmission lines to transport electricity from production sites to the major centres of consumption. In other markets such as India, China and Brazil, the challenge is rather a lack of liberalised and efficient electricity markets that could help incentivise market actors to balance supply and demand.
With the expected increases in VRE as shown in Exhibit 1, there will be a need for the dispatchable capacity to increase by roughly 500% towards 2025. To provide the necessary flexibility in generation as VRE shares rise, countries have four different enablers to choose from, depending on their circumstances and resource endowments:
Dispatchable plants (e.g. conventional thermal power), interconnectors with other markets, demand-side flexibility and energy storage. Dispatchable plants can meet the flexibility requirement by providing idle capacity that can come online in times of VRE production shortfall, however, they run on fossil fuels, and in many markets – Germany in particular – they are being pushed out of the electricity market. As VRE is cheaper in times of high wind and sun, many dispatchable plants struggle to make sufficient returns to sustain operations and are closing as a result. Interconnectors between neighbouring countries can provide the necessary flexibility to accommodate high VRE integration, and extensive plans for transmission lines and interconnectors are well under way, particularly across Europe.
However, the necessary capacity to move VRE around in a sufficient manner is not expected to be ready before 2025. Furthermore, there needs to be a great deal of integration of power markets before the flexibility potential of interconnections can be fully realised. Demand-side management is theoretically an ideal way to cope with intermittency in supply brought on by increasing VRE shares, as consumers can adjust consumption behaviour to match the market signals associated with energy scarcity and surplus. However, this will require an extensive roll-out of demand response technologies, and new business models and technology disruptions are needed to accelerate this development. There are limited triggers indicating that demand response on a larger scale will be a key enabler in mitigating the intermittency challenge.
Energy storage can potentially meet many of the flexibility needs of power systems through the provision of balancing capacity and system functionalities. However, to meet the demand for balancing power, long-term storage technologies need to be competitive. Today, some countries have competitive longterm storage technologies installed, mainly pumped hydro – which is widely used, especially in the Nordics and Brazil. However, natural endowments dictate which countries have the opportunity to employ this dispatchable renewable energy.
Other long-term storage applications do not seem feasible in the Nordics, due to the heavy endowments in hydropower in Norway and Sweden as well as the widespread use of utility scale electric boilers and heat pumps in Denmark. With this in mind, short-term storage is the most relevant source of flexibility needed to integrate additional VRE in many energy systems. Of these short-term technologies, battery storage is the most relevant. It is a fairly new technology and production costs are decreasing fast.