international analysis and commentary

Convergent roads to energy innovation

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As our population expands, the hunger for power continues to increase, and yet the dangers presented to our planet’s ecosystem by ever greater levels of greenhouse gas emissions are clear. The technological and economic convergence of an integrated electric network with water, natural gas and transportation systems can contribute to guarantee a more sustainable, efficient and “circular” future energy.

 

Today, we have come to enjoy both the convenience and comfort that modern living affords. However, there is a growing global realization that greenhouse emissions are inherently linked to our quest for ever greater levels of sustenance and satisfaction. The environmental consequences of these anthropogenic activities, if left unchecked, could ultimately lead to what many fear is an apocalyptic outcome for all mankind.

In the early 1970s, Paul Erlich, John Holdren and Barry Commoner crafted a somewhat simplistic formula to help define the impact of three specific factors on our environment. The famous “Impact = (Population) X (Affluence) X (Technology)”, or I=PAT equation, was used to show the effect of those factors – the number of people, consumption per capita and the efficiency of technology – on the environment. While this model continues to spark debate and draw criticism, and while different variants of the formula have been developed, it still provides a valuable fundamental basis from which to explore the greater complexities hidden under the umbrella of these terms. The equation can help establish potential action plans to mitigate dire consequences.

Rather than considering the straight mathematical proportionality of these elements, the i=pat offers a philosophical approach, encouraging the exploration of interaction, interdependence and synergies among the elements of population, affluence and technology, taken together as a whole ecosystem. Such an approach can then suggest a possible model for change. Potentially, this method can transform the simplistic multiplication of elements into a more complex formula that takes into account the nuances and intricacies of the various elements. Such a revised formula might be expressed thus: Impact = FunctionPopulation X FunctionAffluence X FunctionTechnology.

 

THE POPULATION FACTOR. According to the United Nation’s 2019 World Population Prospects, the number of people on our planet continues to grow, albeit at a slower pace. It points out that there will be about 8.5 billion people in the world in 2030; 9.7 billion in 2050 and 10.9 billion in 2100. Strikingly, the 47 least developed countries will be among the fastest growing areas, with many of them doubling their populations between 2019 and 2050. Nearly half of the increase will come from just nine countries: India, Nigeria, Pakistan, the Democratic Republic of the Congo, Ethiopia, the United Republic of Tanzania, Indonesia, Egypt and the United States of America.

The consequences of this increased population will ultimately place a heavy burden on all our natural resources including water, land and food. More and more energy will be needed to feed everyone, to maintain people’s well-being, and to sustain the global economy’s productivity. That growth will also amplify the demand for good environmental stewards..

 

THE AFFLUENCE FACTOR. Affluence does not only relate to wealth in terms of gross domestic product or gdp per capita; it also regards the profusion or rate of consumption. Industry, transportation, heating and food production today accounts for the majority of energy production and collectively requires a complex platform to balance energy supply and demand. Energy affordability, economic development, and growth are also all relevant to the affluence factor.

Rapid growth in the economy frequently leads to problems that are directly relatable to energy production, transmission, distribution and use. Urbanization and industrialization are prime contributors and point to a need for more expansive, robust infrastructures and greater facilities. Our dependence and reliance on secure, affordable and resilient energy are key to overall economic viability.

While it may be difficult to place a total value on energy availability, many studies have shown the impact of electric outages. When energy is lacking, the direct and indirect impact on the economy is profound. For instance, market research done by E Source suggests that power outages cost us businesses over 27 billion dollars annually.[1] In 2016, Ponemon Institute estimated that the cost of a us data center outage had grown to $8,851 per minute.[2] In December 2017, an eleven-hour outage at the Hartsfield-Jackson Atlanta International Airport cost Delta Airlines an estimated 50 million dollars.[3] In October 2019,  in order to reduce the risk of wild fires, Pacific Gas and Electric preventatively cut off power to 800,000 customers in Northern California. Using the Interruption Cost Estimation tool developed by the Lawrence Berkeley National Laboratory and Nexant, the Stanford Woods Institute for the Environment estimated that the overall economic cost of the  measure amounted to nearly 2.5 billion dollars.

 

 

THE TECHNOLOGY FACTOR. According to information gathered by Global Carbon Atlas, carbon dioxide emissions come from two major sources: the burning of fossil fuels (oil, gas and coal) – responsible for two thirds of the 5 billion tons of emissions since the Industrial Revolution – and the conversion of forests to pastures and crops. With 4 billion people, Asia today is the biggest emitter, with China and India accounting for about 40% of all emissions. North America and Europe are the next largest emitters: combined, they contribute 10% of the total. As articulated in the 2019 edition of the bp Energy Outlook, we are now facing the dual challenge of meeting the need for both “more energy and less carbon.”

At the global level, coal remains the dominant fuel for power generation. It accounts for 38% today – the same share as twenty years ago. Gas is the second most used fuel, with a share of 23.2% – higher than in 1998. The share of oil and nuclear has declined substantially over the same period. The share of renewables is 9.3% today – up from only 3% ten years ago. Regionally, there is significant variation in the penetration of renewables: Europe has the highest penetration at 18.7%, followed by South and Central America at 12%.

In North America, natural gas is the dominant fuel for power generation, followed by coal. In South and Central America, hydro accounts for more than half of power generation. In Europe, nuclear, coal, renewables and gas all play a prominent role. In the Commonwealth of Independent States and the Middle East, natural gas is by far the most important fuel for power generation. In Africa, natural gas and coal account for almost 70% of the electricity generated. Coal remains the most important fuel in the Asia Pacific.

From an environmental standpoint, of course, it makes no substantial difference whether one sector or another of the global economy is decarbonized; for the planet, getting rid of a ton of carbon anywhere is a positive development. Significant efforts have been made to decarbonize the power transformation system, but it is becoming more and more expensive. According to 2018 estimates by the International Energy Agency, the predicted investment for security of supply in 2040 roughly equates the predicted investment in clean power sources for that year. As the climate crisis worsens, the global economy must speed up its decarbonization process. The need to optimize energy flows and consumption, limit waste and enable renewable energy vectors continues to grow. To this end, there are clear advantages to integrating different utility systems; coevolution can help optimize our decarbonization efforts and take them where they are needed most.

Efficiency and versatility of the electricity vector make it particularly suited to multisector integration. At the same time, limiting renewable energy waste by targeting final consumption rather than primary energy transformation means that the operating environment of the electricity sector has to change from  unidirectional power flows of large generators to competitive markets. These markets are characterized by diversified and distributed generation, active demand and multidirectional power flows that dynamically respond to consumer needs.

To put that in numbers: in just seven years (from 2007 to 2013), Italy managed to integrate 22 gw of renewable sources, mainly small-sized. Italy’s grid today is a complex platform that hosts and manages more than 550 thousand power injection points. To cite another example: as of the beginning of 2016, Germany’s installed pv capacity topped 40 gw, 98% of which could be considered “distributed” (i.e. connected to the low-voltage distribution level) and 50% of which is owned by private citizens.

The pursuit of a decarbonized energy system through decentralization has not removed the need for the physical connections and coordination of the vertically interdependent activities in network industries; the power and environmental choices must still be brought from the big players in electricity generation down to the edge of the system. Already, in under three decades, energy and other network industries have gone from being seen as a “public service” to being considered a “commodity” and, more recently, to being considered a “service”. In simpler terms, the network businesses are now seen as a means rather than an end, providing tailor-made services that enable the consumers themselves to meet their environmental and economic objectives.

 

THE ENERGY ECOSYSTEM PLATFORM. “Platform economics” have come to dominate many of the world’s largest industries, from banking to shopping to transportation. The concept is simple: build an ecostructure where there is an exchange of information, and facilitate the transaction of services and products in many different directions (see, for example, Airbnb, Uber or Amazon).

These concepts are making their way into the energy and utility sectors, but at a slower pace. The transaction of electrons still requires leveraging a physical infrastructure. However, the “platformization” of energy grids holds potential: an ecosystem can be established that offers significant opportunities to change the economic properties of electricity systems.

Grid modernization has been the catch-all mantra adopted by many utilities seeking to improve their infrastructure. Investment is often focused on building, hardening, and adding more intelligence to the generation, transmission and distribution networks. At the core of many of these efforts is decentralization and digitization.

The computing industry – to draw upon a parallel sector – also started out as a core centralized asset: the mainframe, which performed as a centralized hub of intelligence management and control. Access to this resource was limited, constrained and shared. Heavy duty processing had to be scheduled to balance between the resources required and the capacity of the computer to perform. “Super computers” were built to meet the demand for more processing power. The radical transformation to a services model (built on desktops, laptops and now handheld assets – many of which today outperform the super computers of yesteryear) has been realized by a platform of networks (the internet), communications infrastructures (wireless digital cellular networks such as 5g lte) and sophisticated algorithms and applications.

To transform our existing electrical network into a similar model will require the convergence of physical and hard assets: generators, conductors, switches, regulators, transformers, meters and more produce, conduct, control, manage and consume electrons. We might call this the Grid of Things. ict networks securely interconnect these assets to the systems that effectively orchestrate them. The Energy Modernization Ecosystem Platform will represent a unique architecture with the aim of making new transactions among extremely different resources possible. For instance, it should balance the supply, transmission and distribution of electrons organized between a central gas-fired turbine – with its unique electrical, temporal, economic and environmental characteristics – and a dispatchable asset behind the meter – such as a Tesla Powerwall or SonnenBatterie – each of which also has its own set of different electrical, temporal, economic and environmental characteristics.

For the power sector incumbents, it all comes down to defining the most appropriate strategy to digitalize their internal business in order to capture the value of these new trends. If they don’t take action now, the shift towards distributed resources may substantially lower the value of an underdigitalized grid, relegating it to a back-up asset. Furthermore, wise digitalization efforts increase the value of the grid across the different end-states, as investments by utilities become ever more significant and involve an increasingly intricate network of stakeholders.

Indeed, in addition to analyzing value chains and working on business case development, utilities should consistently update their views on specific strategic goals. As digitalization is both a journey and a destination for utilities, the most forward-looking enterprises must examine technologies and investments in line with market changes and potential shifting grid end-states. This approach, first developed by the us Department of Energy, drives continuous investment; it shows utilities what new business models they might pursue. The end-state approach is a particularly useful way to examine potential scenarios for digital transformation planning. We can identify here three end-states to be targeted by utilities:

  1. The current-path system, where advanced technologies are used to improve reliability, resiliency, safety and efficiency of the current infrastructure. This path reflects much of the “business as usual” grid planning, keeping a “fit and forget” approach to planning. It establishes a value “baseline”, but takes little or no account of the potential consequences of distributed energy resource proliferation.
  2. The intermediary-based system, where a platform enables exchanges between the participants and the new distributed resources. Part of these changes have been seen in recent years within the context of what we call a “smart grid”: a cyber-physical infrastructure whose ideal end-state would allow all resources to be seamlessly connected and to be part of a multilayered optimization that shares common technological standards and gives correct price signals to its participants.
  3. A network, where profit and performance are based on the collective value of an ecosystem. Such an end-state – in which the power grid is conceived as an open platform – achieves greater value through the convergence of an integrated electric network with other networks (such as water, natural gas and transportation) to create more livable, efficient and “circular” smart-cities.

 

DECARBONIZATION, CONVERGENCE, PLATFORMS. Such advanced, demand-responsive and resilient platforms depend highly on the capacity of business stakeholders to collaborate effectively, to give rise to new sources of innovative, reliable and secure smart-grid services. The key to the platform business model’s success for the energy network industry will lie in the ways utilities find to monetize digitalization investments. We must all create new ways to interact, to serve customers and to support the needs of the environment. Enel, for one, has assumed since years this mantle of environmental stewardship. For example,  in September 2019, the company issued the world’s first Sustainability Development Goal Bond . The bonds are linked to achieving major key performance indicators that include affordable and clean energy, innovation and infrastructure, sustainable cities and climate action.

To support and encourage such developments, regulatory policies must also evolve hand-in-hand with technologies and business models. In a study on the sector’s prospects, researchers from Renewables Grid Initiative (a German ngo) discuss the future technologies and regulations with 22 senior executives from 16 different European countries. They conclude that some elements of the current regulatory context hinder the development of the grid, both at the national and European level. In particular, many authorization procedures are too laborious and complex; regulatory pressure tends towards cost reduction, despite the need for new investments, and support is lacking for environmental mitigation and compensation interventions. Furthermore, not enough regulatory actions encourage system flexibility.

According to network operators, one of the most significant barriers is the lack of European alignment among individual national plans. Therefore, it is necessary to overcome the regulatory silos (regions/countries/cities, industries, sectors) and prepare regulations that can reassure investors, while also maintaining the pace of technological evolution.

 


Footnotes:

[1] Kym Wootton, esource.com, January 27, 2016.

[2] “Cost of data center outages,” vertiv.com, January 2016.

[3] Business news, reuters.com, December 20, 2017.