Increasing build-out of wind and solar power is raising a lot of concern and complaints among conventional power producers. Wind and solar come to electricity markets with zero marginal costs, depressing the prices and reducing the operating times of gas and coal power plants. This is making the business case unbearable. Many power plants are running with too low capacity factors to gain profits any more. The power prices in Northern Europe are as low as 20-30 €/MWh for more than a year now, making any generation hardly profitable.
The transition towards renewables has begun for real, and it is strengthened by the reducing demand levels due to economic crisis. The shares of renewables are reaching high levels sooner than expected and there is less and less room for other generation. Utilities are faced with stranded assets when also the power plants built in the past 5-10 years are being affected by very low income and there is still debt to be paid for the investment.
Change always comes hard. No matter how the policymakers have been talking about visions towards renewables for years and years, it seems to come as somewhat of a surprise that they actually generate a large share of our electricity, leaving less room for others in the markets. We can blame the ones investing in coal and gas in recent years, but also in many places we could blame the policymakers allowing these investments to happen. Or do we actually want to have all these power plants, as we cannot trust wind and solar to meet our peak demands?
What is the solution to this problem? Start paying extra for capacity? Stop building renewables before the existing capacity gets old and is withdrawn? Can energy transition happen without anyone suffering?
Moving towards a renewable, or a low carbon future, this certainly means that fossil fuel usage is losing the business case as the producers know it now. There is certainly room for some generation from non-renewables for decades to come – for the hours of the year that wind, solar and hydro will not cover (and as support fuel for biomass fired plants). Only the future generation will not be with a pre-defined pattern, and not for 24/7 generation (so called base load). This can be seen clearly already in some countries, and from simulations as the future with high shares of wind and PV can be estimated.
We need flexible generation that is not too investment intensive – to be able to recover the investment costs even when operating less than half of the hours of the year. The operational costs may be higher, as for the hours when there is no wind and PV there will be need for capacity. The key word is flexibility – ability to ramp up and down in minutes and hours, as well as cycle all the way to shut down and re start in minutes or hours. Flexibility is also needed on time scales of days to weeks. These kinds of power plants will still have room in the electricity markets in decades to come.
Also, the emissions should be lowered. Moving towards gas from coal cuts the emissions to about half. Developing carbon capture could be one option – but so far an expensive option. There will be competition from the continuous decline of wind, solar and storage costs. Renewables with storage might prove a more cost effective solution than carbon capture in the future.
The energy transition towards renewables can clearly be seen now. Adaptation towards that for the conventional power producers is necessary – whether they want it or not. Finding new business cases means flexible operation of the power plants. Retrofitting to these kinds of operations is needed, and investing in inflexible power plants is to be avoided. Flex or die!
Hannele Holttinen
Principal Scientist/Research Coordinator
VTT
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