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What‌ ‌is‌ ‌driving‌ ‌the‌ ‌energy‌ ‌transition?‌ Everything‌ ‌you‌ ‌need‌ ‌to‌ ‌know‌

Carbon goals and renewable resources

With carbon-reducing goals being set across the globe, renewable resources are the future. But there is far more than just political pressure behind the energy transition. Economic and technological factors also play a key role in this evolution.

So, what is really driving the energy transition? How will it impact businesses and what role will technology play in tomorrow’s landscape?

Here’s everything you need to know about the energy transition.

The energy transition — what is it?

It’s no secret; the future of energy is renewable. It is the green energy economy of the future.

There are clear indicators that we’re finally in a position to move away from a system based on burning fossil fuels like gas and oil, and look towards cleaner resources such as wind and solar to drive our growing electricity needs.

This shift has been discussed and predicted for decades, but now the transition is finally gaining considerable pace. As a consequence, there will be a profound impact on the global economy and the environment in the coming years.

The number of coal-fired plants on which construction has begun each year has fallen by 84% since 2015, and was 39% in 2018 alone.

A global movement towards sustainability

In 2017, Peter Thomson, the president of the United Nations General Assembly, warned that “humanity is heading towards a precipice of unsustainability.” However, “the good news is that our leaders realise that this was not something that we could ignore.”

He explained that, to transform the world, we first need to transform “what we do, how we consume and how we reward businesses. In your consumer choices you should not be rewarding companies that are pursuing unsustainable production methods, or giving you products that are not sustainable.”

The Paris Agreement

At the Paris climate conference in 2015, 195 countries adopted the first-ever universal, legally binding global climate deal.

The Paris Agreement’s central aim is to strengthen the global response to the threat of climate change by keeping a global temperature rise well below 2°C above pre-industrial levels and to limit the temperature increase to 1.5°C.

The global coal phase out

According to a recent analysis by the UN’s Intergovernmental Panel on Climate Change (IPCC), keeping global warming to 1.5°C requires a 70% reduction in coal power generation by 2030, and a total phase out by 2050.

We’re well on our way; a Global Energy Monitor report indicated that there was a 39% drop in new construction of coal power capacity in 2018, and an 84% drop since 2015. Retirements totaled nearly 31 GW in 2018, making it the third highest year for global coal plant retirements.

Now, renewable energy is the fastest growing source of energy and it’s contributing to almost 50% of the growth in global energy supplies. Find out more facts about the energy transition by downloading the whitepaper Energy Trends in the Global Marketplace.

What’s driving the energy transition?

As outlined above, many of the key drivers behind the energy transition are environmental, but that is not the only reason the transition has picked up pace recently. There are clear economic and technological drivers and these combined factors are the vehicle to seeing genuine transformation in the energy industry.

Political pressure

With a recent wave of climate change activists and widespread PR campaigns in major cities, there’s increased pressure on politicians around the world to take notice of climate change.

In the UK, activists are protesting financial backing for fossil fuels, meanwhile a Swedish teenager made headlines sailing cardon-free across the Atlantic Ocean. The overall aim is to overthrow the political status quo and put the energy transition on the political spectrum.

The good news is that renewables now receive an overwhelmingly positive perception among the public — particularly in Europe. A 2019 Eurobarometer survey by the European Commission found that more than 90% of people believe ambitious targets should be set to increase renewable energy use.

More than 90% of people believe ambitious targets should be set to increase renewable energy use

Population growth and urbanisation

Booming urbanisation is putting increasing pressure on energy resources, particularly in developing countries that are witnessing rapid growth.

Population growth worsens pollution, in turn accelerating climate change, endangering lives and sustainable development. A shift to renewables is one piece of this complex puzzle.

Improved economy of renewables

Aside from the environmental and political pressures, a key component driving the energy transition is the clear economic benefits of renewable energy.

Solar and wind power generation will grow five to ten times faster than any other power-generation technology will in the next few years.

Despite the heavy upfront investment, the costs of solar and wind energy are now below (or soon to be below) the cost of using traditional fuels. Better still, they are likely to fall further over the next decade, giving renewables an even greater cost advantage.

In many cases, wind power generation is already cheaper than existing gas and coal capacity, for which the only cost is fuel. According to McKinsey, Germany has already reached this point for all renewable technologies, and other countries across the globe are on a similar trajectory.

Thanks to these positive economics, it predicts that solar and wind power generation will grow five to ten times faster than any other power-generation technology in the next few years.

Read more about this in section 5: why are renewables more cost effective than fossil fuels?

Growing demand for electricity

In 2018, there was a 4% rise in global electricity demand, the largest yearly increase since 2010. Renewables met 45% of the increase.

In the coming years, demand for electricity will grow exponentially. This is largely down to the electrification of sectors like construction, transport, and industrial. Not only this, but as business digitisation increases, the need for electricity for data processing, storage and server capacity is driving huge energy consumption.

Demand has significantly increased in Asia. Due to advances in public transport electrification and other business growth, China is expected to see the most substantial increase in energy needs, growing 3.5% — the highest since 2012.

“We have reached the point at which politicians, scientists, public and now also business leaders are in agreement about the need for urgent action to address the climate emergency.”

Michael Phelan, Chief Executive at GridBeyond

Technological advancement

As renewable energy is considerably more intermittent than burning fossil fuels, there are natural peaks and flows in energy distribution. In order for renewables to be a viable energy source for the future, state-of-the-art technology must link these assets together and manage this intermittency.

From automation to AI, new tech has facilitated a global shift away from heavy industry to service-based energy market. Read more about GridBeyond’s advanced technology.

Overall, all these factors can be distilled down into three main pillars driving the energy transition; decarbonisation, decentralisation and digitalisation, also known as the 3 Ds. We will go on to explain these further, but first read how pressure from industrial and commercial businesses is helping to drive the energy transition.

Explaining the energy transition 3 Ds

Whilst there are a number of factors driving the energy transition, most can be categorised into one of the three key pillars. Known as the three Ds — decarbonisation, decentralisation and digitalisation — these elements are key to creating the green energy of the future. Here’s what each represents:

Decarbonisation

Decarbonisation is mostly about addressing climate change, but also about moving primary fuel supplies away from carbon-based fuels, and encouraging more widespread electrification.

Whilst the influx of renewable energy sources means that the grid is more sustainable, renewable generation can be highly intermittent. The weather is unpredictable, solar and wind cannot be relied upon, which creates problems with the balance of supply and demand, and in turn impacts the frequency stability.

Decentralisation

Decentralisation refers to the trend of moving away from the large energy plants and dispersing generation across many smaller plants.

In the 70s through to the 90s, there were a handful of very large plants covering the energy needs of each country. All of these plants backed up one another, and could each be called upon to cover stress events. Today there are many thousands of generators across the UK.

As older, carbon emitting plants reach the end of their lives, replaced with wind farms, solar fields, hydro/marine generation and biomass, decentralisation is increasingly prevalent.

Digitalisation

A carbon-free future requires more complex integration, so technology for the energy market has significantly improved such as Demand Side Response and battery technology. These improvements are opening up new possibilities and changing how power systems function.

The core infrastructure of the grid is still using similar switches to those used in the 1940s, however. This means there are some further upgrades and investment needed to realise the full potential of technology.

“For over a decade now, GridBeyond has been proudly working on introducing new decarbonisation and energy efficiency technologies to the market. We will continue our efforts to support the transition of the UK’s economy into a carbon-free, digitalised and decentralised model.”

Michael Phelan, Chief Executive at GridBeyond

Read more about the significance of the three Ds in this blog, and find out how they each will contribute towards a carbon-free energy future.

How will the energy transition impact businesses?

The shift to carbon-free energy production will deliver both challenges and opportunities to businesses.

Risk to resilience

A widely distributed network with decentralised assets presents inherent risks with intermittency. Renewable energy is far less constant than burning gas or oil. As a result, businesses need means of ensuring the security of their energy supply and business resilience.

Opportunity to become a ‘prosumer’

Historically, consumers and businesses were passive in the energy transaction; they were at the end of the line. Businesses simply received power and paid a bill. Now there are opportunities to take a more active role in the market.

“As part of the energy transition, consumers and businesses will have opportunities to be more proactively involved in their energy consumption and supply. This is also known as being a ‘prosumer’.”

Wayne Muncaster, Managing Director at GridBeyond

Enhanced business efficiencies

Businesses that proactively contribute towards the energy transition by investing in renewables, contributing in technologies like Demand Side Response and energy productivity will be the greatest beneficiaries of the opportunities presented by cost savings and efficiencies.

A more cyclical energy marketplace

The greatest opportunity for businesses, as well as their potential influence on their own energy demands, is their impact on the energy market as a whole.

Not only can consumers decide how much power is being used at a particular time, businesses can also invest in their own generators and storage. That means greater resilience and power in the market, and opportunities to act as independent power generators themselves.

Benefits from regulation

Regulators are increasingly interested in the energy market and its stakeholders. An example of this in Britain is Ofgem’s recently released a paper outlining the importance of flexibility and the need to regulate these flexibility platforms. Ofgem’s RIIO-2 is underway to encourage network companies to put stakeholders at the heart of their decision making processes, and to reduce network costs for businesses.

Learn more about the impact of the energy transition on industrial and commercial businesses as well as how to tap into the potential opportunities by requesting access to the on-demand webinar — Demand Response in the Net-Zero Era

Why are renewables more cost effective than fossil fuels?

The energy transition is not simply dictated by political drivers or environmental factors; there are clear economic benefits to switching to renewables. But why?

Historically, one of the biggest drawbacks of renewable energy was its generation cost. Solar and wind energy could not be generated at utility scale without subsidies and government support. Now, manufacturing costs have come down and technology has vastly improved, the raw material costs are negligible.

“As the cost of electricity from renewable sources is now decreasing, we’re reaching a point at which renewable energy is becoming cheaper than burning fossil fuels. In many countries across the globe this crossover has already occurred.”

Wayne Muncaster, Managing Director at GridBeyond

There is now a proliferation of renewables across the developing world, with India and China set to lead the charge.

Wind and solar are increasingly competitive

Bloomberg New Energy Finance (BNEF) has published research on the cost of electricity production across the globe.

According to BNEF the cost per hour (in USD) of:

  • Onshore wind has dropped from $85 to $83 globally
  • Offshore wind has dropped from $176 to $174
  • Solar has dropped from $129 to $122

Even in heavily traditional energy markets like the GCC, renewable energy is now the most cost-effective source of new power generation. Wind and solar are increasingly the answer to the region’s fast-growing domestic energy needs.

Traditional energy is becoming more expensive

At the same time as costs are coming down for renewables, the price of producing energy using traditional fuels like coal and oil is going up. According to the same BNEF research:

  • Coal has jumped from $82 to $105 in Europe and climbed from $66 to $75 in the Americas and from $68 to $73 in Asia-Pacific
  • Combined natural gas plants have increased from $103 to $118 in EMEA and also reached $82 in the Americas and $93 in the Asia-Pacific

Batteries are reducing in cost

The single biggest argument for the importance of renewable energy is that, as previously outlined, demand will grow far more quickly for electricity than for any other energy source.

Battery technology, despite being relatively new in markets, is increasingly cost effective. This is because storage is expanding whilst the costs are reducing. Now we’re seeing countries like Australia investing in large-scale battery projects.

To find out more about the changes in the energy market and how these changes are delivering economic opportunities, watch our on demand webinar: Energy trends in the global marketplace.

The role of independent generators

One of the core drivers of the energy transition is market decentralisation. This means a clear movement away from the small collection of vast power plants requiring hundreds of megawatts to participate. Instead there is a proliferation of smaller generators with only tens of megawatts in assets.

So, what role will these generators play in the energy transition?

Consumers are less dependent on the grid

In the last six years, almost £3bn has been invested in over 6,800 independent generation projects. The independent generation sector is now capable of powering almost 8.4m households, meaning less dependence on the grid network.

More active participants in the market

As part of the energy transition, renewable generators must become more active participants in this new, flexible market.

As we enter an era in which generators are increasingly expected to ‘stand on their own two feet’, projects will be seen not just as renewable energy generators but as flexible assets able to take advantage of multiple revenue streams.

Risk distribution

With active participation by independent generators in Demand Response technologies, the risk of intermittency from renewable sources can be more evenly distributed.

With a far greater number of independent generators than the traditional, centralised model, outages and failures can be covered seamlessly with the use of smart technology and battery usage.

This enhanced backup process needs intellectual and financial buy-in, however. Read more about the role that generators will play in the energy transition in the blog, Practice via Power Cut: Prep for our Future Grid?

How does technology enhance the energy transition?

In the 70s to 90s, the global energy market was focused on balancing supply and demand on networks like the national grid. There were only a handful of large plants that managed an entire country’s requirements, and they relied upon each other to cover stress events.

As part of the energy transition, the market is increasingly decentralised. With that comes a far greater need for next-generation technology to manage the relationships between a vast number of widely distributed suppliers.

As renewable energy is far more intermittent than carbon fuels, advanced technology is essential to balancing the supply and demand of these sources.

Here are some examples:

Artificial intelligence

Managing demand and supply across multiple locations from thousands of generators is incredibly hard for the human brain. With intermittent renewable sources, predicting stress events whilst managing peaks and troughs, is impossible.

Advanced technological platforms, powered by AI and machine learning, enable large energy users to fully control their energy assets and embedded generation, improve production processes and predict and prevent system failures.

“The answer to climate emergency lies in technology. Technology that enables the integration of more renewable energy into the grid, technology that ensures demand is always met by secure supply.”

Michael Phelan, Chief Executive at GridBeyond

Machine learning

By consolidating data from several sources, machine learning is used to simultaneously ascertain the best way to use energy both on a business’ site and within the energy market. These include:

  • Asset optimisation
  • Price optimisation
  • Balancing services & Demand Side Response

Such technologies support the energy transition by driving renewable energy systems towards a cleaner, safer, more flexible and more resilient electricity grid.

Battery storage

Battery technology is a game changer in the energy landscape. It facilitates a global shift towards renewable energy and goes hand in hand with the technology we find in electric cars and mainstream use of decentralised energy such as solar panels and hydropower.

Battery technology is the gateway to lucrative Demand Side Response schemes. This tech is gaining popularity with companies looking to strengthen their operations through energy resilience, reduce energy costs at peak times and improve their green credentials.

GridBeyond’s hybrid battery and demand network intelligently rotates energy consuming assets within the portfolio based on their flexibility capabilities, filling in any gaps with the flexibility of the network of batteries that underpins the system.

Read more about the energy transition and how the answer to the climate emergency lies in technology in our blog.

How does Demand Side Response boost sustainability?

When it comes to balancing energy needs from intermittent and widely distributed renewable sources, there is a requirement for sophisticated technology integration.

For every action that is taken on the supply side, there needs to be an equal action on the demand side. The technology behind this process is Demand Side Response. Expanding this technology, moving beyond manual shedding of large loads, is a relatively recent phenomenon, with Europe and the United States currently leading growth.

So how does Demand Response contribute towards the energy transition and boost sustainability?

Demand Response enables the integration of more renewable energy into the system, which also allows for the balancing of capacity issues or unexpected drops, and allows for a more distributed, risk-free system.

“Technology is essential to balancing renewable energy activities. Not only does Demand Response ensure the system stays secure and always maintains supply, it’s a way of allowing us to put more renewables back into the system. The energy market becomes more cyclical for businesses and suppliers; instead of a one-way street you end up at a roundabout.”

Wayne Muncaster, Managing Director at GridBeyond

By linking and monitoring individual equipment through data, it allows for demand to be matched to the needs of the overall system in real time. This can be achieved with smart metres, smart appliances, electric vehicles and load management software.

On a basic level, reduced demand and increased generation can be delivered without smart technology. But to ensure the most intelligent and timely decisions are made, whilst leveraging the opportunities available through Demand Side Response, storage, EVs and the wholesale market, a site requires a highly sophisticated platform.

Data identifies efficiencies

Demand Response is a more cost-effective and climate-friendly measure facilitating the integration of variable renewables than building new power plants or electricity storage.

By gathering data, GridBeyond’s intelligent platform can identify and understand energy patterns to see where efficiencies can be made. The same platform uses operating parameters and schedules to optimise resilience.

Energy consumption patterns can tell us a lot about the status of a piece of equipment. Early signs of failure create alarms within the system for review and action.

When using a unified technology platform, like GridBeyond Point, these decisions are automated using machine learning algorithms. Find out more about how Demand Response contributes to a sustainable energy strategy by reading our blog, What is a holistic energy strategy?

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