The energy system of the future

19 September 2017 by Kristian Holm
In early March this year, a particularly interesting piece of news broke. Few paid any attention to it, and frankly, most probably didn’t care. But for an old wind enthusiast such as myself, it was fantastic news: The Finnish energy company ST1 had teamed up with Norwegian investors to invest 8 billion NOK in two wind farms in Finnmark in northern Norway, with no subsidies. To me, this was the first clear sign that the renewables industry was finally maturing.

Read the statement from St1 

It meant that for the first time ever, we were able to build utility scale energy production facilities, without subsidies. In my book, that’s pretty awesome. And it turned out to be the first example of many. In April, Dong Energy announced their intention to build two offshore wind farms in Germany with no subsidies, relying completely on the wholesale prices for project finance.

And it will definitely not stop with a wind farm in northern Norway and a couple of offshore wind farms off the coast of Germany. The price decline in wind energy in combination with an even more radical decline in the price level for solar energy production, will ensure many new investments that rely solely on the wholesale prices as their financial backbone.

 Input from Lazard's LCOE

Lazard Ltd, an international financial advisory and asset management firm, regularly produces reports detailing the levelized cost of energy (Lazard’s Levelized Cost of Energy), LCOE, for different power generation technologies. Their latest report was published in December 2016 (version 10.0). I have compared this with their report dated February 2009 (version 3.0), and find the LCOE comparison between wind/solar and coal to be in stark contrast to each other. While the energy cost of coal is more or less unchanged, wind has had a cost reduction of 40 percent while solar has had a cost reduction of 60 percent.

What drives the cost reduction in solar and wind?

Since I started working with the development of wind energy in 2004, the main focus within the sector has been on increasing tower heights and rotor diameter. This is due to the energy equation stating that the rotor diameter equals the square of energy output, meaning that the energy production will increase when the rotor diameter is increased. Higher towers will reach higher winds, which in its turn relates to the same equation returning a whopping cubic response in energy output. The result is that wind turbines are getting taller and bigger, and this development will continue, albeit not on the same scale. 

There is a multitude of reasons behind the huge success and the decline in prices for solar energy. The main drivers are economics of scale, the price decline for raw materials, competition, and technological advances, and I believe we will see a continuous decline in the prices. It will undoubtedly be the cheapest form of energy production in the near future with wind being a good number two. 

What about energy storage?

The great team at Lazard also makes a report covering the levelized cost of energy storage (Lazard’s Levelized Cost of Energy Storage). The first version (1.0) was made in November 2015. Version 2.0 was ready in December 2016. Throughout that first year, energy storage had a fantastic price development. The energy storage technologies range from compressed air, flywheels, pumped hydro and hydrogen to various types of batteries (zinc, sodium, vanadium, lead and lithium-ion), but for a typical package for a transmission system, we would most likely select a lithium-ion solution. In 2015, such a storage solution would cost between 347 and 739 $/MWh. In 2016, the same solution would cost between 267 and 561 $/MWh, a price reduction of a whopping 20 % in one year. This cost reduction is best explained by better engineering (higher energy density) and economics of scale. Although the price for raw materials is surging, it constitutes only about 10 % of battery costs. In other words, energy storage prices will continue to drop.

What will the energy system of the future be like, and when will it be ready?

Energy is critical and as we get more dependent on electrical energy by the minute, it will be even more crucial in the future. A Spanish report from 2012 (Linares, Rey; 2012) estimates the 1 kWh of un-delivered energy has a cost of approximately €6. In other words, society is willing to pay much more for reliable energy sources. In its turn, this means, that although solar – especially solar – and wind will be the predominant sources of energy in the future, we will still need a safety harness that can provide energy during low production of renewable energy. I am convinced that this safety harness will be energy storage, but we will need much more. Coal, hydropower and some nuclear power will constitute the backbone of our energy system.

Solar and wind energy has a common denominator: they both require space. Space for generating the winds the wind turbines need and space to collect the energy for the solar panels. In its turn, this means that the energy system of the future will be distributed and energy companies will need to invest more as landowners and be better at utilizing space.

The energy system of the future will be complex with a multitude of different production facilities that will be distributed in the grid. This needs to be coordinated and controlled and must function with a high degree of autonomy. Increased vulnerability will also drive a more condition-based operation based on big data and analytics.

You might wonder when this future will be here. My answer is soon. Much sooner than you think.

About the writer
Kristian Holm
Kristian Holm has been heading the renewables business at KONGSBERG since 2012. He holds a bachelor’s degree in naval design and is currently completing a master in economics. Kristian has been working in the renewables business since 2004 with all aspects of the wind energy business including design, production, and operations of large wind turbines. Between 2009 and 2012 he was heading the production and operations of GE offshore wind.