Variable renewable energy generation will transform electricity systems and increase price volatility. To navigate these changes, companies need to be more flexible in the way they consume electricity.
This article is the first in a series exploring changes to our electricity and broader energy systems—and the implications for energy consumers and governments—that will arise from the massive increase in variable renewable energy needed to achieve global decarbonization ambitions. This article lays out the overarching issues we intend to explore, while future articles will focus on specific aspects of the transition.
To achieve net-zero emissions by 2050, we’ll need to increasingly electrify our energy consumption and deploy renewable energy generation at a pace far exceeding today’s—and beyond what governments are currently planning for. But the process brings with it significant challenges: deep penetration of renewable energy, especially solar and wind, will dramatically affect the underlying physics of our electricity systems as well as the economics of our electricity markets.
We believe the effect that deep variable renewables penetration will have on energy-consuming industries and the ability of countries to attract them is not yet fully appreciated. The fact is that more volatile electricity prices will be ever more pervasive.
This transformation of our electricity systems and markets will offer a competitive edge for companies that can be more flexible in the way they consume electricity. This is more than typical demand response. Managing assets as an electricity trader rather than an electricity consumer will allow those companies to harness the price volatility that accompanies increasing penetrations of variable renewable energy, while also improving resilience to shocks. Companies that remain focused entirely on full utilization will need to pay a premium to insure against volatility—or remain hostage to it.
Along with the economic benefits, doing so also will allow them to increase the proportion of renewable electricity that they actually consume, compared with the renewable energy they procure (better matching their hour-by-hour consumption to when the sun shines and wind blows).