Power shortage made renewable energy stronger

In China, coal shortages pushed prices of solid fuels up to 1,908.20 yuan per metric ton ($299.29), leading to power cuts and industrial shutdowns as generators refused to sell fixed-tariff electricity at a loss. In Europe, the great sucking sounded like a coal-deficient Asian grid emptied liquefied natural gas, along with weak supplies from Russia and the Netherlands, to prop up gas prices. Now they have reached 146.93 euros ($165.74) per megawatt hour, which is six times their level at the beginning of the year.

On the eve of the COP26 climate change conference in November, these decisions raised serious warnings: the transition to zero-carbon energy was being led by the well-meaning naivete, rather than a sober idea of ​​a 21st-century electricity system. . The energy transition must now be reversed in order to provide the world with the safe electricity it needs.

With the end of the year, those predictions don’t seem to end. If anything, the power shortage appears to be pushing away from fuel-based energy, whose volatile prices caused this crisis, and into zero-carbon power, the cost of which was fixed when the project was first developed. Is.

Look at China, which accounts for about a third of the world’s emissions and more than half of coal consumption. The country has seen a huge behind-the-scenes battle over the years between its major coal sector and the decarbonization policies set by President Xi Jinping. Power shortages in September led to an increase in government-mandated solid fuel production to prevent further blackouts. The 371 million tonnes dug up in November was a record, and the equivalent of nearly a year of coal consumption in the EU.

While that mountain of soot has consolidated thin reserves of power plant fuel and brought down prices, little has changed the direction of travel. Coal-fired generation actually fell a year ago in November, as wind and solar took up the bulk of grid power. The head of the China Photovoltaic Industry Association said this month that solar installations in 2022 will grow nearly 50% to 75 GW next year, thanks to the end of renewable subsidies and comprehensive electricity market reforms. That, combined with a forecast by the Global Wind Energy Council of about 45 gigawatts of wind turbines, should break through Xi’s relatively conservative renewable installation plans to keep the pace of growth and China’s emissions from peak years before its 2030 target. should be allowed.

The same pattern is going on elsewhere. By 2026, wind production will nearly double from 2020 levels, producing 3,154.8 terawatt-hours globally, the International Energy Agency reported this month. Solar will lock in on a three-fold expansion over the same period, hitting 2,299.8 TWh and bringing total renewable electricity generation to 11,323.5 TWh, which equates to about 42% of all grid power in 2019.

Fossil fuels are seeing nothing like that trajectory. According to consultancy Rystad Energy, upstream oil and gas investments will not recover to their pre-Covid levels this side of 2025. Advisor Wood McKenzie says the reinvestment rate, the share of upstream cashflow that goes to develop new petroleum fields, will remain close to a record low of 40% in 2022. With rates so low, oil companies aren’t betting on the future of petroleum demand – so why should anyone else?

Fuels have some significant advantages that won’t go away, even as renewable energy takes up a substantial portion of the electricity mix. It is precisely because they are so easy to store and transport that they have seen such dramatic price swings in recent months. Even with battery back-up, there is no wind or solar generator that can respond quickly to sudden large-scale changes in power demand.

Still, the point at which the share of variable wind and solar starts implementing really challenging expenses on the grid, well above where we are now, is likely to be in the region of 80%. In the UK, electricity bills have declined over the past decade, even as access to renewable energy has increased from around 10% to above 40%.

Meanwhile, the bankruptcy of a group of British energy suppliers in recent months has provided a powerful lesson about the dangers of being caught in the middle of a regulated retail electricity tariff and a volatile wholesale goods market. Long-run futures prices for European natural gas have risen by about a third from a year ago, making production through that route markedly less attractive. For utilities and major consumers of energy, aligning their expenditures with a higher share of renewable energy seems more important than ever.

That same desire to stabilize companies’ expenses is one of the key functions of modern financial markets. There are $8.9 trillion in interest rate derivatives and $2.4 trillion in foreign exchange derivatives, helping to stabilize transaction costs of hundreds of trillions of dollars. Electricity is heading in the same direction: companies have signed scale-up power purchase agreements to provide access to long-term fixed-price renewables, equivalent to all power plants, through production of 100 gigawatts in October, according to BloombergNEF. Is. UK The capacity for such deals in Europe alone increased by 70% this year due to rising electricity costs.

It is those fundamental cost benefits that are ultimately driving the energy transition, rather than the earnest promises of the authorities. The past year has seen vast and complex supply chain problems at the world’s ports, but no one is suggesting that reversing globalization would be the best solution. Similarly, the transition to a more efficient and low-carbon global electricity system will not be halted as we see unilateral coordination problems in 2021. Power shortages didn’t hit renewables this year. It just made him stronger.

This story has been published without modification in text from a wire agency feed.