Need for Energy Flexibility

Energy Infrastructure is Undergoing an Unprecedented Upgrade

Electricity and heat production represent the largest single source of emissions in the economy. The electrification of transportation and buildings will not result in meaningful emission reductions without a decarbonized power sector.

Energy transition investments are increasing at breathtaking speed. Global investment in the energy transition topped $750 billion in 2021. BloombergNEF estimates that annual spending on the energy transition must increase to ~$2.0T/year from 2022-2025, and then ~$4.0T/year from 2025-2030 to meet global decarbonization targets.

In the U.S., clean energy investment is reaching an all-time high thanks to the Inflation Reduction Act of 2022. The IRA directs ~$400 billion in federal funding to clean energy initiatives. The EIA expects nearly 80% of new utility-scale electric generation capacity added in 2022 was from renewable sources.

Flexibility is the Key to a Decarbonized Grid

The power grid must always remain in equilibrium. Power supply (generation) must always match power demand (load) to ensure the grid’s operating frequency is maintained, 60 Hz in the United States (50 Hz internationally). If supply and demand become unbalanced, the grid’s frequency can deviate from the safe operating conditions causing grid failure, blackouts and significant financial and economic losses. As a result, grid operators pay careful attention to ensure the grid remains stable.

Utility planning has historically involved forecasting demand and building the supply and transmission/distribution needed to meet the peak demand. However, a grid based on intermittent renewables complicates this endeavor, as the supply side must also be forecasted with a high degree of confidence. The electrification of massive new end markets such as heating and transportation additionally increases forecasting complexity. McKinsey estimates the electrification of new end markets will result in load growth of ~40% by 2035- compared to nearly zero load growth over the last 15 years. The challenge of maintaining grid stability is moving from building out enough supply to meet forecasted demand to a complicated, multivariate approach where both variable supply and variable demand must be matched, each minute of the day, every day.

Google’s energy team highlights the issue with renewable intermittency in their whitepaper “24/7 by 2030: Realizing a Carbon-Free Future.” To move to a wholly decarbonized system, we will need to establish large sources of clean, flexible power to supplement large sources of renewable energy. In the image below, Google’s energy team highlights the challenges in matching a data center’s electricity demand with the available supply of carbon-free energy. We need energy flexibility to fill in these gaps.

A renewable-dense energy system requires granular flexibility to ensure grid stability. Fluctuations in sunshine and wind speeds can result in grid instability if no assets exist to “firm up” the power supply. Additionally, peak generation for intermittent renewables may not, and often do not, coincide with peak load demand on the grid, as the infamous solar energy net load “duck curve” highlights:

The duck curve highlights the challenges associated with high solar penetration in an energy system. The lines denote the 'net load' of the California energy grid. Note the trough in the middle of the day- this "belly" of the duck shows how demand for electricity falls as distributed solar production ramps up. In the evenings, however, demand for electricity increases very quickly due to solar production declining. This can create stability challenges for the grid, especially in weather-induced stress.

To integrate clean energy resources like solar and wind, which are considered intermittent resources, grid operators and utilities must find new ways to control electric load (demand on the grid). Additionally, as load growth expands from the “electrification of everything”, demand-side flexibility will become increasingly important in power system planning and operations, such as the use of demand response to shift peak demand locally to defer or reduce investment in grid upgrades. Demand-side flexibility can add resources to the grid without additional transmission and distribution infrastructure and limit the need for additional new build thermal power plants. According to the IEA, 500 GW of demand response resources should be brought into the market by 2030 to meet the pace of expansion required in the Net Zero Emissions by 2050 Scenario, a 10x increase over 2020 levels.

Today, natural gas peaker plants typically serve as the primary source of “flexible power”, as they can be ramped up or down relatively quickly to ensure the grid can balance temporary fluctuations in demand. However, natural gas peaker plants are dirty sources of electricity (fossil-fuel based), inefficient, and expensive to operate. Controllable energy resource aggregations represent a clean alternative source of flexibility to natural gas peaker plants and is the critical unlock for a fully decarbonized grid. Additionally, siting many of these assets at the point of consumption, known as behind-the-meter (“BTM”), will significantly increase the granularity of load control while reinforcing the resiliency of our power system at a time when grid failures are becoming more widespread.

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