Energy Storage for a Decarbonizing Grid (Part 4): Enabling baseload solar and wind
Solar, geothermal, hydro and wind are critical to our path to net zero because of the low lifecycle greenhouse gas emissions generated per unit of energy produced (gCO2e per kWh) relative to coal and natgas.[i]
On a stand-alone basis, only geothermal and hydropower are clean sources capable of providing reliable baseload power. Stand-alone solar and wind generations are known as variable renewables (“VRE”) because output can change due to weather. However, the roll-out of hydropower and geothermal has been significantly lower than VRE over the past decade due to hydro’s siting restrictions and long build times and the geothermal’s exploration limitations and development time constraints.
Baseload power plants are those that have power outputs that do not vary during regular operations. A baseload fossil fuel plant can keep power output relatively stable by modulating the feedstock that enters the plant .Stable baseload power forms the foundation of an electricity grid because it allows grid operators to balance supply and demand, which mitigates brown-outs and power surges. Most baseload capacity in the world is served by coal and natgas plants.
Coal is being phased out due to increasing global awareness of its climate impact
Many governments have passed moratoriums on permits for new coal plants. There is a global trend of financiers deciding to stop funding coal. However, coal still represents over a third of the global energy mix. To ensure a just transition (access to affordable energy), stakeholders need to ensure decommissioned coal plants are replaced with new energy sources.
Fortunately, solar and onshore wind generation are now the cheapest source of electricity in countries representing 91% of global energy generation. The only unified grids left where new fossil fuel plants are still cheaper to build and operate are in Russia, Japan, South Korea, Botswana, Indonesia, Malaysia and the Philippines.[ii]
New-build VRE vs existing fossil fuels
Furthermore, because of soaring fossil fuel prices, the cost of new-build variable renewables is now lower than running existing fossil fuel plants (excluding capex) in the following countries:
However, VRE must be complemented by energy storage systems (“ESS”) to replicate the dispatchable nature of coal-fired generation. This is not only to provide time-matched supply and demand, but also to integrate solar and wind (which tend to be further from load centers) into weak grids with ageing infrastructure.
In China, VRE + ESS will match coal in the merit order in 2025
China and the US are the largest energy storage markets today. In China, ESS capacity is now installed at a ratio of 15–20% of the installed capacity of each solar and wind plant. In fact, coupled storage is a pre-requisite for grid connection in many provinces in China.[iv] In the US, 85% of new solar capacity that entered the queue to connect to the grids in 2021 was coupled with an energy storage system.[v]
New-build solar in China is lower cost than new-build coal and natgas CCGT. Financial analysts are predicting that the Levelized Cost of Electricity (“LCOE”) of new-build solar PV coupled with ESS will be below the average generation tariff in 2025.[vi]
However, the issue with the current dominant ESS technology, li-ion batteries, is that it is economically limited to short durations. See intro to li-ion BESS in previous article
So how do you make energy from a solar plant available throughout the night? How do you synthesize round-the-clock generation from wind? How do you turn variable renewables into 24/7 baseload?
Long Duration Energy Storage (“LDES”) is a group of technologies that are more economical storage mediums over longer durations than li-ion BESS. In the next 5yrs, some LDES technologies are projected to have a levelized cost of storage below li-ion BESS for durations greater than 6hr. This lower cost is critical to creating reliable dispatchable generation below the cost of fossil fuel plants. See intro to LDES in previous article
VRE + LDES can provide reliable baseload by ~2030
Rising li-ion battery metals prices and soaring global petroleum prices are hastening investment into LDES technology providers. ~$1.8Bn was raised by LDES start-ups in the past 12 months alone. This is more than what the sector raised in the preceding two decades.
As with the solar technologies (monocrystalline, polycrystalline, thin film) and battery technologies (lead acid, li-ion, nickel cadmium, nickel metal-hydride), accelerating R&D funding and competition sped up the drop in LCOE and ultimately determined which sub-technology scaled.
Industry associations project LDES capex decreases of 12% — 18% p.a. –slightly below the decreases of solar and batteries before they began scaling.[vii] Because of this, wind and solar generation paired with LDES systems are expected to be economically competitive with baseload fossil fuels in a grid’s merit order in the next 10years.
This is will significantly change the markets particularly in geographies with priority dispatch of renewables or storage capacity revenues.
Earth, Wind and Solar (to decarbonize a grid)
Aggregating wind and solar plants in a portfolio creates a more stable generation profile because the two resources are negatively correlated in many cases –solar peaks at noon while wind is stronger in the evening. However, reliable dispatch can only be assured by utilizing energy storage.
Earth, wind and fire (Storage, wind, and solar) will eventually provide reliable baseload 24/7 at a lower-cost than fossil fuel plants. The example in the California ISO service area is quite telling. California has the highest capacity of LDES pilot and commercial projects, outside of China. With solar and storage penetration growing in the past decade, the share of generation served by even natgas fell significantly. See intro to all-renewables grids in areas with high wind and solar resources
What we need for VRE to replace coal as dispatchable generation
Existing natgas is still crucial to ensuring a just transition and keeping electricity costs low during extreme weather events, particularly in geographies with weak grids. Even with optimistic roll-out scenarios for this decade, VRE and ESS are not scaling fast enough to cease dependence on natgas and ensure affordable energy access in developing markets.
Aside from 20 of the countries listed above, it is still lower cost to produce energy from existing natgas infrastructure than it is to build and operate new VRE, not to mention VRE coupled with ESS.
The case of energy security can be made for developing countries to provide incentives and other favorable non-market mechanisms for VRE and ESS. Recent LNG supply chain constraints and the ever-present geopolitics of fossil fuels have caused price spikes around the world.
Without subsidies though, cleantech costs will still need to drop significantly before new build VRE+ESS can replace fossil fuels as reliable dispatch. The roll out could be hastened by the following:
1. Stabilizing supply chains of commodities and metals: A pandemic-caused shock to supply chains and post-pandemic fulfillment of back orders have increased freight charges. Global petroleum prices have soared due to geopolitical tensions causing volatility in commodity prices and transportation costs. Key battery metals and polysilicon prices have also increased significantly due to increased demand and human rights issues in China and the DRC.
2. Industry standard templates for 24/7 clean Power Purchase Agreements and regulation enabling clean energy procurement: These corporate contracts enable off-takers to source electricity from clean energy sources. Corporates use PPAs to buy electricity directly, indirectly or virtually from renewables. New contracts are designed to optimize costs and price risk for off-takers, which are key to saleability from a corporate’s perspective. However, critical to this is 1) a standardized set of terms and third-party verification so that corporates can appropriately claim reduction in Scope 2 emissions; and 2) Regulation enabling wheeling arrangements. See intro to how large corporates can green operations
3. A workable Energy Transition Mechanism: The decommission and replacement of coal plants is critical to Paris Alignment. However, coal power plant developers are reluctant to take a haircut on their investments. A compromise may be providing blended/concessional finance to developers so that they can 1) convert coal plants into natgas plants, which was done in over 100 coal plants in the US; or 2) convert coal plants into electrothermal storage systems that use molten salt, sand, or silicon to store heat for long durations.
[i] World Nuclear Organization. Carbon dioxide emissions from electricity. https://www.world-nuclear.org/information-library/energy-and-the-environment/carbon-dioxide-emissions-from-electricity.aspx
[ii] BloombergNEF 2H 2021 LCOE Update
[iii] BloombergNEF 2H 2021 LCOE Update
[iv] Jeffries Equity Research. Alternative Energy, Initiating Coverage: Energy Storage System — Powering Path to Carbon Neutrality. 16 January 2022
[vi] Jeffries Equity Research. Alternative Energy, Initiating Coverage: Energy Storage System — Powering Path to Carbon Neutrality. 16 January 2022
[vii] LDES Council and McKinsey. “A path towards full grid decarbonization with 24/7 clean Power Purchase Agreements.” https://www.mckinsey.com/industries/electric-power-and-natural-gas/our-insights/decarbonizing-the-grid-with-24-7-clean-power-purchase-agreements
Disclaimer: This post reflects personal views and not those of the International Finance Corporation, World Bank, or any other member of the World Bank Group