The Art and Science of Energy Transformation
Despite the usual perceptions, energy companies run under constant pressure to provide revenue savings from their power generation systems. Devising the right approach to energy transformation has, in almost every case, a need to be custom designed for its particular complexities. And every transformation is not the same/ Issues like regionalism, geography, legacy issues, infrastructure maintenance, municipal governance, workforce elements, and the communities they serve are all dimensions that need attention.
All these factors run under the ever-growing demand for energy. According to the IEA report, electricity demand is growing slightly less than 5% a year on average (source) and though renewables can stem a portion of the growth, continued use of carbon-emitting sources has increased to meet the demand. A crucial issue is this: retirements are going to eclipse the new generation so capacity growth will not meet demand.
With these ongoing pressures, energy companies need to be confident they can provide a reasonable safety net for their customers, ensuring that coal plant workers aren’t substantially impacted and forced into unemployment and poverty while taking on the massive changes in any region it serves. Having been responsible for providing the necessary power for decades, coal plants ensure energy and economic certainty in rural or underserved areas. Abrupt closures can devastate a region that is usually economically challenged and unable to cope with a major shift in power supply. For example, the recent Texas freeze could have been avoided if reserve margins has been maintained. Or look at security in Germany. They are restarting coal plants because they had an overreliance (or high exposure) on Russia for their natural gas supply.
In any scenario, whether is reactive or intentional, there needs to be a plan in place that is about action and measurement. Any plan must include:
Define the vision. Better to be aspirational. While you won’t hit the metrics laid out in your vision, it will yield more aggressive results and galvanize the team.
While the vision might be tough to reach and at a high altitude, there has to be a low altitude clear and measurable objectives that can be achieved. These can be short-term (next five years), medium-term (next 20 years), and long-term (next 50 years).
Define the right metrics! This should be carbon emission reductions, NOT integrating renewables! Calculate everything in terms of cost per ton of carbon emission reduction. In some markets, coal plants can be closed and new renewables can be installed with minimal cost and reliability impact. In other markets, the cost and reliability impact may be cost prohibitive. In other markets, keeping a coal plant online (and running it at minimal levels during system emergencies) may actually be the best approach to integrating more renewable generation and other technologies on the grid.
In addition to having the right plan to implement, creating value for the future of a region dependent on coal brings with it a level of understanding of the systems operationally as well as valuing the people who depend on these systems at all levels. It takes real-world experience to assess all of these factors while determining opportunities in environmental and operational risks that would go with any transformation. Importantly, transformation strategies should be focused on “going all-in right away.” The “going all-in right away” strategy provides a landscape of Incremental approaches that provide time for market solutions, government and regulatory solutions, and technology solutions to emerge.
Energy’s often overlooked critical factor is the power grid itself. Decades have passed since the last major overhaul of the three primary United States power grid systems and according to the Department of Energy 70% of the US transmission lines are more than 25 years old. Most are older and designed for a 50-year lifespan, and almost 90% are more than 40 years old. (source)
Demands on the power grid have grown more complex over time with the addition of industrial and consumer goods that require large and/or constant power consumption to operate. Electric vehicles (EVs) are an obvious increase in consumption, yet the most challenging factor is that EVs move, they can draw energy from anywhere there is a road and a charging station. For municipalities that run end-of-life coal plants, this is an unexpected demand on their power grid.
There is also an opportunity to upgrade the grid beyond the traditional approach of adding more lines and substations.
Customers can own their own generation. Even residential customers own rooftop solar and battery storage technologies. Designing the grid in a way that can integrate all generation and load technologies in a way that preserves or improves reliability at the least expensive cost will be critical to navigating the transformation.
Other factors like the increase in temperatures, cyber-attacks, and frequent power outages, can create levels of unplanned energy loss over large power grids.
Solar, probably the most visible of all alternative energy sources, is also beset with hurdles many do not see in federal, state, and local governments. Communities and municipalities are put into the position of making complicated decisions about installing solar and making sure their constituents are clearly educated about the benefits is equally as complicated.
The challenges are also exacerbated by social and political ambitions, with the goal set by the Biden administration of a 100% clean electricity grid by 2035, which means that in 15 years, to meet the hundreds of gigawatts of demand, installations of solar energy would need to be increased up to 500 percent. (source) Importantly, the key is to be where demand is needed. For example, all the solar in in Texas does not solve problems in the northeast. Easy to have measurement metrics, but they have to be the right ones.
Though it is expected that by 2050, 90% of all energy that is generated will be attributed to renewables, (source) the variability of solar still stresses a strategic approach to using renewables as a collection of solutions but not be dependent on only one. From solar farms to household panel systems, all these are factors that push and pull on the power supply for service regions. And with solar being weather-dependent, it reinforces the need to plan for renewables as a portfolio of power sources. We need more advanced storage solutions, solar installations, small scale nuclear implementations, and hydrogen opportunities.
Building the right approach that meets regional, financial and social impacts, your ESG strategy will depend on the right mix of metrics and milestones to build a framework that incorporates governance, planetary impact, and people measures.
From NGOs to workforce safety to calculating EPDs (Environmental Product Definitions) (source) that measure carbon, from raw materials down the supply chain. All aspects of your approach need to be measured against your goals, your communities, your workforce, and your financial resources.