Feb-2022

Renewable energy transition: challenges and opportunities in the power sector

Addressing the top five challenges in the renewable energy transition will likely create global, cross industry opportunities for innovation, investment, and partnerships.

Jim Thomson, Marlene Motyka and Suzanna Sanborn
Deloitte

Article Summary

As many economies across the globe develop roadmaps for the energy transition, planners are considering what it will take to decarbonise electric grids. The answer almost always includes boosting renewable energy generation. While that has been under way for some time in many countries, the pace will likely need to pick up further to keep up with decarbonisation plans. And that means addressing challenges and harnessing opportunities for innovation, investment, and partnerships within and across industries.

Deloitte explored five commonly discussed challenges in the renewable energy transition, and surveyed power and utilities executives in the US to understand their perspectives on these issues (Deloitte, 2021). Figure 1 lists these five challenges and the percentage of respondents who ranked each as number one.

Integrating variable renewables
Nearly half (48%) of the power and utilities industry survey respondents rated “integrating intermittent renewables such as wind and solar while maintaining reliability” as the most challenging issue among the five listed in Figure 1. Despite ranking it as #1 of the five challenges, nearly three-quarters (73%) of our survey respondents said the US can integrate far more wind and solar power than it has now without compromising reliability as long as the industry builds flexibility into the grid and plans ahead to use resources such as energy storage to manage intermittency. And only 15% of respondents said the US should limit additions of wind and solar power due to reliability concerns. The concern appears to be more of a recognition of the investment and effort it will take to integrate these variable resources.

A misperception among the public and even some in the electric power industry used to be that more than 10% penetration of variable wind and solar power on electric grids could destabilise them. But in reality, power systems in some countries and some US states are already operating with more than 50% penetration of wind and solar generation annually, without impacting reliability. In 2020, Denmark had the highest share of variable renewables in its electricity generation mix, at 61%. The US average was 11% in 2020, but it was 58% in the state of Iowa, and 43% in Kansas. Figure 2 maps the top 10 countries for variable renewable energy (VRE) penetration in 2020.

Solutions to help integrate these resources range from redesigning markets and improving weather forecasting, to deploying energy storage and modernising the grid (Deloitte, 2021). Distributed energy resources (DER) are expected to play a big role in integrating VRE. Seventy per cent of respondents said DER will form a big component of the clean electricity grid that will help balance intermittent resources.

Meeting future renewable electricity demand
As the world further electrifies energy use in the transportation, building, and industrial sectors, some are concerned that there may not be enough electricity to power it all — or, in particular, enough renewable electricity. A quarter of our US power and utilities industry survey respondents rated this as their top concern of the five challenges listed in Figure 1. In addition, 65% of respondents said that with corporations, governments, and others increasingly pledging to decarbonise, the US may not have enough renewable energy to meet customers’ demand for clean electricity by 2035. On the other hand, 45% of respondents disagreed, saying that since most new US generation capacity added in recent years has been renewable, and that trend is accelerating, there will likely be enough renewable electricity to meet goals by 2035.

We explored government and think tank models for US electricity generation required under various carbon reduction scenarios (see Figure 3), and it appears that overall power supplies will likely be sufficient, as long as the industry continues long-term, holistic system planning, grid modernisation, demand side management, and integration of DER. As for renewable supplies, the data show that achieving 100% clean electricity between 2035 and 2050 may require doubling or tripling the 35 GW of wind and solar capacity that was added in 2020, every year. This is an ambitious goal and could be assisted by policy support, such as continued renewable tax credits and state renewable portfolio standards, as well as further expediting the process for connecting renewables to the grid. Again, DER could be important, as 73% of respondents saw a role for DER in fulfilling increased electricity demand.

Funding renewables and supporting infrastructure while keeping electricity affordable
The third greatest challenge for the US power and utilities executives surveyed involved the cost of the renewable transition. For many, it is less about the cost of renewables themselves, but rather the investment required to transmit and integrate large quantities of wind and solar power in the coming years. In fact, nearly three-quarters (73%) said wind and solar power are cheaper than many other sources of electricity, but we will need to continue to invest in modernising the grid and adding transmission and storage to integrate these resources. Another 35% said that wind and solar costs have fallen so far that they are increasingly competitive with other generation sources even when they are combined with battery storage.

Nevertheless, a perception persists among many in the public that solar and wind are too expensive, or that they are only competitive with conventional generation plants because of government incentives, such as tax credits. However, a recent comparison of the levelised cost of energy (LCOE) or electricity for wind and solar plants to electricity from conventional sources such as natural gas and coal-fired power plants shows renewables beating coal virtually all of the time (see Figure 4), and competing very well with natural gas-fired generation. This is sometimes the case even without tax credits, which is labelled ‘unsubsidised’. Moreover, costs continue to fall, so increasingly even building new wind or solar plants with energy storage is cheaper than building a coal-fired plant.

Addressing disaster vulnerability
Just 7% of survey respondents rated protecting wind, solar, and storage assets from natural and manmade disasters in the number one spot, and 18% rated it in the top three of the five challenges listed in Figure 1. Renewables have sometimes come under public scrutiny after severe weather-driven power outages, sometimes accompanied by misperceptions about their vulnerability. But more than two in three of our industry respondents (68%) said that wind and solar plants are no more vulnerable to extreme weather than other types of power generation plants. In fact, nearly all types of generation can be impacted by storms, extreme temperatures, and other natural disasters. And weatherisation to reduce this vulnerability can often be economically justified and should be evaluated, regardless of the type of generation plant. Other ways to also help ensure against weather-related outages and provide resilience can include diversifying energy sources; expanding interregional connections; and adding DER such as on-site solar, battery storage, microgrids, and demand response programmes.

Another perception has been that renewable assets may be more vulnerable to cyberattacks than other assets. But in reality, almost all assets face the risk of cyberattacks and require cyber risk management. While agreeing that increasing the number of assets connected to the grid may boost vulnerability by expanding the cyberattack surface, the risk applies across almost all assets. Eighty per cent of survey respondents said it is not clear that wind and solar assets add any more vulnerability to cyberattacks than other types of assets.