Renewable energy is becoming a mainstream energy form and a preferred source driven by several market trends. The 3 key elements bringing this about and allowing solar and wind to compete with the more conventional sources on an equal footing are parity, integration and technology. Grid parity happens when solar and wind can generate power at a cost and performance level equal to or less than electricity generated from conventional methods. Solar and wind have reached parity in many regions and their integration can help solve grid problems. At the same time new technologies continue to hone their competitive edge.
As solar and wind power come closer to meeting three key energy consumer priorities in cost-effectiveness, decarbonization, and reliability they will play an increasing role in creating smart renewable cities.
Modular, consumer-driven and evenly distributed power generation is replacing the traditional model of large top-down and centrally distributed power generation. Renewables are no longer thought to be difficult to integrate into the grid. Conversely, they are now helping to strengthen grid reliability and resilience. The application of blockchain, AI and other automation technologies make renewables self-optimising, increasing their effectiveness.
The United States is expected to rely on non-hydro renewables more and more as we enter the final months of 2019, namely onshore wind and utility-scale solar. These sources are estimated to account for 10% of it’s total electricity in 2019. Although this may not seem like much it’s a huge improvement on almost nothing at the beginning of the century. This is only going to get better in the future.
It is looking likely that onshore wind and utility-scale solar will provide at least 30% of America’s total electricity by 2030 as a result of falling costs, improving technology and supportive state policies. Though in fact it’s very possible that all renewable sources including hydroelectricity, small scale solar and others could generate nearly half of the nation’s electricity by that date.
However, reaching this point requires some help from two emerging technologies primarily energy storage and offshore wind.
It is simple to understand the promise of energy storage. Owners of wind farms and solar farms or a rooftop solar array could rely on batteries to level out the daily or weekly generation profile of their assets. For example, batteries could allow a solar asset to deliver electricity at night and motivate larger solar farms to store overflow energy captured during the day for use when required. However Residential and grid-scale energy storage products face a familiar obstacle with cost.
Debating the ins and outs of energy storage costs can be difficult as the economics very much depend on the application whether small-scale versus utility scale or short duration versus long duration. You must also take into consideration the specific materials used in the device. Although energy storage only makes good financial sense for a limited number of applications today indications are that the technology is beginning to find ways into the crowded energy market.
Tesla (NASDAQ:TSLA) is currently manufacturing lithium-ion batteries for both small and large scale customers. In the third quarter of 2019, Tesla deployed a record 477 megawatt-hours of storage across all customer types, representing year-over-year growth of 99%. Today, most of the company’s business comes from grid-scale projects which may likely receive a big boost soon.
In the fourth quarter of 2019, Tesla will begin distributing the Megapack which is a 3 megawatt-hour battery for both utility and industrial customers. Not only is the size important but so, too, is the ability to manufacture it as a single unit. This will reduce the per-unit costs as well as having the potential to add important growth to the company’s energy storage business in 2020.
Meanwhile, energy storage is beginning to make financial sense for homeowners too, in an increasingly competitive residential market. Enphase Energy (NASDAQ: ENPH) is getting ready to launch its third-generation battery system which offers configurations of 3.3 kilowatt-hours and 10 kilowatt-hours. The idea behind the lithium-ion based system is for it be coupled with rooftop solar arrays and include an inverter which is this company’s speciality, communications, and management software. The smaller unit is modular, allowing for systems to scale with a customer's needs.
Installing a solar storage solution like the Enphase battery allows consumers to store solar power at home for them to use later when electricity is more expensive.
As with other energy storage products, the Enphase AC battery is sized for day-to-day use in the owners home, and is usually installed alongside a home solar panel system. Solar energy is stored at home in the Enphase battery pack instead of sending it back into the electric grid. Later, electricity stored in the homeowners Enphase home battery can be used instead of having to buy it from the homeowner’s utility.
Enphase Energy has high hopes for Encharge. The company estimates that soon its energy storage initiative will be able to increase the revenue per home from $2,000 today to over $10,000. Enphase thinks that as new products are rolled out, it will be able to tap into the entire global residential battery market by 2021. This is expected to be a 3,000 megawatt-hour opportunity that year with the potential for hypergrowth.
The almost non-existent offshore wind power industry in the United States finally appears to be picking up momentum after suffering several false starts and delays over the years. It currently has only 30 megawatts of offshore wind power operating despite the country boasting a pipeline of about 25,000 megawatts which could technically support over 10 times that amount.
New York state wants to have 9,000 megawatts of offshore wind operating by 2035 and has recently closed the deal on two new projects totalling 1,696 megawatts. Both Empire Wind from Equinor (NYSE:EQNR) and Sunrise Wind from a company of the same name are expected to come online in 2024. They will be watched closely by investors.
Equinor, formerly known as Statoil, has an ambitious long-term strategy that relies heavily on managing its offshore oil production expertise to adapt to offshore wind projects. It has got off to a great start, the company and a partner recently winning an auction to build a 3,600-megawatt project off the coast of the UK increasing its total offshore wind portfolio to 5,550 megawatts of owned and shared capacity.
The virtually untapped coastal waters of the United States provide an attractive and enormous growth opportunity for Equinor, especially in the Atlantic. It is taking advantage of this market by positioning itself as an early adopter in order to reap the greatest rewards. Having said that there is still a long way to go.
Empire Wind’s contract specifies electricity at just under $84 per megawatt-hour double the price of inshore wind in the United States. The cost of offshore wind power is expected to continue to fall. Bloomberg New Energy Finance estimates the global average price fell 32% since 2018 but the pace of the decline might determine how the potentially vast U.S market develops.
Solar and wind are already more efficient and cost-effective than conventional sources, and evolving technologies will continue to improve their price and performance. Combining the economic benefits with a low environmental impact, we can expect to see renewables continue to move from being an acceptable energy source to a much preferred one.
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