Written by Evan Byrne, Senior Account Executive in Madano’s Energy Practice.

Last week’s Contracts for Difference auction results show offshore wind at its lowest ever cost. This reflects the trend which will see more and more renewables put on the system.

In the years to come, we can expect to see a range of new grid technologies deployed to enhance distribution and transmission as well as the emergence of micro-grids. These developments could theoretically enable a 100% renewables energy system – a system that does not have to resort to massive overcapacity to meet demand, but what about in the short and medium term?

The most critical issue is ensuring an overarching strategy that clearly outlines the necessary steps to deliver the energy transition successfully. Any successful strategy will need to identify where the pressure points will emerge in the system.

The biggest issue renewables have is intermittent generation and the variability of energy output. Renewables require extensive back-up sources to ensure security of supply. This back-up power has to come from dispatchable energy, namely coal, gas or perhaps even micro-nuclear in the future.

The South Australian Example

If this back up is not in place, or is vulnerable to disruption, there is a risk to security of supply. A good example is South Australia, where generous incentives were awarded to encourage the development of renewable energy generation. Consequently, its network carrying capacity now exceeds 40 per cent. It is expected that this number will rise to 67% by 2025. .

In the South Australian example, baseload quickly became uneconomical, and was effectively forced out of the market. South Australia became dependent on gas, diesel and coal from Victoria (brought in via interconnector) to provide whatever electricity renewables did not. In September 2016, the interconnector to Victoria failed during a storm, and there was a black out affecting the entire state because the renewables generation was unable to meet the demand.

The German Example

Another pressure point that can emerge as part of a push for 100% renewables is the increased dependence on fossil fuels as backup. Germany has one of the highest renewables penetration in Europe, with some of its Bundesländer states using 100% of renewable energy on a regular basis.

However, since the advent of its Energiewende (Energy transition) policy, Germany’s emissions have increased, despite the record level of renewables on the network. This is largely due to the phase out of nuclear in the country, which followed the 2011 Fukushima incident. But  it is also likely due to Germany’s drive to introduce renewables quickly onto the system.

It is easy to point to the failures of the South Australian energy market as an argument against the rapid introduction of renewables. In the case of Germany, those opposed to renewables claim with some justification that more renewables have indirectly led to rapidly growing emissions.

In reality, South Australia failed due to the lack of a long-term strategy. An unsustainable level of renewables penetration was caused by overly generous incentives, which simultaneously rendered other energy sources commercially non-viable, rendering the energy market dysfunctional.

The Energiewende maps out a clear long-term strategy to 2050 and therefore makes the policy easier to defend. While there is an increase in emissions in the short-term, public support for the Energiewende remains high.

The transition of our energy systems to integrate renewables wholesale requires a clear strategy that will anticipate the major issues arising from this process.

There is a pressing need to communicate not just the objectives of the new approach but also the possible issues that could emerge.  

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