Dr Paolo Frankl talks about the key factors driving the renewables momentum in the power sector, and how to address energy security challenges in a low-carbon energy transition.
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Recent IEA reports suggest that renewables have been the most resilient energy source to COVID-19. As the pandemic evolves, what are some of the potential challenges ahead for the renewables sector and how can they be addressed?
Our extensive and in-depth analysis has confirmed the resilience of renewable energies to the COVID-19 crisis in 2020 compared with other fuels. According to our estimates, renewables are the only energy source that saw any growth over 2020 as a whole. This is in sharp contrast with estimated falls of 9% in oil demand and 5% in coal. The overall impact is an unprecedented shock to world energy demand, which declined by an estimated 5% in 2020.
However, the impact of the crisis is not uniform across different renewables sectors. The resilience of renewables is mainly due to the sustained growth of utility-scale renewable electricity, in particular solar PV and wind, leading to a remarkable increase by 7% of global renewable electricity generation in 2020. However, other renewables technologies or applications have been impacted more heavily and require intensified policy attention.
For example, deployment of distributed solar PV — rooftop solar installations in residential, commercial or industrial settings — has been significantly affected, as the willingness of households and small businesses to invest is severely limited in the current context of economic crisis and strong uncertainty. At the same time, the IEA Sustainable Recovery Plan, which we published in June, clearly indicates that distributed PV is among the energy technologies with the largest potential for job creation per unit of investment.
Another renewable sector to suffer a heavy blow is transport biofuels, which are facing their first annual decline in output in two decades, due to the unprecedented double hit of reduced gasoline and diesel demand combined with lower oil prices. Urgent policy action is needed to limit this trend.
More broadly, the COVID-19 crisis and the increased uncertainty in energy demand and prices it has caused have exacerbated existing challenges for renewables. I see three major ones. Firstly, policy uncertainty remains a strong barrier to investment in several countries. In the current crisis, it is more vital than ever that governments do three things: reaffirm ambitious long-term targets; consistently simplify administrative and permitting procedures; and consider including renewables in economic recovery packages where appropriate. This last aspect should take into account the structural benefits that increasingly competitive renewables can bring in terms of economic development and job creation while reducing emissions.
Secondly, the lack of affordable financing is still an issue in several emerging and developing economies, including in Southeast Asia. This can be linked to factors such as lack of policy transparency, the financial stability of utilities, or complex processes for acquiring the needed permits and land, for example. These factors can hamper investor confidence and lead to risk premiums and higher financing costs.
Thirdly, with variable renewables such as solar PV and wind rapidly transforming countries’ power mixes, secure and cost-effective system integration is increasingly important and requires the development of power system flexibility in terms of technologies, grids and operational practices. That was the focus of the 2nd Global Ministerial Conference on System Integration of Renewables held as part of SIEW 2020.
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What are the emerging technologies and energy integration systems that are pivotal to enable deeper decarbonisation of the power sector while meeting growing energy demand?
Renewables take the central role in decarbonising the power sector in all the long-term scenarios in the IEA’s World Energy Outlook (WEO) 2020, which was published in October. In the Stated Policies Scenario, which reflects all of today’s announced policy intentions and targets, renewables meet 80% of the growth in global electricity demand between now and 2040. Hydropower remains the largest renewable source of electricity, but solar is the main source of growth, followed by onshore and offshore wind. The role of renewables is even stronger in the Sustainable Development Scenario — which puts the energy system on track to achieve sustainable energy objectives in full, including the Paris Agreement, energy access and air quality goals. In that scenario, renewables account for more than 70% of global electricity generation by 2040.
Thanks to impressive cost reductions of more than 80% over the past decade, solar PV is the leader of this growth. In most countries where affordable financing is available, solar PV becomes consistently cheaper than new coal- or gas-fired power plants, and solar projects offer some of the lowest-cost electricity ever seen.
The rapid expansion of solar PV and wind brings new challenges in terms of secure and cost-effective system integration due to their variable output. The technological solutions are well known – power system flexibility resources in all their forms. This means stronger grids and interconnections; dispatchable power supply, from both renewable and non-renewable sources; affordable storage; and demand-side response.
What may be less well understood is the required pace of investment and deployment of all these flexibility resources to match the fast expansion of solar PV and wind. This requires strong policy attention and stakeholder involvement. Failing in doing so could lead to significant system costs, and ultimately even to unbearable electricity security issues. I wish to particularly emphasise the need for policy attention on grids, as they require adequate long-term planning and careful stakeholder and community involvement to navigate long construction times and significant social acceptance issues.
Lastly, attention to institutional and contractual structures is important to ensure optimal usage of flexible technologies in the overall system. In many emerging economies, design of power purchase agreements may require attention and fine-tuning to avoid lock-in effects, allow for merit order dispatch, and keep total system costs and curtailment of variable renewables under control.
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In your view, what can be done to accelerate renewables adoption in Asia-Pacific to match the output of coal-fired power plants, especially in Asian countries where coal remains a dominant source of energy?
First, we must recognise that while the costs of solar and wind are increasingly competitive in India and China, this is not true in all Asia-Pacific countries. It is a fact that levelised costs of solar PV generation in some Southeast Asian countries can be more than twice as expensive as in Germany. This surprising difference can be explained by persistent perceived risks, including country risk, policy and regulatory risk, and revenue and credit risk. These perceived risks lead to significantly higher financing and ultimately generation costs.
So, the first requirement to accelerate renewables adoption in the Asia-Pacific region is for governments to create conditions that reduce the cost of financing and attract investment. This includes the development of supportive policy design, clear and predictable implementation of reforms, and improved investment frameworks. These can include risk-mitigation instruments to reduce risks related to the financial viability of utilities.
The second main priority is to ensure that incumbent players become part of the solution. For example, business models should make sure state utilities see a business case for the deployment of renewables rather than perceiving it as a source of economic loss. This includes the careful assessment and modification of contractual frameworks (like take-or-pay contracts for the supply of fossil fuels) that may be a major source of inflexibility and resistance to change.
Moreover, compensation measures may be envisaged in the case of stranded assets and sharp reduction of economic activities, as in the case of domestic coal mining. In developing economies in Asia, existing coal-fired plants are just 12 years old on average, meaning they could continue to operate for decades to come.
The socio-economic effects of a rapid deployment of renewables on the economic lifetime of these assets — and the resulting impacts on supply chains — must not be neglected. The experiences of some carbon-intensive economies in Europe have shown that addressing these kinds of impacts from clean energy transitions requires careful stakeholder consultation and involvement – and may call for transitional assistance measures in some cases.
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The IEA Electricity Security Report was released in October to coincide with the 2nd Global Ministerial Conference on System Integration of Renewables (SIR), which took place this year during SIEW 2020. How should policies addressing energy security issues evolve in line with the ongoing clean energy transition?
First, let me remind and emphasise how crucially important electricity security is for modern economies. Electricity is used in practically all aspects of our everyday life. The COVID-19 crisis has further highlighted electricity’s role underpinning vital services in hospitals and the technologies that allow teleworking, online shopping and social contact, even during lockdowns.
The high degree of electricity security we enjoy today in many countries is based on centrally controlled systems, i.e. with few actors in the supply chain, and dispatchable power plants that can supply electricity when needed and provide system stability through their large scale. Recent technology and policy developments — notably the trends of decarbonisation, decentralisation and digitalisation — as well as climate change impacts are now radically changing the power sector and electricity security paradigm that prevailed for a century.
A key and innovative feature of the IEA Electricity Security Report is that — for the first time — a study addresses three main challenges at the same time:
- System integration issues in clean energy transitions resulting from the rapid deployment of variable renewables and decrease of dispatchable sources;
- Increased cyber risks due to both decentralisation and digitalisation, with large amount of interconnected devices interacting in the power sector;
- Changing weather patterns and extreme weather events, which are the main cause of major power system disruptions.
All three challenges call for important changes and updates in electricity security policies and regulations, encompassing planning activities, technical standards and investment frameworks. The report identifies best practices and lessons learned. It also provides a set of recommendations regarding institutional frameworks establishing clear responsibilities, incentives and rules; measures to identify, manage and mitigate risks; and protocols to monitor progress, respond and recover, including through emergency response exercises.
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What were the key takeaways from the SIR Ministerial?
There was a three-fold message from this important Ministerial Conference.
First, ministers and senior policy makers to recognised and reaffirmed that enhanced attention to and policy focus on system integration issues is a necessary precondition to unlock the huge potential of renewables — in particular solar and wind — for a deep and cost-effective decarbonisation of the power sector. Policy frameworks must have a system-wide approach, taking into account all forms of flexibility — including stronger grids and interconnections, dispatchable supply generators, affordable storage systems, demand-side response devices. They must also develop market structures that enable the optimal utilisation of these technologies. In particular, policy and regulatory frameworks must ensure that the pace of deployment of system flexibility matches the rapid expansion of solar and wind.
Second, the industry highlighted the impressive progress in technology and the many solutions and opportunities it brings. Companies have been extremely effective in recent years in bringing renewables to cost competitiveness with conventional power plants. Now they must engage with the new challenge of making variable renewables more system-friendly. Several solutions are emerging. These range from hybrid approaches, which combine different renewable sources with each other or with storage devices, to innovative options, such as “grid-forming” converters that contribute to system stability in the case of disturbance events.
Last but not least, the importance of international cooperation, grids and interconnections, and regional approaches to electricity security were also emphasised at this session. Grids are an important source of flexibility, as larger interconnected balancing areas smooth out the impacts of variability on power systems. What’s more, grids — particularly smart grids — are also an important enabler of other flexibility sources, as they can interconnect variable renewables with storage, dispatchable supply and demand-side response devices. One example of this is the efforts by ASEAN to create ASEAN Power Grid.
Grids are also enablers of regional power system integration. Experience in Europe and Latin American has shown that an integrated approach to transmission planning, investment frameworks, regulations that balance the enabling of cross-border integration and domestic priorities, and knowledge sharing can lead to efficient and cost-effective solutions.
Paolo Frankl is Head of the Renewable Energy Division at the International Energy Agency (IEA),
which he joined in 2007. Dr. Frankl leads the IEA’s work on renewables, providing analysis and advice
on policies, markets and technologies to 30 Member and eight Association countries.
A physicist by training, Dr. Frankl holds a Ph.D in energy and environmental technologies from the
University of Rome and has been post-doc Marie Curie research fellow at INSEAD business school in
Fontainebleau, France. Dr. Frankl has 30 years of experience working on renewable energy systems
and markets, life cycle assessment and eco-labeling