The energy landscape is changing. More and more, renewable energy plays a larger role on how we generate and consume power. Fundamental differences between traditional power generation technology and renewable sources requires an overhaul of the entire energy industry, from infrastructure to business models, creating the electric grid of the future. Three of the biggest differences, which this blog post will explore, are: variability, decentralization, and digitalization.
In the last few years, news sources from around the world have published stories with titles such as: “Denmark runs entirely on wind energy for a day” (link), or “Portugal runs for four days straight on renewable energy alone” (link). But why just a couple of days? Why can’t Denmark, Portugal, or even the US run on renewable energy constantly if it had the generation capacity to meet its demand? The quick answer is variability.
While in the past the electric grid relied solely on fixed capacity energy generation sources, such as coal or gas power plants, with the rise of wind and solar energy, variability in the generation of energy becomes an important and unpredictable factor. When the wind won’t blow, or during long streaks of overcast days, power generation is low, and demand can’t be met. The opposite is also true. Due to a lack of viable large scale energy storage alternatives, when there is too much wind, or during periods of low energy consumption, power is wasted.
As governments incentivize the adoption and use of renewable energy sources (link), the electric grid of the future will need better energy storage solutions for renewable energy to become a real alternative source that meets the needs of the future.
Previously, energy generation was concentrated in large, capital intensive, power plants built by utility companies. As energy generation technology advanced, new, less complex generation methods were developed. The rapid decline in renewable technology and generation costs, the rise of site-specific solutions, and small scale economic feasibility, have all contributed to the rapid expansion of distributed generation. Companies and individuals took advantage of the reduced complexity and cost, investing in their personal power generation systems (link). In the last decade, the energy grid went from a one source, multiple consumers model, to a multiple sources and multiple consumers model.
The change in the fundamental flow of energy between generators and consumers also highlights the need for deep fundamental changes in how the power grid is structured. An electric system that looks to efficiently combine multiple, variable, renewable generation sources, needs to be interconnected, moving energy from source to where it’s needed efficiently.
In recent years, with the increasing digitalization of our environment and the rapid growth in information and communication technology deployment, the power grid has become more and more responsive to the real-time energy needs. Combining real-time information about energy needs with decentralized and variable energy sources can result in more efficient power grids, where the energy produced is consumed, without waste. At the same time, the immediate transfer of information can create a new kind of energy marketplace where prices can also fluctuate in real time, due to real responses in capacity and demand. In a future where homes will be filled with connected devices, and IoT has permeated daily life, micro-power management can replace old, centralized methods. (link)
As renewable energy continues to gain traction, and countries around the world achieve their clean energy goals, systems, business models, and existing infrastructure will need to be updated to completely enjoy the benefits of these alternative sources of energy. The digitalization, decentralization, and variability of the power gird will pose new challenges and opportunities, changing the traditional perception of what a modern power grid is.
Diego Garza is an MBA student at Duke University, The Fuqua School of Business and a Community Revitalization Fellow at the Development Finance Initiative.