During the month of June, Energy Edge is publishing a four-part series exploring how the growth in renewable energy on the grid is changing power prices. Check out our blog each week for the next article.
In Part II of this four-part series, we looked at the increasing occurrence of low and negative power prices when renewable energy serves a meaningful percentage of demand on the grid. In Part III, we discussed how these low and negative prices are impacting fossil generation and the prices they charge for producing energy.
Part IV will explore:
- How will prices continue to change as even more renewables are added to U.S. grids,
- What is the near-term and long-term outlook for fossil generation, and
- What does this mean to end-use consumers.
The growth in renewable energy across the United States in the last five years has been incredible. One might even say it has been an unprecedented shift in an industry that has largely functioned in the same manner for its entire history. The benefits of cheap electricity and a zero-carbon footprint will impact our future for generations.
But what will happen as even more renewable energy is added to our grids?
In previous articles, we have looked at two markets that have had a large increase in renewable generation in recent years, Texas and California. While the two markets have a very different mix of renewable generation (i.e. California has significantly more solar and Texas has significantly more wind), both markets have seen the emergence of low and negative prices during times when renewable generation serves large percentages of demand.
In the near-term, we think these markets are leading indicators for what will occur in other markets where renewable generation is poised to play a larger role in the future. And, as California and Texas continue to add more renewable generation, we believe the pricing impacts that we have discussed throughout this series will only become more pronounced. We think this cycle will play itself out in any market where renewable generation begins to serve a meaningful percentage of demand.1
What markets are most likely to experience this next? A good indication is to look at what states are implementing aggressive renewable or carbon free portfolio standards. EQ Research provides a great graphic of state’s various forms of 100% renewable or clean (carbon free) electricity requirements, see below. This is only one indicator though, clearly Texas’ renewable energy growth was not driven by a strong government mandate, which the state doesn’t have.
In the long-term we believe technological developments, changes in consumer behavior and more closely integrated power grids could all work together to once again change wholesale power prices.
The holy grail in the power industry is battery storage. If this technology becomes scalable and more economic, it will revolutionize how power is delivered to the grid. Excess renewable energy could be stored when economical and deployed when the sun is not shining or when the wind isn’t blowing. From our perspective, this technology is critical for the achievement of a 100% renewable grid.
However, other technological advances and consumer behavior change could have an impact as well. In California where we are seeing low and negative prices during the day, an increase in electric vehicle use coupled with a large buildout of charging stations at employer facilities could help shift some demand to the middle of the day. Industries that can shift usage to periods of low prices can help reduce demand during periods when renewable generation is low.
Integrating regional power grids could also help. This would create a larger market for power and allow for better dispatch and optimization of renewable generation.
Unfortunately, these changes are not on the near-term horizon. These are years into the future if they occur at all. In the meantime, the renewable buildout shows no sign of slowing.
So, how should a consumer approach buying renewable energy in the near-term to manage the uncertain future? Check back in July when we will discuss the issues that large end users of power should consider before entering into a renewable energy purchase.
1 Large hydro-electric facilities as seen in the Pacific Northwest are not considered renewable sources by many in the industry. However, if they were, we would acknowledge these markets have not seen the pricing changes we have discussed throughout this series. Hydro-electric generation, unlike solar and wind, can be stored behind dams and dispatched at controlled times thus creating different pricing regimes.