Last year, Fitzemeyer & Tocci wrote a guide about infrastructure flexibility and resiliency to combat climate change. In that guide, many of the recommendations included some form of building electrification and its benefits. Naturally, a lot of questions came up about how clean the grid really was and if electrification was worth it. As a result, I wanted to share data on some of the factors driving the energy transition, why they are unlikely to change, and why as engineers we should be prepared to leverage this transition for the benefit of our clients much more quickly than many in this field expect or are prepared for.
Renewables have recently become the least expensive source of new electricity currently available on the market. According to Lazards most recent study on the topic, since 2010 the median price of solar has dropped from $250/MWh to $35/MWh without accounting for subsidies. During that same period, wind energy has dropped from $125/MWh to $35/MWh without accounting for subsidies. For comparison, the cost of a new combined cycle gas plant is approximately $60/MWh per Lazard, while the marginal cost of an existing plant is approximately $25/MWh. These numbers make renewables the most cost effective form of new energy in 96% of world markets according to Bloomberg New Energy Finance (BNEF). Solar energy has grown at a compound annual growth rate of 32% over the past decade and wind 16%. These growth rates are expected to continue through the end of the decade. In 2020-2021, total global energy demand grew by about 8 Exajoules; this growth was met almost entirely by renewables. Moving forward, as the rate of renewable energy installations continues to grow, the annual energy supply added will exceed the global growth in energy demand and begin taking market share from fossil fuels, at which point electricity prices should begin to decouple from fossil fuel prices, making electrification more favorable.
Renewable cost is also structured differently than traditional energy sources. While renewables have a higher capital cost, their ongoing O&M costs are significantly lower, primarily due to the absence of ongoing fuel costs. Renewables have limited maintenance costs, and no fuel costs meaning they are almost completely insulated from short term price volatility as the result of geopolitical events such as the war in Ukraine. This means that renewable energy prices are more stable over the long term and can therefore provide better cost certainty. Once electricity prices decouple from fossil fuel prices, the case for electrification will only be strengthened.
Reliability is always a concern given renewables intermittent energy output. This intermittent output is primarily a geographic constraint. While it is true that short term energy output can fluctuate greatly based on local weather conditions, it is also true that these same conditions (when averaged out over the course of a year) result in consistent energy output year-to-year. The goal then is to match this consistent annual output to a much more variable demand. Ways to do this include short- and medium- term storage to get through momentary loss of production (storing excess energy generated during the day for use at night is probably the best example of this), reducing the impact of geography by increasing interregional transmission capacity (it may not be sunny here right this minute, but it is always sunny somewhere), and developing business plans and cost structures that capitalize on the resultant seasonal fluctuations in energy production. As renewables penetrate deeper into the market, the opportunities and financial incentives to implement solutions similar to the above will increase, the barriers to implementing them will fall, and the market will reorganize and adapt. One need only look at any technological revolution in the past 100 years to see how this cycle will ultimately play out, from cars replacing horses in the transportation sector, to natural gas replacing coal in the electricity sector.
Short term grid reliability can be enhanced by the distributed nature of renewable resources. When energy is being generated close to its point of use, the potential of large-scale disruptions caused by natural disasters is reduced. This has been repeatedly seen over the years with the most recent high profile example being the solar powered suburb of Babcock Ranch in Florida receiving little if any power disruptions despite a direct hit from Hurricane Ian, a category 4 storm at the time of landfall. This is in direct contrast to the approximately 2.6 million who lost power as a result of that storm. Closer to home, distributed generation can help alleviate congestion in New England’s limited natural gas grid and can help to avoid capacity shortfalls when the natural gas grid is taxed during a cold snap. More natural gas can be prioritized for heating while renewables pick up the added electricity demand. This feature of being able to distribute renewable energy generation much more easily than conventional power plants gives it an edge over fossil fuels in these situations.
Renewable energy is now inexpensive enough and has a large enough manufacturing and installation base that it can meet most if not all the world’s growth in energy demand. If current growth projections hold, the renewable installation rate will soon exceed the total growth in energy demand and begin taking existing market share from fossil fuels in earnest instead of just competing for new market share. We are in the midst of a global transformational energy change and as engineers and architects it is important to be informed of this trend so that the buildings, we design are best suited to take advantage of this. More to come.
Aaron Valentine, EIT
Mechanical Project Engineer