College/OVO Energy claimed that just adding residential flexibility in domestic energy use (including for electric vehicle charging) could reduce whole-system costs by up to £6.9 billion per annum or 21% of total electricity-system costs. It was suggested that these savings could more than offset the cost of upgrading the power system. That does seem credible for some of the options. For example, introducing variable time-of-use energy tariff charges requires no capital outlay but would lead to reduced peak energy use and user costs and also lower system costs (Ovo/Imperial 2018). In all, it has been suggested that, if fully developed, system flexibility and integration could save the United Kingdom up to £40 billion by 2050 (Bairstow 2019a).
As noted above, as the renewable proportion goes up, so do the balancing costs, dramatically so in some modelling, for contributions of 70%, 80% and above. So savings like this would be welcome. However, there could be more savings to come if renewables expand even further. While balancing costs will rise until most power demand is met from renewables most of the time, after that any further expansion of renewable capacity, while requiring capital investment, will not incur extra power grid-balancing/backup costs. It will actually reduce the need for backup (more power would be available more often), while increasing the surplus that will be generated at times of low demand. The extra surplus would not be needed for balancing but would be available for heating, transport or export, or maybe conversion to hydrogen for these purposes, if that was the most lucrative option. In the latter case, more power-to-hydrogen conversion plants would be needed, but in either case the costs would be offset by the earnings from these end uses and the reduced system-balancing costs.
So a low-energy cost/high-renewables future may be possible, even given the need for balancing. That is certainly what a range of new scenarios propose, even those extending to supplying all energy, not just electricity. For example, the updated 2050 scenario produced by Professor Mark Jacobson and his team at Stanford University in California suggests that a system supplying 100% of global energy from renewables will not cost more than the current system and could actually be cheaper per kWh, even given the use of variable sources. Moreover, since it would avoid the increasing cost of fossil fuels and also the social and environmental costs of using them, it could be significantly cheaper overall (Jacobson et al. 2017).
Similar conclusions have emerged from studies by LUT University in Finland in conjunction with the Energy Watch Group (EWG) in Germany. They claim that 100% of energy, globally by 2050 or even earlier, is possible and would not cost more but in fact slightly less in direct cost terms: energy-generation costs would fall from €54/MWh for the system used in 2015 to €53/MWh with the new system, with balancing/storage, in 2050 (Ram et al. 2019). Note that neither the United States nor the European group saw nuclear as playing a role, not least because, as well as being expensive, it is inflexible and unable to balance variable renewables.
Making cost predictions so far ahead is obviously hard, and there have been queries about the use of projected average global capital costs for the calculations (Egli, Steffen and Schmidt 2019), given that there may be important local variations. However, that is difficult to predict, whereas the LUT researchers believe global-trend projections may be more reliable (Bogdanov, Child and Breyer 2019).
How rapidly can all this happen?
Although these scenarios sound very positive, and the supply and balancing costs look manageable, can the expansion of renewables for all energy, not just electricity, really be achieved on the timescale they suggest? As noted in chapter 1, some critics think not. For example, leading energy analyst Vaclav Smil concluded that ‘replacing the current global energy system relying overwhelmingly on fossil fuels by biofuels and by electricity generated intermittently from renewable sources will be necessarily a prolonged, multidecadal process’ (Smil 2016).
New technology development, and more so system change, takes time, but the view that it is inevitably a slow process has been challenged (Lovins et al. 2018; Sovacool 2016). It has been argued that the transition to 100% renewable electricity could occur much more rapidly than suggested by historical energy transitions (Diesendorf and Elliston 2018), with concerns about climate change helping to speed the process.
The recent pace of development and take-up of PV and batteries, as well as electric vehicles, certainly suggests that change can happen quickly. Although there has been no shortage of speculation over the likely impact of ‘destructive innovation’ of this sort on energy industry incumbents, there have been proposals for the very rapid expansion of renewables in response to what some have portrayed as a climate emergency, for example to around 80% of UK electricity by 2030 (Greenpeace 2019). The global Extinction Rebellion campaign even called for ‘zero carbon’ by 2025 in an attempt to shift the definition of what is politically possible, so as to make it more in line with what is deemed scientifically necessary for ecosystem survival (ER 2019).
However, although the public mood may be changing, especially amongst the young, and renewable growth continues, it is wise to be a little cautious about what can be done in practice and how quickly it can be done: it may take time, and the political context sometimes does not support too much optimism. Support levels for renewables have been cut in many countries so, some say, the initial subsidy-based boom may falter.
Certainly, although investment levels have risen over the years, they have recently fallen off (BNEF 2019; IEA 2019b). Part of that may be due to the fact that new projects are cheaper, so less capital is needed to get the same energy output and economic return. Nevertheless, with less investment, the overall rate of capacity growth has slowed, with annual additions falling. Even so, cumulative capacity and output are still rising, and that looks set to continue in the years ahead (Wartsila 2019). Moreover, given the political will, it could be accelerated. For example, a study by the German BDI industrial forum suggested that getting renewables to near 90% of power by 2050 in Germany as part of an 80% greenhouse gas emissions-cut scenario could be technically feasible with the necessary support. Going further to a 95% emissions cut, with renewables supplying 100% of electricity, and also meeting other energy demand, was conceivable but was likely to be very expensive. The BDI said that would be challenging socially and also economically if Germany tried to do it alone without other countries adopting similar approaches (BDI 2018).
I will be looking at the overall cost of transitions like this in chapter 8 but, for Germany, the BDI put the overall net additional investment needed, set against the likely savings, at around €470 billion and €960 billion respectively (for the 80% and 95% emissions cuts) by 2050, or roughly €15 billion and €30 billion per year, around 0.4–0.8% of Germany’s gross domestic product (GDP).
That is all a little speculative and some way off, whereas for the moment the reality is that, although funding programmes are continuing, investment-level growth in Germany and elsewhere is falling. Some critics argue that the recent fall in investment is due to the realization that renewables are expensive and that supporting rapid expansion with subsidies passes on unsustainable costs to consumers or taxpayers. That argument has been used in Germany, where guaranteed-price feed-in tariffs, which were very successful at building up renewable capacity, have been cut back and replaced by competitive project auctions in order, ostensibly at least, to cut the subsidy cost to consumers. The result has been a slowdown in renewable capacity build, which some see as the real aim, given the apparent hostility of some of the energy utilities to rapid renewables expansion that was undermining their markets. The economics of renewables can certainly be contentious: for example, they are allegedly getting cheaper, so why have consumer costs risen (see Box 2.2)?
Box 2.2 System costs, balancing and renewable economics
According to an OECD/NEA report, between 2008 and 2015 the use of low marginal-cost variable renewable energy had ‘caused an electricity
