Speed, the forgotten cost reduction factor in the energy transition

Summary

To keep global warming below 1.5 °C, our energy systems need to be carbon emission free latest by 2050, and many countries have pledged to do so. A high-level model was built for a fictitious economy called Utopia to assess three pathways towards a zero-carbon economy by 2050: a gradual (linear) replacement of fossil fuels by clean energy, an accelerated pathway leading to a carbon free system by 2035, and a delayed pathway, in which replacement takes place from 2035 onwards. The model yields very clear results. The accelerated pathway is not only 21% cheaper than a gradual phasing out of fossil fuels, with accumulated savings of $4 trillion over a period of 30 years, but also the climate wins, with emissions reducing from 32.7 GT to 13.1 GT over the same period. On the other end of the spectrum, the delayed transition is 20% more expensive than the gradual transition, and a whopping $7.7 trillion more expensive than the accelerated pathway, with 4 times higher emissions of CO2.

It should be noted that the main driver of the cost difference of the three pathways is the price of carbon. Running the model without a price on carbon yields a level playing field regarding overall cost for the three pathways. Of course, in the accelerated pathway, CO2 emissions are much lower than the gradual or delayed pathway, which should be an incentive in its own right.

Introduction

The modern energy sector has always been a major source of greenhouse gas emissions, but in recent years, clean energy solutions have been developed that are quickly changing that. With increasing deployment, economies of scale and ever higher efficiencies, modern renewable electricity is now on average cheaper than conventional fossil power and quickly replacing coal, natural gas, and oil power stations all over the world. Renewable electricity can be used directly or used to produce clean molecules such as hydrogen or ammonia, with the ability to fully replace all fossil fuels, also in non-electric sectors. To achieve the Paris Agreement implies a zero-carbon energy system latest by 2050. This paper compares three global, high-level pathways towards that goal and quantifies the relationship between transition speed and overall cost and CO2 emissions.

Utopia

To assess the different pathways, “Utopia” was conceived, a fictitious, developed economy with several hundred million inhabitants in a moderate climate with good renewable energy resources. The people of Utopia drive cars, heat and cool their houses and they have developed several industries based on steel and other mined products. They also grow their own food, for which they produce fertilizers. Their current final energy demand amounts to 10,000 TWh per year and consists of 20% electricity, while 80% comprises natural gas for heating and fertilizer production, coal for power production and steel making, and diesel for transport. Utopia has a well-developed energy infrastructure for electricity and natural gas. In recent years Utopians have adopted an ambitious green electricity strategy and half of Utopia’s electricity is now produced by wind and solar power. Utopia is a signatory to the Paris Agreement and aims to fully decarbonize its economy by 2050. In many ways, Utopia looks like Europe. The current annual final energy consumption of 10,000 TWh is not expected to change because energy efficiency measures keep pace with demand growth. Utopia’s least cost expansion models show that direct electrification should increase 2.5 times to cover 50% of all final energy by 2050, which is roughly in line with global assessments done by the IEA and IRENA. For the remaining 50% of final energy demand, Utopia will use green hydrogen, since their models show that the existing gas pipeline and storage system can be used, which makes hydrogen the cheapest solution. Hydrogen will be used as a transport fuel in addition to electric mobility, to produce high temperature heat, to make steel, fertilizers and chemicals, for cogeneration of electricity and heat and to balance electricity supply and demand. Table 1 shows Utopia’s energy mix in 2020 and the projected mix in 2050.

Table 1. Utopia's energy mix in 2020 and 2050
Table 1. Utopia’s energy mix in 2020 and 2050

Model and pathways

For Utopia’s energy system, a high-level cost model was built, using parameters and input described in Table 2. The values for solar, wind and green hydrogen and their development over time were taken from Lazard’s most recent Levelized Cost of Energy Analysis – Version 14.0 and the IEA, whereas other sources were used for the cost of conventional power and fuels. The costs of fossil fuels are assumed to be constant over time until 2050, because frankly, nobody really knows. However, as one of the main policy tools to drive the energy transition, Utopia introduced a carbon pricing mechanism, with CO2 currently at $50/ton until 2025, at $100/ton between 2025 until 2030 and $150/ton thereafter. In addition to generation cost, the cost of electricity grid expansion and additional storage and flexibility has been considered. Utopia has a well-developed infrastructure for fossil fuels, and hydrogen can use the gas grid, natural gas storage infrastructure and fuel distribution system at no or marginal additional cost compared to the current situation.

Table 2. Modeling input parameters
Table 2. Modeling input parameters

Using above parameters, three global pathways were calculated and compared: a gradual development pathway, with solar, wind and hydrogen growing linearly and gradually replacing fossil fuels, both for power production, transport, and industrial uses, until 2050, an accelerated growth pathway, where solar, wind and hydrogen replace fossil fuels by 2035, and lastly, a delayed growth pathway, in which green energy starts replacing fossil fuels after 2035. Overall annual costs were calculated and aggregated over the period 2020-2050, considering a 2% inflation rate. Figure 1, Figure 2 and Figure 3 show the key metrics of the gradual, accelerated and delayed scenario over time.

Figure 1. Key metrics of the gradual scenario
Figure 1. Key metrics of the gradual scenario
Figure 2. Key metrics of the accelerated scenario
Figure 2. Key metrics of the accelerated scenario
Figure 3. Key metrics of the delayed scenario
Figure 3. Key metrics of the delayed scenario

Table 3 contains an overview over the energy mix development for the three modelled pathways, as well as their cumulative costs and emissions for the Utopian society.

Table 3. Three energy transition pathways: gradual, accelerated and delayed
Table 3. Three energy transition pathways: gradual, accelerated and delayed

Figure 4 shows a comparison of the cost and cumulative emissions for the three scenarios.

Figure 4. Comparison of the cumulative cost and emissions for the three scenarios
Figure 4. Comparison of the cumulative cost and emissions for the three scenarios

Conclusion

As can be seen from the modeling results in Table 3, there is a clear winner when comparing the three transition pathways for Utopia. The accelerated pathway is not only 21% cheaper than a gradual phasing out of fossil fuels, with accumulated savings of $4 trillion over a period of 30 years, but also the climate wins, with emissions reducing from 32.7 GT to 13.1 GT over the same period. On the other end of the spectrum, the delayed transition is 20% more expensive than the gradual transition, and a whopping $7.7 trillion more expensive than the accelerated pathway, with 4 times higher emissions of CO2.

It should be noted that the main driver of the cost difference of the three pathways is the price of carbon. Running the model without a price on carbon yields a level playing field regarding overall cost for the three pathways. Of course, in the accelerated pathway, CO2 emissions are much lower than the gradual or delayed pathway, which should be an incentive in its own right.

Change is hard, and the accelerated pathway introduces a lot of change in a very short timeframe. Many people and organizations will most certainly try to put the brake on the transition, as we have seen in the last decades. We should also realize that such a tectonic shift in a compressed timeframe will certainly not only produce winners, and many assets will have to retire before their economic life would have ended. Many jobs will be lost, although new ones will be created, and it will not be easy to re-direct all the workforce in the new fields. But the message is clear, a faster transition is better and cleaner. And when certain arguments are made to slow down the transition, we should ask ourselves at what price we are willing to accept that.


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Frank Wouters

About the authors

Frank Wouters is Senior Vice President New Energy at Reliance Industries Limited, Director of the EUGCC Clean Energy Technology Network and Fellow at Payne Institute for Public Policy. He formerly acted as Deputy Director-General of the International Renewable Energy Agency (IRENA).

Ad van Wijk

Ad van Wijk is part-time Professor Future Energy Systems at the Delft University of Technology (TU Delft) in the Netherlands. He is also guest professor at KWR Water Research Institute​. Amongst others, he was awarded the titles of Dutch entrepreneur of the year in 2007 and Dutch top-executive in 2008.

Experts Weigh In on Green Hydrogen’s Role in Grid Stability

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Green hydrogen is hydrogen fuel that is created through renewable energy technologies. Electrolysis powered by renewable energy splits water molecules into hydrogen and oxygen, capturing and storing the hydrogen for use as a fuel. Using renewable technologies like solar makes this process completely carbon-free. Green hydrogen is one of the newest tools being considered on the path toward a carbon-free future.

We asked green hydrogen experts to address the following question: Do you foresee green hydrogen playing a key role in grid stability in the transition to 24/7 100% renewable electricity?. Reviewing their answers, we discovered the following key takeaways:

  • Green hydrogen has the potential to play a key role in grid stabilization due to its unique capacity to store carbon-free energy for extended periods of time.
  • Advancements in policy, technology, and infrastructure are necessary to make green hydrogen more viable for widespread use.
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Janice Lin

President of the Green Hydrogen Coalition and
Founder and CEO of Strategen

“Grid reliability has always been achieved by using energy storage to balance electricity production with electricity demand. In the past, we relied on fossil fuel-based storage. Today, we have much cleaner alternatives such as battery storage. However, transitioning to 100% renewables requires long-duration storage for firm dispatchable power during multiday events when the wind doesn’t blow or the sky is very cloudy.

Green hydrogen is one of the few scalable means to achieve this goal and fully displace fossil fuels for power generation. As an energy carrier, green hydrogen can store mass quantities of renewable energy in the form of a fuel ⎯ a renewable fuel that can be used to generate power and displace fossil fuels in many other applications and sectors. Green hydrogen can not only provide seasonal energy storage to displace natural gas, but more importantly, it can be used in the same equipment and infrastructure that we currently use today. It means that green hydrogen can help facilitate an affordable energy transition.”

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Stephen Lamm

Director of Sustainability at Bloom Energy

“Green hydrogen is essential for grid stability in the transition to 24/7 100% renewable electricity. The grid is a multidimensional system, requiring a balance of electricity supply and demand. As renewable penetration increases, we lose some continuity on the supply side, particularly seasonally. Energy storage is then required to balance the grid. Green hydrogen is an exciting storage medium because of its ability to be stored in very large quantities for long durations (months, not hours) and be moved over long distances. The flexibility that green hydrogen provides will be critical to the design and operation of advanced power systems of the future.”

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Alex Yip

Associate Professor, Department of Chemical and Process Engineering at the University of Canterbury

“Green hydrogen is a relatively new good and has the potential to create an entirely new economic sector. Less than 1% of the hydrogen produced worldwide today is “green,” or created predominantly by using wind and solar power. To satisfy the demand for green hydrogen, we need additional pathways of production. The capacity of hydrogen produced from biomass is easier to forecast and design because biomass resources are reliable and predictable. We must radically change our hydrogen production by enhancing hydrogen yield from renewable woody biomass paired with CO2 capture, reuse, and mineralization. Assuming enough green hydrogen is generated from various renewable sources, I foresee green hydrogen playing a key role in grid stability in the transition to 24/7 100% renewable electricity.”

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Professor Ad van Wijk

Professor of Future Energy Systems at TU Delft

“Hydrogen will play an important role in balancing renewable intermittent electricity production, electricity demand, and grid stability. Hydrogen is a cost-effective way to store energy in large quantities for long periods of time and can complement battery storage. But even more important is that fuel cell technology can provide very flexible and cost-effective electricity to the grid. These fuel cells can be installed in buildings or in neighborhoods, where they can also provide heat. Fuel cells in cars, vans, trucks, buses, and boats can provide flexible power to the grid, with the advantage that the hydrogen can be supplied independently from the electricity grid.”

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Nupur Shah

Founder of SustainBhoomi Renewable & EV Consultancy
Policy & Regulatory Expert with Masters in Green Technology

“Green hydrogen adoption will play a vital role in increasing renewable adoption and will provide grid-balancing services. It will improve the return on investment on renewable assets. Fluctuations in energy supply and demand can cause grid instability. Green hydrogen provides the option for long-term storage, which can help balance the difference between energy supply and demand. Green hydrogen can be produced and stored during times of low demand and can be deployed during times of high demand. Improvements are needed to make green hydrogen more economically viable, including technological advancements, a robust hydrogen infrastructure, a conducive hydrogen policy, and introduction of subsidies and rebates from the government.”

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Elizabeth Crouse

Tax Partner & Co-Lead of Power, K&L Gates
Co-Director, Seattle Chapter of Women of Renewable Industries and Sustainable Energy

“Yes, eventually. While natural gas is a solution for grid stability right now, the grid ultimately must transition to an alternative power source that is stable and efficient for long-term storage and long-distance transport and that can function as a commodity in applications other than power. Hydrogen is generally well suited for these goals. While it’s true that producing green hydrogen and then converting it back to electricity isn’t the most efficient process, it has the benefit of having completely green inputs and outputs without the need for sequestration or utilization of carbon or the potential for other contaminants. The question is when will we achieve the cost efficiencies and demand for green hydrogen to reach the price point needed to become pervasive in the power and other industries?”

This article appeared on: https://www.mcecleanenergy.org/mce-news/experts-weigh-in-on-green-hydrogens-role-in-grid-stability/