Just a few years ago, renewables were an interesting but evolving niche in the energy landscape. True, it was an area rich with potential. But it faced big issues around intermittency and unpredictability, was based on still-maturing technologies, and was dominated by visionary start-ups rather than solid, well-funded players.
Almost while nobody was looking, renewables grew up and joined the energy mainstream. For evidence, look where the money is going. In just a decade, global deployment of renewables has gone from less than US$20 billion to $300 billion a year, and now represents close to one-third of the global addressable infrastructure market.
Hardly a niche. On the contrary, renewables have passed the tipping point to maturity and emerged as a fully-fledged industry. So now the question is: What happens next?
The answer is that renewables is set to go to the next stage in its evolution. And it’ll be propelled there by five powerful trends that I’ve labelled the five “D’s.” As these forces play out, their combined effects will fly in the face of widely held preconceptions about renewables, creating an industry truly fit for a competitive, low-cost, low-carbon energy future.
So, what are the five D’s? And what signs are we seeing of their impacts so far?
First, dispatchable. Renewables will become more dispatchable, and open up new pools of value through digital and storage technologies. Evidence? In the United States, much of the utility-scale solar is now being developed with storage, improving control over solar output. In late 2017, Tesla finished a 100 MW battery next to the Neoen wind farm in Australia in record time. And the grid services market in territories like the United Kingdom and United States is opening up for renewable generators who can extend their business to grid-scale batteries.
Second, digital. Rising use of digital technologies is continuing to drive down the costs of wind operations and maintenance (O&M) and the construction of utility-scale solar. Witness the explosive growth in onshore wind over the past decade to account for almost 7 percent of global installed energy capacity, driven by its status as one of the world’s most cost-competitive energy sources. And in solar, there’s a huge opportunity to use digital to optimize designs in ways that maximize yield, enhance the supply chains for solar panels, and improve the labor (and automation) required for construction.
Third, divide. The “digital divide” between the large renewable operators and smaller renewable players means the operational performance gap between them will continue to widen. Fact is, the largest renewable players (>5 GW) are much better performers than the smaller ones (< 2 GW). Why? Because the large players are investing in digital, leveraging data from multiple farms to drive up service performance and move to condition-based or even predictive maintenance. By contrast, smaller players are often tied up in full-wrap OEM service contracts, and may not even have access to their own data. To compete, smaller players will need to find ways to share infrastructure and tools.
Fourth, diversity. A wide array of deep-pocketed entrants—oil companies, traders, automotive, and even tech players—will compete head-on with renewable generators for the same customers and value pools. It’s a far cry from the industry’s historical mix of traditional utilities, start-ups and financial investors. And the value pools they’re fighting over won’t just be power purchase agreement (PPA) customers, but also grid services and capacity.
Fifth, demand. Together, the Renewable Energy 100—now actually 125 strong—and consumer demand aggregation are changing the way renewable demand is met. Last year, corporations bought 5.4 GW of clean power. And this amount is growing fast, with an expanding flow of PPAs signed with commercial and industrial (C&I) customers, cities and financial institutions. We’re also seeing a trend toward communities and cities purchasing clean power directly, with California being a prime example.
In combination, these five D's will take renewables to the next stage. But what will that stage look like? In my next several blog posts I will drill down into each of these trends in turn, exploring their specific implications and impacts. Some of them will really surprise you.