People who believe and act on these claims expect a result. But it won’t come. They are then disappointed in their exaggerated expectations, and when they are disappointed, they often reject expedient things.
What statement do I mean. Renewables will provide us with cheap energy in the long term. The expectation, which I think will be disappointed, is that the consumer will not feel the cheaper energy on the bill. From time to time, cheaper energy will appear on the stock exchange, even on the short-term market, and at times when the consumer will not need the energy.
But let’s take it one step at a time. The truth is that PV, wind and hydro have zero fuel costs, so we can simplistically say that they produce the cheapest energy in terms of variable costs. But on the other hand, they produce it not when the consumer needs it, but when the conditions are right (wind blowing, sun shining). So from the point of view of the trader or consumer, this energy is not of the same value as energy whose supply is guaranteed.
In addition, wind and photovoltaics often work in tandem, creating periods of surplus energy that does not find a consumer. Photovoltaic generation also largely misses the morning and evening peaks of energy demand. This overlap, and the inability to produce consistently, introduces externalities into the system. What do I mean by externalities? Firstly, it is the need to have additional resources on the grid that will not be operated at optimal times during the year, but will be used during periods without renewable supply. These resources will have to dissolve their fixed costs into a short period of generation or have their costs offset through capacity or other payments.
From the point of view of distribution and transmission, renewables require significant investments in the grid, up to 500 billion, and these investments will be paid for by consumers, either in the regulated component that we pay for energy or from the state budget and therefore from taxes.
Once we have these sources, we will need to support the ability to use the electricity generated from them to the maximum extent. Promote accumulation (batteries, phase transformation…), use in transport, transformation into hydrogen. This, of course, entails further investment and the need for subsidies, which are ultimately also collected from the end consumer.
From a business perspective. The trader takes responsibility for delivery, which he tries to secure on the market by forward purchases, which he optimises towards the time of delivery according to the state of the portfolio and market prices. Accepting the risk in terms of an unsecured supply from renewable sources is not of adequate value to the trader, the risk of non-delivery or deviation is too great relative to the potential profit.
Another externality is the cost of deviation. With increasing randomness in production, or even on the consumption side, which has embedded in it its own production, the probability of not managing the deviation increases, and thus its highly volatile and probably increasing price can be expected. I’m still talking about the business models that are in place now, where renewable generation is being “thrown in” uncontrollably.
So, the bottom line is that renewables have low variable costs, but harnessing energy from them entails additional costs and investments that make the overall operation of the grid more expensive, and their uncontrolled expansion is more likely to lead to higher prices for the end consumer than lower ones.
It is not about the maximum installed capacity, but the conditions for efficient use
So does it make sense to focus on building a renewable generation portfolio? Definitely yes.
What I have described is a situation where, without changing the system, we are trying to get production into standard energy and business models, which has its own distinct specificities and would not have come into existence at all without subsidies.
On the other hand, if we look at it from a long-term perspective, the development of nuclear power plants also took a considerable amount of time. The inclusion of large, poorly regulated blocks carried similar initial doubts.
Why is that? It is an inexhaustible source of energy. He’ll just be here with us and the “fuel” will still be free. No dependencies, no OPEC, no Putin, just zero entry and affordable.
From the point of view of at least partial supply, located as close to consumption as possible, designed so that everything that is produced is consumed in the same place, there will be some reduction in the cost of the power component of energy and some compensation for dependence on the market.
Further, whether we want to or not, if we calculate all the carbon and other footprints, we will probably conclude that it is a production that is significantly less burdensome on the environment.
What lies ahead is not competition for maximum installed capacity in renewables, but the creation of conditions where the maximum amount of renewable energy produced reaches the consumer and is consumed efficiently. This will reduce CO2 production and that is why we do it. It’s really no longer about building renewables mindlessly at any cost, but about embedding them sensitively into systems, energy centres, balancing production and consumption, adjusting consumption and storage. And that is exactly what we are trying to do at ORGREZ ECO.
Vladimír Hlavinka, owner of ORGREZ