The Three Stages of the Energy Transition

The energy transition is not merely about installing solar panels; it’s a comprehensive overhaul of our entire energy landscape. It demands a radical shift in how we power our homes, propel our cars, and heat our buildings. While rooftop solar panels and electric cars are becoming commonplace, we are just beginning a process that will span decades. Currently, renewable sources constitute just 13% of our energy production, and electric vehicles (EVs) make up a mere 1 in 10 vehicles sold.

However, the inevitability of this transition is underscored by a growing consensus on the imperative to decarbonize in the face of climate change. Plus, technological breakthroughs are propelling the cost-effectiveness of clean energy, ensuring a compelling case for change.

The profound impact of the transition resonates across every facet of our lives, unfolding in three distinct stages. The first involves decarbonizing energy generation, phasing out fossil fuels and amplifying carbon-free sources like solar and wind. The second stage revolves around electrification, substituting internal combustion engine (ICE) cars with electric vehicles (EVs) and transitioning from gas-powered heating to heat pumps. The third and final stage envisions the integration of energy generation and consumption into a network of interconnected, intelligent digital nodes, marking a paradigm shift in how we harness and utilize power.

Stage 1: Decarbonize Generation

We are a couple of decades into the first stage of the transition. Incentives and initiatives have aided in the development and deployment of solar and wind energy. We’ve made so much progress that solar and wind are the cheapest forms of energy. In the last 10 years, levelized costs for solar and wind energy have fallen 73% and 43%, respectively, in the United States. And panels and turbines will likely continue to drop in price for the foreseeable future.

Even with these cost advantages, solar and wind make up only 7% of the energy consumed in the US. Solar and wind are intermittent sources, most abundant far from many places where demand is high. We end up with too much solar power some hours of the day in sunny places while the grid struggles to keep up with demand in other areas, especially when the sun goes down. To replace the 57% of electricity currently generated with fossil fuels, we need more transmission and storage.

The grid transmission capacity must be dramatically increased to move electricity from where renewables are abundant to where demand is high: we need to move a lot more power from solar and wind farms in the desert and plains to cities.

We also need to deploy vast amounts of batteries and other energy storage to shift the available electricity from sunny and windy times of day to peak times of demand. Fortunately, the technology of storage and transmission is on an innovation curve similar to that of solar and wind, making them cheaper every year. Even with the added cost of storage, solar and wind are already less expensive than fossil fuels, and their cost advantage will continue to improve.

Just replacing the electricity we get today from fossil fuels is not enough. Our demand for electricity will continue to climb, especially as we electrify transportation and heat. We will likely need three times the amount of electricity in the coming decades. Some doubt if we can really get this amount of electricity from renewables, but we certainly can. Today the committed amount of solar and wind projects yet to be completed are equal to all the electricity in production today. It is not hard to imagine that we could complete this pipeline of projects and continue to develop apace.

Stage 2: Electrification

Decarbonizing our energy requires the electrification of transport and heat. Today, far more fossil fuels are burned for transportation and providing heat to homes, buildings, and industrial processes than that used to produce electricity. 27 quads of fossil fuels are burned annually for transportation, and 28 quads to provide heat to homes, buildings, and industrial processes, totaling 55 quads between them. This compares to 21 quads of fossil fuels used to produce electricity annually.

The electrification phase of the energy transformation is already well underway. EVs are readily available, and unit sales are growing at a far faster rate than ICE vehicles. The total cost of ownership is already comparable and will become much cheaper in the coming years.

Heat pump technology has made heating of buildings and water more efficient and less expensive than piping and burning fossil fuels. Rapidly advancing technology for the generation, capture, storage, and use of heat for industrial production promises to both decarbonize and lower costs.

This is a dramatic change from what exists today. We pipe natural gas to the majority of buildings and homes. There is a gas station within easy reach on any road in the country. It’s a profound change to replace these energy supply chains with electrified delivery systems.

Transitioning heat and transportation will take time. But economic advantages and regulatory policies are already providing the impetus to drive and accelerate the change. The time to transition should also provide time to increase electricity production and build out infrastructure to meet the increasing demand resulting from electrification. The total US electrical generation stands at 38 quads. As mentioned above, heat and transportation totals 55 quads of fossil fuel energy. It is likely we will need two to three times the amount of electricity generated today to meet this demand. This is also the impetus for Stage 3 of the energy transition, Integration.

Stage 3: Integration

Renewable generation and broad electrification fundamentally change how we produce and consume power. It requires us to reconceptualize how we utilize energy. Today’s energy generation takes advantage of the density, portability, and dispatchability of fossil fuels. Renewable energy sources like solar and wind, are diffused and intermittent.

Over the last century, we’ve optimized the delivery and use of fossil fuels. We have created large centralized electric generating facilities that burn coal and gas. We have piped and pumped fuel to where it is needed to power cars and trucks, and heat water and buildings. An optimized energy system of renewable generation and electrified applications requires a fundamentally different system of energy production, distribution, storage, and consumption. One that integrates distributed electrical generation and load to optimize the diffused, intermittent, abundant, and renewable nature of solar and wind. We need to create nodes of generation, storage, and consumption interconnected into a greater grid that distributes and balances energy across the broader system. The key elements of these interconnected distributed energy nodes are: distributed generation, managed load, and storage.

Distributed Generation: Property owners have been taking advantage of rooftop solar for decades. Whether one panel or a hundred, solar panels are productive anywhere there is sun. And producing electricity right where it is being used is highly efficient regardless of the scale. The diffused nature of solar and wind encourages the broad deployment of energy production. Today there are about 4 million rooftop solar systems in use, totaling almost 40 GW of electricity generation. This amounts to about 5% of the peak demand for electricity in the US.

Managed Load: As electric generation becomes more diffused, distributed, and intermittent, there are large efficiency advantages in managing and matching demand – electric load – to availability. This requires the connection and control of electric load. Air conditioners, water heaters, dishwashers, washers, dryers, refrigerators, pumps, EV chargers…all the things that consume electricity need to be responsive to changes in available electricity.

Storage: Storing electricity to be used as needed allows intermittent generation like that from solar panels to be dispatchable i.e., available to be used as needed. It is easy to understand how this works for EVs; the car batteries are charged so power is available to the electric motors anytime you push the accelerator. Stationary batteries can work the same way, storing solar electricity produced during the day for use when the sun isn’t shining.

The water in a water heater and the mass of a building can also store energy. “Overheating” water when electricity is abundant allows hot water to be available through periods when the sun isn’t shining. Similarly, control of HVAC systems, optimizing heating and cooling when electricity is most abundant, can take advantage of the thermal storage inherent in a building and its contents.

Combining these elements – distributed generation, managed load, and storage, together referred to as Distributed Energy Resources (DERs) – create intelligent nodes that are responsive to fluctuating local generation and demand, and varying levels of supply on the greater grid.

Utilities, grid operators, regulatory bodies, and other grid participants are already implementing programs that pay customers to manage their local supply and consumption intelligently to balance the greater grid.

These programs are designed to encourage the behaviors that will optimize the new energy platform. Existing programs include:

  • Time Of Use rate schedules (TOU) – varying the price of electricity based on the available supply;
  • Demand Response (DR) – decreasing and increasing consumption during specified periods to balance the electricity on the Grid;
  • Base Interruptible Program (BIP) – financial incentives to reduce consumption to target levels when the grid is experiencing extreme temperatures or other adverse weather conditions;
  • Capacity Bidding Programs (CBP) – financial incentives for commercial customers to reduce monthly consumption to predefined targets;
  • Emergency Load Reduction Program (ELRP) – Similar to DR programs, ELRP provides incentives to increase and decrease consumption when the grid is supply constrained or during grid emergencies where power is disrupted;

These programs are the beginning of the transition to an electrified energy platform that combines intelligent nodes of DERs interconnected to a grid of centralized resources. Signaling and coordination of nodes and grid operations require it to be digital and data-driven. It also requires a transition of the basic architecture of the grid. From a real-time system synchronously connecting centralized assets to consumers, to an asynchronous network of interconnected elements that supply and consume power as needed.

These programs use market signals to encourage changes in the way we manage all the elements of the grid. Metered end nodes can’t adequately respond to the dynamic nature of renewable generation and managed demand. Programs that aggregate resources “behind the meter” and “above the meter” are the first iterations of the intelligent nodes of the new energy platform. For example, DR programs utilize DR Aggregators that combine and control a plethora of resources behind multiple meters. Virtual Power Producers (VPPs) aggregate DERs so that their combined capacity can be sold into the wholesale energy market as an energy source for the greater grid.

The renewable, electrified, and integrated energy platform will supplant all three energy delivery systems we have today: electric utilities, natural gas utilities, and pumped petroleum. The new great grid interconnecting and supplying electricity to a network of intelligent nodes will be a dramatic evolution of the current grid. The utilities that make up our current system will similarly need to change dramatically and play a very different role.

We created the current energy system based on fossil fuels over several generations. It changed our world in ways our great-great-great grandparents couldn’t have imagined: plumbing; sanitation; electric lights; automated appliances; motor cars; containerized multi-modal cargo; jet air travel.

Our new energy platform will similarly impact our lives in ways that are hard to appreciate. The reconceptualized energy system that utilizes the nearly limitless renewable sources of sun and wind will lead to an abundance of energy that is hard to imagine today.

It could result in 10 times more energy at one-tenth the price. What would we do if energy were relatively limitless and free? Desalinate and purify water; hypersonic transport; recycle and reclaim materials; AI augmentation of everything. That future is limited only by our imagination.

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