Last week IEA published its annual report on global energy markets and developments. There were lots of good points to discuss, but I would like to focus on the promise of solar. If solar will be the king’s world’s electricity markets, what should electricity markets look like?
The first point is the role of the consumer. Every single electricity future report claim that the consumer is the key. The consumer is the key for sure. The whole electricity system was designed around the consumer. Consumer demand was the most important player in the whole electricity system to be forecasted every day until the mass penetration of renewables. The system responds to consumers, but consumers do not respond to the system effectively.
For some years, we were discussing the competition. But competition is bifacial. If there is competition on the supply side, there should be some competition or rationality on the consumer side. In the past consumer was the key since the whole system was a servant to the consumer. Now the consumer is the key to bring some flexibility to the system.
Then we have the smart grid discussions. Smart is a concept that has been a byproduct of a technocratic age. It is no longer just-unjust, efficient, effective, well planned, or lean grid, but a “smart grid” offering answers to our questions. No more dumb grids but smart grids. In that sense, attributing solutions to smartness is a bit of generalization and an escape route from more fundamental discussions.
Then comes the merit order problem. Further, we move upwards in the meritocratic cost curve, the control function of any resource increases. The lower end is more like a less controllable technologies’ territory, where the higher end is the kingdom of highly controllable resources, such as the demand side.
Then we bring solar into the picture. With solar comes great responsibilities. But what if the whole picture is redesigned with solar in the center. In the past, thermal resources were at the center of the supply picture. The consumer was generally unrestrained. Now the consumer is to be a flexibility supplier.
We still can not answer how solar generation may compete since competition should be at the center of electricity markets. Now there are more needs for localized services and real-time analysis. The grid is not the solution to all ills, whether it is smart or dumb. Therefore putting solar at the heart of electricity markets will be tough. Like veins in the heart, it may be connected to heating elements with hydrogen or to the system through storage. So how should be the real-time valuation of the solar generation? Probably local elements will be important this time.
This is not the first time we discuss such issues. The value of a hydro generation plant or hourly hydro generation is well investigated. The solar is, in some sense, like hydroelectricity. But the hydro generation generally benefits from higher-cost thermal generation.
To understand solar’s future role in our electricity markets, we have to understand what kind of electricity market we will need in the future. If decarbonization moves from hydrogen to full electrification, the solution will be simpler. More demand load may provide more flexibility. Still, we may be sure that there is no solar future without wasting solar, whether it is hydrogen or storage. As the throne is transferred from king coal to king solar, we may need to overbuild. Overbuilding requires less competition. But does it matter if the costs are technologically in a downward spiral?