Perspectives from the Institute of the Americas Energy & Sustainability Non-Resident Fellows
The Institute of the Americas invited our 2021 Non- Resident Fellows to prepare short essays with their views on the landscape and outlook for the sector. Our Fellows are based across the Western Hemisphere and thus provide a unique angle to better understand the contours and possibilities for the coming year. Their essays set forth a high-level overview and outlook based upon two principal questions:
What is the key energy trend to watch this year?
What is the general landscape and outlook this year for the energy sector in your country?
BUENOS AIRES, Dec 17 2020 (IPS) – The COVID-19 pandemic has accelerated an evolution across Latin American electric utilities. The need for utilities to manage structural issues derived from increased deployment of Renewable Sources of Energy (RSE) such as wind and solar and Distributed Energy Resources (DER) has rapidly increased. Technology is unleashing major disruptions and challenges. In many ways, Latin America’s traditional electric utilities are in crisis.
Electric sector reforms throughout Latin America in the 1990s led to widespread adoption of liberalization measures and a paradigm of unbundling of generation, transmission and distribution in the sector. But now, there is a pronounced paradigm shift for the region’s utilities.
By allowing countries with temporary deficits (surpluses) to import (export) clean power (from or to) countries with low renewable density thus helping move faster towards decarbonization
Intermittent RSE, and more importantly, photovoltaic (PV) distributed generation (DG) and electric mobility (EV) have upended the decades-old system. In the aftermath of the COVID pandemic, there are clear directions companies and regulators should take to address the 3 Ds: decarbonization, decentralization and digitalization.
Indeed, unlike traditional thermal or hydro generation, intermittent RSE and DER require increasing network and operational (System Operator or ISO) flexibility from both supply and demand.
Most notable is the critical need to accommodate steeper and steeper (up and down) ramps resulting from more and more intermittent RSE coming off and on line as they take on larger shares of electricity supply.
The increasing adoption of intermittent RSE in Latin American countries will permanently alter the electrical landscape requiring modifications in every step of the sector’s vertical structure. The first challenge, by definition, is how to deal with intermittency.
Intermittency requires back-up traditional generation to come off (on)-line whenever the sun starts (stops) shining and the wind starts (stops) blowing.
The larger the share of intermittent RSE over total generation the steeper the slope of both down and up ramps during sunup and sundown (i.e. the duck’s “belly” becomes larger, see below) requiring faster and faster back-up generation to allow/replace PV solar panels or wind mills that go on/off line.
Alternatively, back-up generation can be (and it is already being) replaced by storage. Batteries charged during peak hours can later replace solar panels whenever the sun comes down (or wind stops) injecting energy into the grid hence shaving the evening peak (See below) thus replacing alternative traditional (and more expensive) thermal or hydro generation as the next graph shows.
Once the intermittency problem has been dealt with and solved, RSE have enormous advantages vis à vis traditional generation, namely: they are (becoming) more economical, they have zero marginal costs as natural resources (i.e. sun and wind) are of unlimited supply, they do not pollute the environment and, combined with storage, they can contribute to reduce network congestion and losses during peak hours. They may require, however, additional investment in transmission and/or storage to fully exploit their potential.
Intermittent RSEs in Latin America are normally located in low densely populated areas sometimes thousands of miles away from energy consumption centers.
The combination of faraway locations, more geographically scattered and smaller installed capacities generate more capillarity in transmission networks that in turn requires more investment in transmission lines, each of them of smaller capacity. But, it is important to note that storage can help overcome some of these problems.
To a certain degree, the intermittency problem inherent to RSE has been solved by (thermal and hydro) back-up generation and increasingly by storage. The increased investment in RSE will require additional investment in transmission capacity because of their more remote and more scattered location.
This additional investment need may, however, be mitigated by additional investment in storage that will help stabilize power flows thus reducing congestion and losses.
There is also rapidly emerging technology and what many see as an opportunity for Distribution Companies (DistCos) to island sections of the network with microgrid technology and to promote smaller projects close to loads when possible. In this manner, the microgrid would be more manageable.
A slightly different technological challenge to electric utilities will be posed by Distributed Energy Resources (DER) and electromobility (EV).
Among DER, DG adds to the intermittency problem but it is now faced directly by the(DistCos). As hundreds or even thousands of PV rooftop panels come on and off-line injecting power into the distribution grid (or charging batteries or an EV) DistCos have now to manage intermittency
in their own grids probably resorting to a Distribution System Operator or DSO and eventually also to a Transmission System Operator of TSO as the number of real time transactions multiplies by hundreds or even thousands.
The former duck chart at the generation level now also appears at the distribution level forcing DistCos to deal with their own duck belly and to run their own dispatch with a DSO and eventually also a TSO.
EV poses the challenge to DistCos of multiplicity of real-time transactions as does storage but with an additional problem: EV requires a different distribution network design as users charge EV batteries all around the distribution network, switching places all the time thus altering load factors and requiring additional investment in distributions lines and transformation substations to cope with this additional moving demand.
But, here again, emerging technology being implemented in some areas such as California have begun to seek to use EVs as storage for home usage during outages.
A sustainable electricity network The traditional vertically separated electricity utility is clearly in crisis. New renewable sources of generation coupled with DG plus storage and EV are driving needed evolution of the traditional vertically disintegrated paradigm in the region’s electric sector.
Finally, to increase access to electricity through lower prices and cleaner energy matrices it is imperative that the region embark on an energy integration program. By allowing countries with temporary deficits (surpluses) to import (export) clean power (from or to) countries with low renewable density thus helping move faster towards decarbonization.
What is crystal clear is that the COVID pandemic and its aftermath should be embraced as a catalyst for the long-needed reform in Latin America’s power sector by addressing these key technological challenges.
Leonardo Beltrán Non-resident Fellow Institute of the Americas
If we were to define 2020 with a single word, most probably it would be “pandemic.” In fact, a couple of weeks ago, Merriam-Webster announced pandemic as its 2020 word of the year, based upon a statistical analysis of words that are looked up in extremely high numbers in its online dictionary. Undeniably the pandemic has brought a full array of innovations to our society – in business models, policy, regulation, and technology – and although the pandemic has forced us to physically distance ourselves, it has also brought us socially closer to face the new global challenges together. Consequently, if there is a single lesson to be extracted from the COVID-19 pandemic, it is the power of collaboration.
Earlier this year, the US government launched an initiative called Operation Warp Speed (OWS), a public-private partnership with the goal “to produce and deliver 300 million doses of safe and effective vaccines, with the initial doses available by January 2021.” OWS invested and coordinated efforts to develop diagnostics, therapeutics, and vaccines; protocols for the demonstration of safety and efficacy were aligned, which allowed a faster process for trials, and stages proceeded simultaneously. That is one of the reasons why manufacturing of the vaccine on an industrial scale started well before the demonstration of vaccine efficacy and safety as typically happens. In fact, the financial risk increased for the firms, but given a shortened amount of time spent in the regulatory process, start-up funding for research and development, and a secure demand at scale, it drew the participation of several companies. Finally, on Nov. 30, 2020, Moderna, a US company and one of the Top 14 candidates of the 100-plus in development, was the first company to announce plans to request Emergency Use Authorization from the US and other international regulatory agencies for the use of their vaccine (effectiveness of 94% based on its trials), galvanizing the road to the long-expected control and eradication of the COVID-19 pandemic.
The lesson from the health sector is not unusual in other sectors. In the energy sector, collaboration is fundamental. Also on Nov. 30, but five years ago, the leaders of 20 leading countries (Australia, Brazil, Canada, Chile, China, Denmark, France, Germany, India, Indonesia, Italy, Japan, Mexico, Norway, Republic of Korea, Saudi Arabia, Sweden, the UK and Northern Ireland, the UAE, and the US), in an effort to speed up action toward climate mitigation decided to join forces in an international voluntary initiative called Mission Innovation (MI), with the purpose of doubling their research and development (R&D) expenditure on clean energy innovation by 2020. Today, the results demonstrate the power of collaborative action. Two of the main results were: 1) the mobilization of an additional annual public expenditure of US$4.9 billion in investments, and 2) international collaboration worth US$1.4 billion in funding to support the development of 1,000 innovations with the potential to avoid 12 CO2 gigatons per year by 2030 if fully deployed, in addition to a number of international publications and events to raise awareness of the potential of energy innovation.
Thus, collaborative clean energy innovation is not only expanding, it is gaining momentum. At the 5th MI ministerial meeting, its members decided to launch a second phase focused on two priorities: 1) an enhanced innovation platform to strengthen the innovation ecosystem and to accelerate learning, and 2) new public-private innovation alliances that can lead to tipping points in the cost, scale, availability, and attractiveness of clean energy solutions.
Moreover, in his Plan for A Clean Energy Revolution and Environmental Justice, US President-elect Joe Biden stated that his administration will work with MI participating countries to reset the effort on a more ambitious track. That includes quadrupling the originally committed financial resources to help support R&D and unleash innovation in academia; enhance cooperation with private sector entrepreneurs; and help other countries build their institutional R&D capabilities to ensure increased funding is spent most effectively.
In that spirit, next year’s policy agenda in Mexico would benefit from strengthening and enhancing its bilateral and multilateral engagement to take advantage of the momentum of a renewed international collaborative clean energy innovation push. This international momentum can become a bridge builder for economic recovery and the fastest route to deep decarbonization.
The potential benefits of this path for Mexico are multiple, for the academic community would continue to open opportunities for strengthening and expanding their networks and contribution to the clean energy innovation value chain, by taking advantage of new sources of funding to optimize the use of their existing R&D infrastructure and capabilities, and continue attracting and retaining a pool of talent eager to work on renewable energy technology; for the private sector, it would continue to provide novel products to incursion in new markets and complement existing trains of production; and for the public sector, there is at least a fourfold opportunity: 1) stimulate the economy by catalyzing the creation of startups, along with the associated prospects for job creation; 2) strengthening their fiscal position with the expansion of new sources of revenue, along with the fortification of the domestic market by supporting regional development in areas where innovation clusters would emerge; 3) a much more cost-effective pathway to meet its climate goals, by investing in talent and R&D with multiplied returns in innovation resulting from the bridge built by collaborative clean energy innovation; and 4) the opportunity to diversify and expand the focus of Mexico-US bilateral cooperation from mostly security items to a denser and richer agenda that includes economic, environmental and scientific priorities. Therefore, clean energy innovation should be part of Mexico´s 2021 agenda.