The next wave of renewable energy in the world

Technology has the enormous power to transform markets. The electricity sector as we know it today is the result of a disruptive change in technology that took place in the late 19th century. Before alternating current transmission, electricity, as enchanting as it was, had limited reach. After that, the power grid quickly spread, first across the entire North American territory and then across the entire planet, in a grand spectacle that can be seen from space.

Returning to the present day, investors have a special appreciation for the electricity sector, because long-term contracts are common in it, favoring revenue stability and the payment of good dividends, in addition to appreciation. On the other hand, in Brazil, analysts are always keeping an eye on hydrological risk, resulting from our energy matrix very concentrated in hydroelectric plants, which are increasingly suffering from the drop in reservoir levels.

Renewable energies and their technologies promise to cause a profound reorganization of the electricity sector that is already underway around the world. Here in Brazil we can visualize the founding milestones of renewable energy.

Energy auctions

Renewable energy received its first boost with the government-sponsored energy auctions. This policy has contributed to the diversification of generation sources, given the limitations on the construction of new large hydroelectric plants. As a result, by the end of 2020, we reached the mark of 3,1 GW of centralized solar power in the country in terms of installed capacity. In 2019, solar power became the most competitive source in the auctions, with a price of US$ 17,62/MWh.

Distributed generation

Resolution 482 of the ANEEL (National Electric Energy Agency) and other regulations paved the way for the end consumer to produce their own energy. After a timid start, with the continuous reduction in the cost of equipment, we achieved extraordinary growth in distributed solar generation. As a result, At the end of 2020, we reached the mark of 4,6 GW in distributed solar generation.

Solar energy continues to advance at a rapid pace and adds to centralized generation and distributed generation we accumulated 7,7 GW, surpassing nuclear sources and coal.

And what's next?

There is a growing consensus that nations must aim for zero carbon emissions to combat climate change. The target date for this is 2050 for the more realistic, and 2030 for the more ambitious. The strong growth in solar and wind energy, and the replacement of fuels with electricity in transport are the two most visible waves of this process.

In this context, California is leading the way in the spread of mass energy storage. The world’s largest battery, at 300 MW, is coming online at the Moss Landing plant in Monterey Bay. This plant, like many other projects, was created by a 2013 state law that set a goal of 1,3 GW of storage by the end of 2020. California has now reached 1,5 GW and has exceeded that goal.

What started in California is spreading across the US, which installed 2020 GW of storage in 1,2 alone. According to industry projections, the country is expected to have 2025 GW of storage by 7,5. The speed of this growth depends on the evolution of battery prices. Driven by the rise of electric cars, batteries are becoming cheaper every day, benefiting the world of renewables.

In the US, the price of utility-scale storage batteries fell by about 70% between 2015 and 2018, according to the US Energy Information Administration, the country’s official energy agency. The cost of solar photovoltaic energy followed a very similar trajectory: it fell by more than 70% between 2010 and 2019. Competition and production growth could lead to an additional 45% reduction in the average cost of batteries between 2018 and 2030, according to the NREL (National Renewable Energy Laboratory).

Analysts project 1,2 TW of storage globally over the next decade. At the same time, they bet that the electric vehicles will be cheaper than the internal combustion ones we use today. For solar power, storage is a game-changer. It disciplines the intermittency of supply, between the times when the Sun shines and those after it sets.

This improves the profitability of solar plants, as it allows them to obtain better prices, offering energy at times of greatest value. Furthermore, according to experts, this allows solar plants to replace small and medium-sized thermal plants, including those activated at times of peak demand.

Storage will be key to accelerating the transition to a carbon-free economy. Whether linked to renewable generation or embedded in vehicles, batteries will be an important catalyst for the upcoming transformations. Investors are increasingly looking at green companies. Tesla has five times the market value of GM and Ford combined. Here in Brazil, generating companies that invested in renewables lead the stock market appreciation among electricity companies, even without paying high dividends.

In any future scenario for the electricity sector, renewable energy and energy storage will be present. The original model inaugurated by alternating current will undergo profound changes. The speed of these changes is still a gamble, especially in Brazil. What is certain is that nothing will be able to stop the strength of an innovation when its time comes.