RENEWABLE ENERGY: A COMPLEX SYMPHONY TO BE CONDUCTED, NOT REGULATED

August 22, 2017
Paul Vancea

Insights into Energy Sector Dynamics and Strategies

The focus of this blog is on the regulatory frameworks impacting the renewable energy sector. It emphasizes the importance of supportive policies and regulations to accelerate the transition to renewable energy sources. The blog critiques current regulatory hurdles that hinder the development and integration of renewable energies like solar and wind power. It argues for reforms that streamline permitting processes, enhance grid infrastructure, and provide financial incentives to foster a cleaner, sustainable energy future.

The U.S. energy industry is undergoing a change of direction, as President Trump focuses on economic policies that help the U.S. economy, rather than taking misguided action in the name of global warming.

When it comes to the energy industry, the goal is to make America energy independent, through an “America First” energy plan. America’s historic dependence on imported energy (most significantly oil) makes it vulnerable to hostile regimes and forces the U.S. to compromise its foreign policies. A true leader of the world has to be independent.

Renewable energy will change the international power scale and rules as it can give countries freedom from the oil monopolies (i.e. OPEC). This is an opportunity that must be seized by the U.S. to ensure its future independence.

The complex industry of renewable energy

The main challenge facing the renewable energy industry today is that renewable energy is variable and unpredictable. When tasked to power a city’s energy grid, using an energy source that is unpredictable is not an option. The city (with all its essential services such as hospitals, street/traffic lights, etc.) cannot wait for the weather. Thus, the use of fossil fuels is necessary. Fossil fuels are very predictable and reliable: the supply is guaranteed (at least for the foreseeable future), you burn the fossils and produce power. This allows for the power grid to always be on.

States have started to introduce renewable energy into the grid system to compliment the use of fossil fuels. Energy from both renewable and fossil resources are being used together to power a city’s power grid. As long as there is renewable energy available, the power grid decreases the use of fossil fuel energy and gradually increases the use of renewable energy.

This process of gradually shifting to a renewable energy-predominant power grid is rather complex because it has to orchestrate supply from different energy sources, in different doses, at different times of the day. In U.S. there are 66 power grids cooperating with each other to use energy from at least 6 energy sources (utility-scale solar, distributed solar, hydro, natural gas, wind, and storage energy) in different doses, at different times. Building a system that can correctly and consistently rely on renewable energy to power the nation’s power grid is a very complicated. This system will have to employ the use of big data to understand and predict the behavior of both the weather (supply) and the people (demand).

Digital technology will be a requirement of such a system. The digitization of the electric system will increase the range of possible options, which will make decisions much more difficult for management to make, in too short of a time. The digitized renewable energy system will require the integration of machine learning and artificial intelligence technologies into the power grid operations.

Most new renewable energy power systems will face the issue of curtailment. Curtailment seems to be the bottleneck of the renewable energy industry at the moment, and it happens because of the inefficiencies present in the new and complex power system. Once curtailment is reduced from an average of 10% to close to 0%, it makes renewable energy sources more efficient and predictable; this will represent a big victory for the power markets and financial structure of the renewable energy industry.

Policy Recommendation:

Any policy meant to cripple traditional energy source use (i.e. coal, oil) on purpose must be eliminated. Shutting down a coal plant does little else other than hurting the economy (especially the local economy). Instead, President Trump should double down all resources on policy meant to encourage and aid the development of renewable energy.

The most complex part of the federal energy policy is to work with the private sector to create the most advanced and reliable renewable energy infrastructure/grid in the world. This is not simple; it is rather difficult: a power grid system that relies fully on renewable energy sources will resemble an immense computer system that feeds big data into machine learning technologies to create an artificial intelligence system that is always able to keep the power on. Multiple new industries must come together. As a businessman himself, President Trump and his Administration must use its business savviness to listen to the private sector and craft legislation and incentives that allow renewable energy companies to thrive. This new legislation must also allow and encourage easy cooperation between industries (renewable energy, big data, AI, machine learning, security).

President Trump should take the funds saved from the Paris Agreement, and part of his $1 Trillion Infrastructure budget and invest them in the renewable energy infrastructure system. Renewable energy proves to be much cheaper in the long term and will be easier to install once economies of scale are achieved. Because of this, redoing the entire U.S. infrastructure to include renewable energy components (i.e. roads repaved with solar panels) is more enticing and economically viable than rebuilding the U.S. infrastructure the old way (only brick and mortar without smart technology).

By focusing a large part of the $1 Trillion budget towards renewable technologies, President Trump would create thousands and thousands of jobs, would help renewable energy/clean tech companies innovate new technologies, and massively grow their production lines of supply to meet the increased demand. All the while, modernizing the United States and earning energy independence.

Currently, the clear world leader in renewable energy investment is China, which increased its spending by 17% to $103B in 2015, or 36% of global total. China has been extremely committed to developing its renewable energy capacity. Since 2011, it more than doubled its investment in renewables, achieving an impressive 38% CAGR over the past 10 years. Although the United States increased its investment this year by 19%, it came in a distant second, with $44B invested in 2015, or 15% of global total. Unlike China, the United States has not shown the same enthusiasm for renewable energy, recording a 21% CAGR over 2004-2015.

However, U.S. is still the number one country in terms of company-level funding: PE/VC financed renewables with $2.2B, while the public markets issued shares worth $9.7B in 2015. If President Trump would make it clear that renewable energy will be a large part of the $1 Trillion infrastructure plan, both the private and the public renewable energy markets would grow at a rapid pace, providing even more capital available to companies in the U.S. to develop and dominate the global renewable energy industry. Nothing spells security for capital markets like long-term energy contracts with the United States government.

In conclusion, the renewable energy race is much too important for the independence of the United States. It is a very complex industry and rapid success requires a close cooperation between the U.S. government and the private sector. The government’s efforts must be fully focused on growing the renewable energy industry, instead of regulating into oblivion parts of the coal industry. President Trump made logical business decisions when he pulled the U.S. out of the Paris Agreement and challenged the CPP. That was the easy part. The hard part will be to pass policies that allow the cooperation between renewable energy and multiple necessary industries such as artificial intelligence and machine learning. President Trump must get the government out of the way, by adjusting any legislation that would make it difficult for the renewable energy industry to grow. The President can turbo-charge the growth of this industry by dedicating a large part of his $1 Trillion infrastructure budget to rebuilding the U.S. infrastructure using renewable energy systems.

SOURCES:

International Energy Outlook 2016, US Energy Information Administration online

Global Trends in Renewable Energy Investment 2016, Bloomberg New Energy Finance online

World Bank Fossil fuel energy consumption

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