REN: Reperceiving the Grid Part 2

 2021.06.30 – Ian Page

We can also look at where in the total system things "should" be done.

The following waterfall diagram shows (without scales) what happens to the amount of electricity, and the costs as electricity passes from sources to sinks.

A certain amount of electricity is lost in transmission, transforming up and down voltage uses some and there are losses depending on distance.

If the electricity is stored e.g., in a pumped storage system in the grid, there are more losses; 20-30% is common. Then there are more losses in transmission, before finally the electricity left does a useful job.

Obviously if the source and sink are matched temporally only one set of transmission losses exist but with variable consumption and variable production some element of storage is likely.

Financially, although the energy starts at the LCOE, the transmission system has lots of infrastructure to maintain and so charges are added. Storage also adds a lot of capital and maintenance costs as well as losses, so quite a large cost will be added. Some more transmission costs are added and then finally at the point of usage a time of usage premium (or occasionally discount) will be added depending on congestion and overall demand levels.

A rule of thumb I have seen is that with just direct transmission over the grid without storage costs roughly doubled. Grid storage costs are usually averaged out but if isolated would add a LCOS plus profit figure.

Grid storage competes on price with new reserve generation and curtailed costs of overproduction. Generally reserve generation (gas peakers) can be installed quickly and incrementally, whereas pumped storage takes a long time and tends to be in big units.

 

From this we can see some major guides for the future.

1. Local storage at the generation site will be cheaper, usually, and quicker to install than relying on the grid. this appears to be generally true up to 4 hours, currently, using batteries, which allows the generator to decide when to sell the electricity and thus make more profit. Over time as VRE increases this premium will disappear and essentially become a cost of doing business being absorbed into the LCOE. I have already noted this happening in estimates of solar.
2. It may be financially very advantageous to redesign using processes to fit with energy availability (variable production processes - VPP) and thus get the cheapest electricity. This will be a balance between the cost of capital equipment running below capacity and the cost of paying premium electricity charges. A redesigned process will have a competitive advantage over historical processes. The one-off opportunity to redesign comes as processes move from fossil based to electricity based and this should be a major concern for industries and possibly even offices and homes.
3. It may be financially advantageous to move production to generation. This will be particularly true of the redesigned VPP above.
4. Since the electricity generated generates the highest value add when consumed close to the generators, there might be scope for some creative business models where the electricity provided is near cost but with some vertical integration or virtual vertical integration the generators can get a cut of the value added. This would tend to put the most effective users of electricity at the top of the queue
5. As VPP converges on VRE generators there will be a shortage of land in the best positions. This is a bit like the banks that converge on the London post office tower to gain a nanosecond advantage in trading, or the premiums paid to put mobile front end application equipment into the transmission huts.
6. Unlike coal power which tends to be built near coal mines, and oil and gas that tend to be built near ports or major pipelines, solar tends to be best in deserts, and wind best at sea or on hills. On the other hand, solar and wind tend to be distributed on land which provides more space for VPP's, but at sea space is limited to old oil stations and new artificial islands. Here they could be valuable real estate for placing VPP's.
7. There are multiple vertical integration options for generators- defaulting to generating hydrogen, while simple, may not offer the best return. The issue is how much useful energy can be stuffed into the most convenient, storage, portable and valuable end product. Currently I like aluminum as a high-volume product easy to VPP and with a large established market that is also growing. Ammonia is also in the category. After that, it's making valuable volume feedstocks for whatever the petrochemicals industry morphs into out of water and CO2 from the air.
8. Local storage at the user site can also be profitable once services are established. Thus, being willing to not use any grid electricity for a period, or for specific periods, may result in a very low-cost grid service deal. Selling excess roof solar production to your neighbors over the distribution grid could be a service the neighbors would buy.

These are only attempting to get out of the current "grid is the boss/universal averaged service”, based mindset and many modifications of these ideas would be equally viable but perhaps they start a different conversation.