Renewable sources are already cheaper than new gas or coal plants, according to a study by Bloomberg New Energy Finance (BNEF), and by the end of the next decade they could be cheaper than existing plants.
Driven by wind and solar growth, the proportion of electrical energy produced by renewable sources by 2040 could more than double from 2017 levels to 63% in the UK and to 74% in Germany.
The falling cost of wind and solar and rising cost of gas and coal, according to projections from Bloomberg New Energy Finance's 2017 New Energy Outlook (click to enlarge)
The increased amount of renewables would cause greater volatility in the power system, creating a challenge for inflexible ‘baseload’ generators such as coal, nuclear and lignite. But this could create opportunities for flexible sources such as energy storage and demand response technologies, such as electric vehicle charging, the analysts said.
BNEF also suggested better interconnectivity could also create the opportunity for hydropower in Nordic countries to provide the Uk and German markets with greater flexibility.
By 2040, the Nordic region could generate 78% of its power from renewable sources — 67% of this from hydro alone — with supply remaining stable and without the need for widespread curtailment, BNEF added.
The BNEF study ‘Beyond the tipping point: flexibility gaps in future high-renewable energy systems in the UK, Germany and the Nordics’, was commissioned by UK power management firm Eaton in partnership with the Renewable Energy Association (REA).
Elsewhere in the report, analysts found by 2040, wind and solar could contribute more than 55% of hourly demand in the UK and 65% in Germany for more than half the year — up from 2017 levels of 25% and 37% respectively.
By 2030 less than 1% of power generated in the UK and 3% of that in Germany would need to be curtailed, but by 2040 these figures could grow to 3% and 16% respectively. However, these projections are based on the assumption that "demand or storage do not flex to accommodate the excess", BNEF added.
As early as 2030, there will be whole weeks where wind and solar power generation exceeds total demand at some point every day. "This creates a very challenging environment for ‘baseload’ technologies that benefit from running at a constant stable output," BNEF added.
Alternatively, in 2040, there could be entire weeks and months where wind and solar produce little energy, so other resources must meet between 72% and 80% of demand in the UK and between 63% and 85% in Germany.
In the UK and Germany battery storage and flexible demand could alleviate short-term volatility, but would not be sufficient during weeks and months when wind and solar resources are low.
To meet these longer-term gaps, flexible sources will be needed. Currently, only pumped hydropower, interconnectors and gas generation can do this economically, BNEF added, while other technologies such as hydrogen storage require "significant cost reductions".
The Nordic region has the resources required to accommodate renewables — with flexibility to spare — thanks to Norwegian and Swedish hydropower.
However, in both the UK and Germany, the total back-up capacity needed to meet peak demand during periods of low wind and solar generation in 2040 is much the same as in 2017, BNEF added.
This means 70GW of flexible resources such as energy storage, flexible demand or interconnectors would be needed in the UK and 97GW in Germany.
But as back-up capacity is used less often, the finances of combined cycle gas turbines and coal plants would be damaged.
The average utilisation of non-wind and solar capacity falls from about 50% in 2017 to around 30% in both the UK and Germany by 2040 in the BNEF model.
"This presents an opportunity for increased interconnections to other European countries such as the UK and Germany, so that Nordic hydro can provide additional flexibility in those markets where wind and solar may reach much higher penetrations," the analysts concluded.
"This study highlights a seismic shift in how power systems will operate in the future," said Albert Cheung, head of global analysis at Bloomberg New Energy Finance.
"As wind and solar become the cheapest options for power generation, the race is on to develop and deploy the flexible resources that will complement them."
Nina Skorupska, chief executive of the Renewable Energy Association, added: "Massive increases in future renewable power generation mean that industry and government must start planning now to ensure low-carbon, cost-effective ways of balancing demand and supply.
"We believe that there is a role for fuelled renewable technologies such as bioenergy and energy from waste to provide the complementary baseload generation that will be required, to avoid the need for carbon intensive generation at all.
"This study shows that battery storage is well placed to serve short term supply and demand issues and highlights the dramatic cost reductions in renewable power over the past few years."