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'Wind and solar have nothing to fear from price cannibalisation'

Even with zero wholesale prices, renewables will still be cheaper than other power sources, Michael Liebreich tells Recharge

As more variable wind and solar is added to the grid, the more wholesale market prices fall — a phenomenon known as “price cannibalisation”. According to analyst Cornwall Insights, lower wholesale prices will reduce revenues on a 10MW onshore wind farm by 34% by 2031, compared to 2018 levels.

It is basic supply and demand economics — when the wind blows or the sun shines, all the wind or solar farms in that windy or sunny area will send power to the grid at the same time. And if that abundance of energy is greater than the demand for power, the wholesale market price will fall to zero or below, forcing operators to curtail their output. For instance, on a sunny, windy day in Germany in April 2017, the average 15-minute intraday price fell to a staggering minus €193.02 ($216).

But this is nothing to worry about, says Michael Liebreich, the charismatic founder of Bloomberg New Energy Finance and now an advisor to the likes of Shell, Equinor and others.

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“Everybody runs around saying curtailment is a tragedy and a catastrophe. But globally we’re going to see a lot of wind and solar at [a levelized cost of energy of] $0.02 per kWh, offshore it might be $0.05. Supposing you take a project that has a cost of $0.02 per kWh levelized cost and you say we’re going to have one third curtailment — levels of curtailment that even in those bad years in China, we've not seen. With one third curtailment that still gives [the project] a $0.03 per kWh cost of energy. So you can simply curtail one third of it and you've still got something that's half the price of electricity from natural gas or coal or nuclear or anything else.

“Even if you don't stop the price crashing to zero, so what? As long as it only crashes to zero for one third of the time, maybe even frankly half the time, it's still going to be cheaper than gas or coal or nuclear, even in North America.

“So what's the big deal here? Well, the big deal is if you bid at [auction at] $0.02, because you thought you were going to get so many hours, then you've got a problem, you're going to go bankrupt.

“So long as everybody is smart enough to understand what level of curtailment there is, then curtailment is not the show stopper.”

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He also points out that “obviously you don't want your project to curtail 30% of the time or half the time. So you'll find other things to do with [that excess power], and there'll be demand response and all of the clever stuff around smart charging of cars and smart production of hot water.”

Storing energy in hot water, using well insulated hot-water tanks, he explains, is far cheaper than storing electricity in a battery.

Many analysts have suggested that excess wind and solar power should be used for so-called “Power to X” — to use the energy to create molecules such as green hydrogen or ammonia that could later be used to generate electricity, or be used for heating, transport or industrial heat. But Liebreich doesn’t agree.

“Power to X using curtailed power is actually probably one of the less likely things because Power to X is going to be capital intensive. It's very different. Having a bigger water tank, frankly, costs beans. It's just a bigger water tank and some insulation. Building electrolysis, compression, transport and storage of the [hydrogen or ammonia] and then saying, oh, we're only going to use this for the one third [of the power] that would otherwise be curtailed, or even the 10% of the time when the wind blows extremely hard — that’s probably not going to happen.”

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Liebreich believes that it would be more cost-effective to generate green hydrogen using “offshore wind at 60% capacity factors or solar farms with batteries in deserts, because that will essentially be 24/7 power”.

Green hydrogen, or ammonia derived from that hydrogen (which would be easier to store and transport) will have an important role in the future green economy, but only for energy storage and industrial heating, not road transport, Liebreich says.

“I'm a big skeptic of hydrogen for cars. If you gave me free hydrogen, I would generate electricity centrally with it, use the heat and use the electricity in a car. Even if you gave me free hydrogen, I wouldn't buy a hydrogen car. I suspect that even for long-distance transport, you’d have a truck with a battery that would be charged from an overhead cable — let it drive a couple hundred miles, then charge it for 50 miles. That's probably going to be cheaper.

“There will be uses in long distance transportation, rail transportation, potentially shipping.

“Industrial processes of anything that requires an intense heat, ceramics, steel, cement and so on — I think that's where I would look for the hydrogen to be used. And potentially for centralised power generation — sit there with a great big ammonia store waiting for that Beast from the East [ie, a very cold winter period where heating demand soars] and then generate your electricity.”

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