Digitalisation will come to the fore

The energy transition will change the diversity of every power system – changing their vulnerability to shocks

Until now, wind and solar PV have contributed positively to diversity in the generation mix. They are indigenous resources, which have therefore helped fuel-importing countries reduce their import bills and increase their self-sufficiency. A well-diversified generation mix, with contributions from wind and solar PV, can improve electricity security by mitigating risks arising from physical supply disruptions and fuel price fluctuations. Small-scale generators, such as distributed wind and solar PV, also have the potential to facilitate recovery from large-scale blackouts during the restoration process, while large thermal power plants take longer to resume normal operations since they need a large part of the system to be restored. These are clear examples of electricity security benefits from increasing the share of wind and solar PV. For example, in the People’s Republic of China, a shift from a strong reliance on coal to increased wind and solar will increase the diversity of the generation mix out to 2040.

Looking ahead, electricity supply systems in some regions could see less diversity in power generation sources. European electricity markets have achieved a high level of interconnection between power systems across many countries. They are endowed with diverse power generation sources, including natural gas, coal, nuclear, hydro, wind, solar PV and other sources. Such generation fuel diversity has been a source of confidence in electricity supply security spanning a wide region. As some generation sources are likely to decline in capacity, the diversity of the future system will need to be found in a low-carbon generation mix, flexibility in supply and demand response, and the ever-increasing importance of grid interconnections. 

Coal-fired power plants, in particular, are being decommissioned to align with ambitions to reduce CO2 emissions and pollution levels. The trend will need to continue in order to achieve climate change mitigation objectives, increasingly supported by policy measures and finance strategies to phase out the use of coal-fired generation.

Many other electricity systems today also have quite a diverse generation mix, with natural gas, coal, nuclear, hydro, biomass, wind and solar PV. A further increase in VRE combined with a decline in conventional generation will require a review of electricity security frameworks by policy makers, supported by input from the wider industry. VRE and other flexibility sources such as demand response and energy efficiency provide an important contribution to adequacy. Fully incorporating these resources into a reliability framework and optimising them in system operations calls for strengthened analysis and appropriate regulatory and market reforms. Early steps in the clean energy transition of particular regions provide critical lessons for those still in an initial phase of their own transition. For the advanced regions, implementation of the next steps is likely to be more challenging than those already achieved.

The significant concentration of low-carbon generation in a few VRE sources, such as onshore wind and PV, will create increasing challenges for policy makers, regulators and system operators. For example:

Tapping into a larger set of variable resources with different generation patterns will reduce these underlying challenges by smoothing the combined VRE output over time, which can both decrease the economic cost of decarbonising the system and soften the integration challenges associated with few generation sources. For instance, solar and wind generation often exhibit both diurnal and seasonal complementarity, reducing the overall variability of VRE output across the day as well as through the year.

For Europe, the growing prospects of offshore wind are a promising opportunity to further diversify the low-carbon mix, as larger capacity factors and complementary generation patterns will soften the integration challenges of VRE. Still, in highly decarbonised systems with diminished nuclear and fossil fleets, other low-carbon sources such as biomass, biogas, hydrogen and carbon capture, use and storage will eventually be needed to cover periods of low VRE generation, together with new flexibility sources such as power storage and the increasing scope of demand-side response. 

Lower than needed levels of investment in power systems today present risks for tomorrow

Although wind and solar PV have seen impressive growth in recent years, overall spending in the power sector appears to be less than what will be needed to meet forthcoming security challenges. To this end, the IEA World Energy Investment Report 2020 portrays a rather grim picture. Global investment in the energy sector declines by 20% or USD 400 billion in 2020 in the aftermath of the Covid-19 crisis. The oil and gas upstream sectors see the largest negative impact compared to the electricity sector. Nevertheless, the overall level of investment in power in 2020 declines by 10%. The crisis is prompting a further 9% decline in estimated global spending on electricity networks, which had already fallen by 7% in 2019. Alongside a slump in approvals for new large-scale dispatchable low-carbon power plants (the lowest level for hydropower and nuclear this decade), stagnant spending on natural gas plants and a levelling off in battery storage investment in 2019, these trends are clearly misaligned with the future needs of sustainable and resilient power systems.