Renewables have a major role to play in today’s oil and gas companies, if those companies are willing to really understand how renewables can fit into their existing operations and future plans. For example, current power generation in refining units accounts for 13% of its emissions. Wind and solar power are now more commercially viable than fossil fuels in most scenarios. In fact, it does not take many modifications to an existing power-generation infrastructure to use renewable sources. And if renewables are integrated into the mid- and upstream sectors, that 13% will surely increase.
Fulcrums to Realising Success
With the stage (and the business case) set for ushering in the era of renewables, a structured approach becomes key to realising success. This is where the fulcrums described earlier come into action:
1. Dynamic Portfolio Balancing
Cannibalization of existing revenue streams is an event waiting to happen. In spite of the fact that global energy needs are growing, it won’t be long until there is an oversupply of energy, and renewable sources such as wind and solar, with their extremely low marginal operating costs, swamp the supply while drastically lowering wholesale prices to $0 (or even negative). In such cases conventional energy sources entailing fuel costs cannot compete and will have to turn off operations. Britain’s electricity has been coal-free for multiple months in 2020 as other forms of energy were able to meet the entire load and coal plants were hence closed.
As energy companies try to chart where the next big revenue streams lie, they need to continuously monitor and update their portfolio and its subsequent growth forecasts to reflect the daily changing reality. Manually tracking this will become unsustainable given the scale and scope of operations.
Dynamic portfolio balancing is all about creating command centers dedicated to analysing these diverse operations and assessing how the portfolio is performing (in turn enabling decisions) will be critical to navigating the oncoming changes. These command centers track investments and performance across the various initiatives in order to assess their relative viabilities. Dynamic portfolio balancing can be done in many ways – from simple to complex, and the right method depends on an organisation’s needs.
In the short term these models will need to be nimble for accommodating changing needs and technologies. The ability to quickly pivot from one business model to another of varying technology stacks will prove key to success. Another area of reasonably safe investment in the short term is around batteries and energy storage given their proven need across the renewable energy mix and value chain.
The Achilles’ heel of renewables was their erratic generation and grid instability. The issue of reliability (critically important to power generation) has resulted in some skepticism about renewable adoption. However, revolutions in energy storage, particularly lithium-ion battery technology, have more than solved these problems on a commercial scale. The cost of storage further dropped by 87% between 2010 to 2019 to $156/kWh.
Batteries also help in balancing by regulating the frequency and voltage of grids, an erstwhile advantage of thermal plants. They can also be used to provide short-run capacity at times of high demand, and in grid-constraint situations they can help defer upgrades required in transmission and distribution (T&D) capacities. In 2019, the Southern California Edison utility announced that it is replacing its 262 megawatt gas peaker plant with a portfolio of 192 megawatts of lithium-ion battery products.
Investment in battery and storage capacities also enables a degree of grid independence. Organizations are not constrained by the need for generation at the location nor must they pay charges for the grid network. With a robust supply chain network these battery and storage units can be transported over short to long distances for use in various group facilities, commercial viability permitting.
Bloomberg New Energy Finance estimates that the cost of batteries will further fall 50% by 2030, leading to a 122-fold growth in capacity from 9 GWh/17 GWh in 2018 to 1095 GWh/2,850 GWh by 2040, at a total investment of $662 billion. This will be compounded by technology improvements as well. Wood Mackensie estimates, more near term, an addition of 12.66 GWh this year, a record-high growth, and a total capacity of 230GWh by 2025.
2. Digital Native Solutions
Cutting the innovation-to-scale cycle short is critical in the current phase of meeting decarbonisation targets and of protecting balance sheets/revenue streams. A platform-driven approach that uses open standards (as applicable) allows flexibility and ensures what is built today stays relevant for the next couple of decades.
Digital advances are forging the path to efficient transition to renewables by enabling increased productivity, cost advantages, risk reductions, improved reliability, operational efficiency, safety improvement, and resilience. Digitalisation supports asset life cycle management of renewables while also reducing dependencies on separate operation and maintenance (O&M) players.
For example, GE estimates that digitalisation in the current scenario for a 100 megawatt solar project can lead to a 40% reduction in power production losses, 30% increase in staff productivity, and 20% reduction in O&M expenses. The main challenge is to deploy integrated, end-to-end solutions for maximizing benefits and leveraging economies of scale, rather than selective deployment. This will of course draw on each enterprise’s strategic outlook.