How has the renewable energy sector changed since we last spoke a year ago? Has the war in Ukraine affected the sector?
Even though it has been just a year, the industry has undergone some important changes. The Inflation Reduction Act (IRA) came into effect in August 2022 and is accelerating the building of renewable generation capacity, thus supporting the long journey that is the energy transition. However, we have determined that, with every 10% of penetration, the market structure changes, therefore we expect to see increasingly challenging situations where intermittency can affect the aging electric grid of the U.S. Designed in a centralized pattern, the grid must be retrofitted to become more flexible and be closer to the renewable resources. California’s aging infrastructure delivers electricity the same way for the last 100 years – using exposed overhead lines on wood poles, which are sometimes involved in wildfires. Sooner rather than later, the electrification incentives should be directed towards infrastructure, besides supporting the increased need of electricity. In addition, grid strains are changing the risk allocation between the offtaker and the independent power producer, so we have to ask for more risk sharing with our customers in order to continue running a healthy business.
As for the war in Ukraine, its impact in North America has been threefold: increased cost of energy because of the greater gas exportation to Europe; exacerbated supply chain issues, especially for electrical equipment (breakers, transformers, cables, etc.); the war also created a rush towards hydrogen due to energy sources diversification in particular in Europe.
What is the potential for renewable energy to become sufficiently affordable to replace fossils?
Today, renewable energy is the cheapest option from a production point of view, but the cost to make it reliable varies between countries. The more renewable sources we are integrating into the grid, the higher the price of building infrastructure and storage solutions.
Electrifying vehicles is a good way to solve some aspects of climate change, but, along the way, we must make sure we are not putting extra burden on the grid.
First, we need to control EV charging in aggregate so that it does not create more stress on the grid. Second, we will need to idle EVs capacity to inject power in the grid until most needed. This innovation in demand response not only avoids vehicle charging during peak electricity demand, but also allows stored electricity to be discharged to help balance the grid. Given that EVs are practically batteries on wheels, we can leverage their capacity to storage energy and reinject it in the grid during unstable periods. In order to achieve the energy transition, we have to play on every imaginable and feasible level.
What are the biggest challenges that you currently face within the North American market?
Considering the current speed at which the grid needs to transform, our biggest challenges are interconnection delays, which lead to postponed projects, and supply chain constraints. Because of lack of financing and equipment, we are facing operations challenges that translate into an immense backlog of due improvements to make the grid more resilient and efficient. At the moment, we are also still digesting the significant inflation hike of last year, but, luckily, the initial burst has stabilized in North America. Having signed multiple fixed-price contracts two years ago, the increased costs forced us to renegotiate and even cancel a number of projects. Inflation will stabilize, but the issues linked to the supply chain and the grid are going to linger on for the next decade. Lastly, I am concerned about availability of tax equity in future years considering the sharp acceleration of renewables created by the IRA.
What ambitions would you like to see realized at EDF Renewables over the next few years?
The cost of stationary batteries used with our solar projects increased by almost two and a half times in the last 18 months, which made us refocus our attention towards using EV charging. Software and interconnection protocols that give us access to the vehicles are vital elements in that sense and we hope to be able to integrate those as soon as possible. As lithium-ion technologies are not going to be able to provide all the necessary storage capacity or provide capacity with enough duration, we are also exploring alternative solutions, such as flow batteries, pumped-storage hydroelectricity or compressed-air energy storage.
Besides awakening social consciousness regarding the green energy transition challenges, we would like to continue moving forward in a stable geopolitical environment, rid of conflicts and disruptive events. Both as an industry and as a society, we need to create the framework that takes us to the 80% carbon-free electricity that could further advance and consolidate our net-zero goals.
