Energy system optimisation requires new partnerships and business models

To date, operations to further the energy transition have largely been the actions of unrelated stakeholders, without the need for specific collaborations. As we pick up speed, however, these individual actions begin to impact each other. Without an overview of the energy system as a whole, and identification of synergies, we cannot achieve the transition at the required pace, and certainly not at the lowest societal cost.

In the Netherlands, onshore solar has grown rapidly, and now upscaling of offshore wind is well underway. However, electrical grid infrastructure upgrades are limited by personnel and material availability, and by cost. The Dutch grid management association (Netbeheer Nederland) places estimates to 2030 at €64 billion.¹ Alongside this, supply and demand profiles are changing. We are seeing larger capacities of the same variable resource (wind or solar) in the same location. When tied to low demand, we can see hours of negative prices due to oversupply. In Germany, a trend of falling capture rates as solar capacity has grown is already occuring.² This is termed ‘cannibalisation’ since the resources ample availability ‘eats’ its own profitability. Therefore, new approaches and new business models are required to maintain profit and continue with the transition at speed.

One way this can be achieved is through the collaboration of offshore wind and solar developers, who can share the costs of the expensive infrastructure required to bring power to shore while minimising curtailment, since the two resources, sunshine and windiness, are not well correlated. This has already been seen at Hollandse Kust West’s recent expansion,³  as well as being encouraged in tenders such as Ijmuiden Ver, through points being awarded for up to 50 MW of floating solar.⁴

The synergies between hydrogen and offshore wind

The need for system-integrated approaches is not unique to the Netherlands, however. Different locations require different sorts of partnerships. In North-West Spain, for example, lies great offshore wind potential but a less enforced power grid. This can lead to developers struggling to obtain a grid connection. Meanwhile, the Hydrogen Backbone is making strides, with as much as 10% of 2030 demand planned to be supplied by H2Med, which will connect Iberia to France. Here is a great opportunity for wind developers to collaborate with the hydrogen network operator, Enágas, and hydrogen producers in order to integrate new large quantities of wind power while circumventing grid connection issues.

Getting into the hydrogen market, as with any nascent market, is of course not without risk. There is uncertainty over the extent to which it will take off. The current uses of hydrogen are relatively unknown however, with Europe consuming 10 million tonnes per year for, among other things, refining and the production of high value chemicals. Meanwhile, new uses, such as for decarbonised steel production, are already appearing and are expected to take off. Recent new regulations in the EU mandates that 42% of this industrial hydrogen will need to be renewable by 2030, and 60% by 2035,⁵ further supporting green hydrogen market growth. This means that there are currently large industrial users looking to secure long-term green hydrogen offtake. Herein lies a synergy for wind power and hydrogen to enter partnerships, allowing them to play between the two markets while securing demand for both products from the large industrial consumers who will soon be mandated to procure them.

Energy hubs as a solution to energy transition challenges

Across Europe we are beginning to see parties coming together to provide solutions to energy transition challenges in the form of ‘Energy Hubs’. It’s a broadly-used term but shares common themes of connecting suppliers and consumers in a smart way while making optimal use of multiple energy carriers. 'Smart' here pertaining to optimising the hub perhaps for lowest cost to consumers, or through use of flexible storage to be able to perform arbitrage on energy markets. In the UK, the Bacton Energy Hub could connect offshore wind and blue and green hydrogen production to industrial clusters at the coast and a hydrogen-powered train network.⁶  Through collaboration of producers, consumers, grid operators and local or wider government, it could be possible to integrate various energy carriers in order to satisfy the demand of users while maximising renewable energy production, minimising costs, and optimising the use of existing power and gas infrastructure.  

The transition is now well underway, and the actions of individual producers or consumers can no longer occur without considerations for the wider system. Now is the time for system optimisation, which means continuing to find these synergies between the different actors of the system which bring down the costs for society while accelerating the energy transition.