The global energy mix is undergoing a remarkable transition to embrace renewables as a much larger constituent.
And the two largest growth markets for renewables, China and the U.S. are powerful examples of this trend. By 2017, solar and wind accounted for over 25% 1 of power generation in China and surpassed 10% in the U.S. 1. Installed capacity also grew six-to-seven-fold in both countries over the past decade. As solar and wind have reached “grid parity,” even reticent countries such as India have begun following suit with mass deployment programs.
Perhaps this paints a bright picture, but the cloud brewing above the adoption of renewables is the hidden cost of intermittency. As wind and solar exceed about 10% of the energy mix, the unsteady and unpredictable nature of these power sources often leads to significant mismatches between demand and supply in the electricity grid. The result can be increasingly wild fluctuations in intra-day electricity prices, as Californians have experienced recently 1.
The inescapable reality is that as energy infrastructure becomes more renewable, it must also become smarter. Intermittent energy sources need to be balanced out by back-up generation such as gas-fired turbines, storage systems such as pumped hydro or batteries, and interconnections between different grids and energy islands so that electricity can move from areas in surplus to those in deficit. But the cost of this additional infrastructure racks up very quickly. Scientists have estimated that when intermittent sources reach 20-30% of the energy mix, balancing costs can add 30-50% to the cost of the renewable energy installations themselves1.
Projecting forward, the latest New Energy Outlook1 from Bloomberg New Energy Finance predicts that almost 50% of the world’s electricity market will be generated from wind and solar by 2050. This trend will inevitably spawn a vast market for smart energy, which will consist of smart grid equipment, energy management systems (EMS), and energy storage. Estimates for the global smart grid market vary, but a consensus average seems to be around $100 billion by 20252. Meanwhile, the EMS market is expected to grow 15% CAGR to reach about $22 billion by 20251, and Bloomberg expects the global energy storage market to reach $250 billion by 2040, with a large proportion of installed capacity coming from batteries.