Wednesday, January 25, 2017

The economics of renewable energy storage

Since the Industrial Revolution, the energy needs for human activities have increased exponentially, and power sources evolved accordingly, with “photosynthesis-dependant” energy sources like wood being replaced by coal and later by oil and gas (Wrigley 2013). However, for a long time storing and transporting energy has never been the object of any major technological revolution. Fossil fuels are easily transported for long distances and store a large amount of energy in relatively little space (high energy density). For more than a century, there were no incentives to look for alternative techniques to store energy, because fossil fuels were just so practical. 

The growing concern for climate change in the last decades, however, has emphasized that fossil fuels cannot be the final solution for the world’s energy needs. Renewable energy sources, however, pose new technological challenges, not only for the production of cheap energy, but also for the difficulty in guaranteeing a stable supply. Solar, wind and tidal energy are intermittent sources, introducing a problem that was never significant with fossil fuels: energy storage. To a large extent, technical progress will attenuate this issue over time, and many solutions are currently being developed – from classic pumped hydrostorage and thermal, to cleaner and more efficient batteries, to more articulate solutions such as flywheels, compressed air, gravitational, superconductive magnetic. However the process of storage faces physical limitations and so far these solutions are quite costly. 

Ultimately, energy storage is not only an engineering issue, but also a socio-economic one, which requires coordination across regions, energy markets and consumers. Yet the economic profession has only recently started approaching this topic. Lazkano et al. (2016) argue that innovation in electricity storage will increase the substitutability of fossil fuels for renewables, but may also encourage more research in non-renewable energy-saving technologies. A recent paper by Geoffrey Heal (2016) proposes a broad overview of the potential solutions for the challenges of energy storage. This article examines not only the development of storage technology, but also the use of multiple complementary renewables (geothermal, hydropower), increases in energy production even with excess capacity, creating a geographically diversified portfolio, and finally demand side management to reduce consumption at critical times.

All of these options can have important costs and drawbacks, and open new interesting areas for economic research. Many questions remain to be answered: what is the optimal combination of storage technologies? Should government support innovation or encourage socio-economic adaptation, like energy-saving behaviours? What types of markets would best cater for an intermittent energy market which does not use fossil fuels as a back-up? Can countries coordinate their storage sites across different geographical regions? Certainly in the future environmental economics will speak more to this type of issues.

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