A changing energy mix: trends in the power generation market

31 May 2018 (Last Updated May 31st, 2018 11:00)

The way we generate electricity is rapidly changing, and this change has been prompted by concerns related to climate change and the cost of power generation.

A changing energy mix: trends in the power generation market
In the North American and European regions, the change in the generation mix is already visible in the switch from coal to gas and the expansion of wind and solar power generation. Credit: Courtesy of Gretar Ívarsson – Edited by Fir0002

The way we generate electricity is rapidly changing, and this change has been prompted by concerns related to climate change and the cost of power generation.

These concerns will result in natural gas and non-hydro renewable energy sources such as wind and solar power becoming the preferred sources of power generation worldwide. Though hydropower generation will continue to be used in certain parts of the world such as South America, Canada, and Eastern Europe, growth will not be significant as most of the potential has been exploited already, and because of concerns regarding the environmental fallout of constructing large barrages.

The growth of renewables around the world

In the North American and European regions, the change in the generation mix is already visible in the switch from coal to gas and the expansion of wind and solar power generation. These are being prompted by the availability of abundant natural gas from newly discovered shale gas deposits in the US as well as governmental regulations restricting carbon emissions.

The Asia-Pacific (APAC) region will lead the global additions in solar power capacity, mostly through contributions from China and India. Countries such as Japan that until recently depended on nuclear power generation too are turning to renewables. Japan is even creating its renewable certificate trading market in 2018 to promote a robust environment for the growth of renewables.

The expansion in renewable power generation in these countries will be mostly favoured by a rapidly plummeting cost of installations, further accentuated by government policy that favours reverse bidding mechanisms over feed-in tariffs (FiTs). The fall will bring solar power generation costs almost to the same level as thermal power generation. However, this region will also lead global additions in coal-based generation due mainly to its need for cheap energy resources for base load generation.

In the US and Canada, factors central to the change in the generation mix are governmental regulations and the cost of generation. In both these countries, the current and future increase in gas-based generation is aided by favourable economics related to operation of gas-based power plants, confidence in long-term fuel supply, and government regulations that favour lower carbon emissions. Over the past decade, more efficient combined-cycle gas plants are being constructed. A study by the US Energy Information Administration (EIA) concluded that the cost of building natural gas generators declined by 28% between 2013 and 2015 (Geuss, 2017).

Cheap coal isn’t everything

Coal-based generation in the APAC region has witnessed a higher growth rate compared to other regions largely due to the availability of cheaper coal in the region. Countries such as China, Australia, and Indonesia are the largest producers of high-grade coal in the world. India, which has witnessed high demand for electricity in the last decade, produces as well as imports coal from Indonesia, Australia, and some Central Asian countries such as Kazakhstan. Access to cheap coal in these countries as well as fewer restrictions on the use of coal for power generation has allowed coal-based generation to flourish.

While the above factors have encouraged utilities to construct new gas-based facilities, old coal-based facilities are also being converted to gas-based power generation. Providing impetus to these conversions are government regulations. For example, in Canada in 2015, the government of Alberta announced the mandatory phase-out of coal-based power plants by 2030.

Adoption of solar and wind power has been aided by the rapidly declining costs of power generation from these technologies. Initially, governments sought to encourage solar and wind installations through FiT schemes. The decrease in costs has made it possible for these schemes to be replaced by reverse bidding mechanisms, leading to a boom in the construction of utility-scale power projects. Such booms have been more evident in the APAC region in countries such as China and India and in South American countries such as Brazil and Chile. Auctioning or reverse bidding of renewable energy capacity has been facilitated by the fall in equipment costs in solar and wind power technologies.

The substitute: Coal-to-biomass

The move away from coal is leading to another emerging trend, the conversion of coal-to-biomass. Wood pellets are being more extensively used in North American and European markets where this conversion has mostly occurred, while in Japan, where utilities have taken up biomass firing to substitute for nuclear power generation, palm kernel shell is mostly being used.

Coal-to-biomass conversion in the coming years will be more pronounced in countries such as Japan, South Korea, and Canada. Public resistance to nuclear energy and a rapidly increasing market for renewables will be the main driver for the biopower market in Japan, while in South Korea a scandal-hit nuclear power sector and environmental concerns will be the main movers for biomass. South Korea is the largest importer of wood pellets needed for power and heat generation in the APAC region. The recent announcement by the Canadian government to decommission coal-fired power plants by 2030 will drive conversion to biomass in the future.

The expansion of renewable power generation, particularly solar and wind power, and their associated intermittency has led to the emergence of the energy storage sector. The deployment of advanced energy systems has mostly happened in the US, and North America accounts for nearly half of all deployments in the world. The APAC region accounts for another 25% of deployments while around 20% of deployments have happened in Europe.

It is therefore concluded that environmental concerns and the rapidly falling price of renewable equipment will provide the impetus for faster growth of natural gas and non-hydro renewable power generation. Although, in many parts of the world, lawmakers are still constrained by the notion that renewables cannot provide base load power due to their intermittency, growth in the manufacturing capacity of energy storage devices will drive prices down making the adoption of even this technology economically viable, and thus nullifying the intermittency rationale. This will perhaps pave the way for non-hydro power generation technologies to dominate the power generation scenario in the future.

 

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