The United Nations conference on climate change in Glasgow has highlighted the need for nations to reduce carbon emissions, but that still leaves the question of how they can achieve a net-zero future.
It’s little mystery that wind and solar power will be a significant part of the answer. Yet even as their costs of production have plummeted, storage capacity will stand in the way of their widespread adoption. And without solar and wind power replacing fossil fuels, the goal of a net-zero future will be next to impossible to achieve.
Why energy storage remains a challenge
Despite monumental progress in wind and solar energy development, they make up only a small fraction of the world’s total energy consumption. In Canada, for example, this portion stands at 2.42%.
Renewables won’t reach broad scale until the issue of storage is solved.
But that won’t reach broad scale until the issue of storage is solved.
To begin with, limited storage prevents renewables from providing a steady and reliable flow of electricity.
In the current electricity grid that has powered the world for a century, electricity is generated at large power plants and distributed to consumers—households and businesses.
The use of fossil fuels means that the power supply can be adjusted instantaneously to meet changing demand. In contrast, wind and solar energy are variable, which prevents them from becoming major energy sources in an economy that requires constant, on-demand electricity.
Investments in battery research and development could help increase storage capacity for renewables. When the weather conditions are favorable, excess electricity generated by renewables can be stored in larger batteries to be used when the sun sets and the wind stops.
Second, limited storage does not allow for renewables to be easily transported.
Although Newfoundland alone has enough wind to power all of Canada many times over, renewable power realization is exceedingly local.
Investments in gridlines are required to transport renewable energy from where it is produced to where it is needed.
That is not to say that scaling up renewables is impossible. While the infrastructure is not there yet, investments in renewables following the Glasgow conference might translate into technology that lowers the cost of grid-scale batteries and increases storage capacity.
A hybrid model, where various forms of energy are merged to generate a consistent supply, will most likely be a solution.
In a smart grid system, renewables can fully power households and businesses when the weather conditions are favorable. Any excess electricity generated locally is fed back to the grid and transported to where it is needed. Excess electricity could also be stored in high-capacity batteries. Fossil fuels can be used as a substitute to supply energy where renewables fall short.
In a way, using fossil fuels to substitute renewables is analogous to the way coal is substituting natural gas in Europe today. With careful planning and innovation, this substitution will be less disruptive than the current situation.
It is undoubtedly going to be difficult to transition away from fossil fuels, and battery storage is only one of many challenges in that path.
What the middle market can anticipate
Middle market businesses should expect energy price volatility to be part of the new normal in the second phase of energy transition, with fossil fuel prices trending upward.
In Canada, the price of carbon, currently at $40 per ton, is set to increase more than fourfold to $170 per ton by 2030 as the country strives to meet its climate commitments.
This policy is designed to encourage adoption of renewables and reduce consumption of fossil fuels by making higher-emission energy sources more expensive. When the price of carbon increases, businesses will want to buy less of it and will switch to renewables as they become comparatively cheaper.
Businesses can expect energy to eat up a larger portion of operating expenses while the challenges in the transition to renewables are navigated through a combination of technology, policy and market forces.
How to prepare for the transition
Energy demand is inelastic, which means that it is difficult to cut back immediately when prices rise. Still, middle market businesses should aim to reduce dependency on fossil fuels and hedge themselves against high and volatile energy prices.
Businesses should consider investments in energy-efficient infrastructure and equipment, as well as technology and automation. Seeking out local and domestic suppliers can help keep transportation costs, which are affected by energy prices, low.
The middle market should also take advantage of government incentives such as rebates and tax credit when making the switch to renewables.
The takeaway
Storage will remain a major technological roadblock for years to come, as research and development work out a reliable way to supply renewable energy. In the meantime, expect energy prices to fluctuate.
Middle market businesses can limit their exposure by investing to increase their energy efficiency with better equipment and automation, and by seeking local suppliers to lower the cost of transportation, and adopting renewables where appropriate.
A long-term approach will help the middle market weather the energy storms in the years ahead.
