Where we’re going we don’t need roads

It’s been a great year for renewables. Not for the stocks—they've taken a beating—but for the technology, which is truly thriving.

The old adage that energy transitions occur slowly, and that new energy sources simply layer on top of existing supplies, feels outdated after 2023. Over just one year, coal power saw a 26% drop in market share in the European electricity market(1), while gas lost 15%. In total, fossil fuel usage decreased by 209 terawatt-hours for electricity generation in Europe.

To put that into perspective: It’s roughly the equivalent of Spain’s electricity demand dropping off the map. The reductions in market share for coal and gas remind me of what we experienced a decade and a half ago as an executive in the media advertising space when Google and Facebook came and took our lunches.?

These changes are swift and transformative. Solar energy is nearing a 10 percent market share and is likely to surpass that milestone in 2024. Countries like Greece, Hungary, and Spain are hurtling towards the 20% mark. With the growth rates they exhibited in 2023, they could easily exceed this figure.

Wind energy is also approaching a 20% market share across Europe, with significant additions in Germany, the Netherlands, and Belgium indicating continued progress. Only France, Norway, and Italy lag behind, with less than 10% market share in wind power. Norway is the only one expected to remain below this threshold by the end of 2024.

Now if that change isn’t hefty enough for you, let’s turn to what’s happening in storage. Because even? as momentous as the shifts in electricity markets are, they have been long anticipated and predictable as large wind power projects edged toward completion and solar installation remain at sustained high levels. The surprise to me is the change happening in the battery space.

In the span of a year, Otovo (the solar and battery marketplace) has seen the attachment rate of batteries to solar systems explode from approximately 20% to 41%. In German-speaking Europe we’re beyond 75% of systems sold containing storage, alongside the UK and Italy. The 20%p average change in Europe does however mask a massive acceleration in some markets: Belgium went from 25% to 70% of home energy systems sold with a battery between April of 2023 and April of 2024; Poland much the same development moving from 5% to 40% in the space of a year.

It seems clear that with the improvements seen in the consumer friendliness, price and performance of batteries, these rates are going to move us close to 100 percent in a handful of years, perhaps faster. The battery is a little trading machine, and if cheap enough it will reliably arbitrage the difference between power prices into and out of the home; day-ahead intraday power price changes; frequency markets; and/or grid tariff structures. Once manufacturers reduce the cost per kWh sufficiently, we reach a tipping point where owning a battery will become indispensable.

On top of that, EVs represented 22% of new vehicle sales in Europe in 2023. Eventually that share will grow, and the stock of kilowatt hours on wheels in garages will accumulate - each car representing roughly 3-4 days worth of electricity consumption for the household. New electric car models with bi-directional charging coming out in 2024 from Volvo, Volkswagen and other big sellers in Europe mean we should expect these batteries to start playing a big role in the electricity markets as a whole.

California provided an early glimpse of this future in April this year. April represents a median month, with partial availability of solar and wind power and moderate air conditioning demand. In April 2024, the state met over 100% of its electricity demands through wind and solar alone. This is no longer a headline story; what is, however, is how Californians continued to source their energy from renewables post-sunset. Batteries represented 25-30% of the electricity supply in the evening hours. Having charged in the surplus hours in the afternoon, the batteries unload their stored energy at zero marginal cost, postponing and slowing the need for a ramp up of other (thermal) energy sources or the reduction of valuable hydro reservoirs.

California doesn’t have a particularly large battery fleet, but it is already making its mark. With developments continuing as they currently are for electric mobility and home energy storage, we should start to see a rapid decline in the footprint of residential and commercial users on the grid.?

That’s good news. The grid is a contraption that allows power to be available where it needs to be when it needs to be. Traditionally that was a problem of location, the power could be available on demand thanks to centralized baseload power, but the problem was getting it to where it would be consumed - enter the electric grid. As super cheap but intermittent wind power and increasingly solar power entered the mix, the problem turned to one of timing. The power was exactly where it needed to be, but not at the right time - enter the battery.

When the battery is coupled with distributed energy production, it takes a lot of pressure of the grid and the other energy sources. It means many of the fears of overloading the energy systems’ highways and local roads will end up having been overblown. It means we can save some of our best assets, such as hydro power, for more critical times and let the easy work be done by solar, wind and batteries. It allows more manufacturing and data center demand to be added to the grid, as the pressure of demand from residential and commercial consumers recedes.

The grid is often compared to network of roads that carries our electrons from A to B. But to echo Doctor Emmet Brown in Back to the Future; “Roads? Where we’re going we don’t need roads”

(1) This article relies heavily on data from the Ember European Electricity Review 2024, an excellent report I warmly recommend to all readers.