pwr_july-2024 - 5

SPEAKING OF POWER
Energy Evolution: What
Technologies Are Leading
the Way Today
Aaron Larson
I
t's not uncommon to
hear
people
talk about the energy transition. Yet,
throughout its history, the power industry
has almost always been transitioning in
one way or another. There are constantly
new technologies being developed, proven,
and deployed to produce power in a
more efficient and affordable way. Perhaps
another term is more appropriate.
" I tend to use the word energy evolution, "
Bernadette Johnson, general manager
for Power and Renewables with
Enverus, said during a webinar hosted by
POWER in May. Johnson said the term
transition implies there is a beginning
and an end, but evolution suggests a
more continuous state of change. " This
evolution that we're currently undergoing
is really just a continuation of what's
always been happening, " she said.
Looking into the Future
During the webinar, Johnson presented a
Sankey diagram showing primary energy
flows using data sourced from the International
Energy Agency (IEA). The top section
displayed data from 2022 while the bottom
section showed predictions for 2050
based on the IEA's " Announced Pledges
Scenario. " A broad shift from fossil fuels to
renewables was obvious in the diagram.
Also visible was a significant increase in
electricity consumption, as movement toward
the electrification of everything continues.
Notably, electricity consumption in
2050 is expected to increase by a factor of
2.3 compared to 2022.
" This is a dramatic step change in the energy
industry, " said Johnson. " That means
investment in certain technologies. It means
a change in how many countries actually derive
revenue today versus what it will look
like in 2050. The grid will have to change
dramatically to support not just the new
load-the new demand for power-but also
where that power is going to come from, if
it's going to be primarily from renewables. "
This energy evolution presents significant
risk to the power industry, but it also
offers great opportunity. " All of this is going
to take money-it's going to take capital, "
said Johnson. " A big part of what's
July 2024 | POWER
going on today is competition for capital. "
And the competition is fierce. According
to Enverus, there have been 111
energy project deals of $500 million or
more signed from 2022 through May
2024. The largest was worth $13.96 billion
by oil majors BP and TotalEnergies,
winners in a 7-GW offshore wind site
auction in Germany. There were a dozen
more projects on the list valued at $4 billion
or higher. Gas, nuclear, and biofuels
were all represented in that group, while
several other projects included multiple
technologies that weren't specifically
named. Further down the list, solar;
carbon capture, utilization, and storage
(CCUS); hydropower; green hydrogen;
storage; and several other energy transition
technologies were included.
The Hype Curve
To understand where all the various technologies
stack up against each other,
Enverus developed what it calls a " Hype
Curve. " The y-axis depicts expectations
from low to high, while the x-axis is a
timeline. The curve is divided into five regions
from left to right: Innovation Trigger,
Peak of Inflated Expectations, Trough of
Disillusionment, Slope of Enlightenment,
and Plateau of Productivity.
At the start of the curve, expectations
are low and remain fairly steady. Some
technologies Enverus currently has in that
region include fusion, natural hydrogen,
and advanced nuclear reactors. About
two-thirds of the way through the Innovation
Trigger region, the curve turns up and
quickly increases until it enters the Peak
of Inflated Expectations section. Technologies
currently in that area include green hydrogen,
long-duration batteries, and CCUS.
As reality sets in, the curve turns
down and progresses into the Trough
of Disillusionment. Offshore wind presently
sits at about the bottom of that
trough, according to Enverus. Yet, cynicism
doesn't usually last forever, so the
curve turns back to the upside and many
technologies continue the progression
into the Slope of Enlightenment section.
Electric vehicles have entered that area
on Enverus' current Hype Curve, while
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short-duration batteries reside there too,
albeit near the end of the region.
Lastly, technologies enter the Plateau
of Productivity. This is where assets that
are technologically and economically
proven dwell. Enverus shows onshore
wind, solar, nuclear, and hydro all somewhere
along this area of the curve today.
Johnson said some technologies may
never reach the Plateau of Productivity
and could die in the Trough of Disillusionment
or elsewhere along the curve,
but others will march their way through,
achieving a solid market fit in the end.
" If you look in the media, you're going
to hear a lot of noise right now about some
of these things that are on the left part of
the chart, many of them not economic, but
they're competing for the same capital as
the assets on the right, " Johnson said.
Internal Rate of Return
Looking at the internal rate of return
(IRR) is one way to evaluate a project.
Other things can be important, such as
reliability, longevity, carbon emissions,
and such, but IRR is often a big item for
capital investors. When there's competition
for capital, like today, investors will
generally lean toward projects with the
higher IRR, Johnson explained.
So, what types of projects have the
highest IRR currently? It turns out energy
storage projects are among the best.
" Battery storage is actually very economic,
predominantly across the country
right now, " said Johnson.
In a chart displaying IRR values for
projects in various categories, storage
in the Southwest Power Pool region had
a 100% IRR on average. Storage in the
PJM Interconnection was not far behind
at 92%. Other regions with high storage
IRRs were Electric Reliability Council of
Texas (57%), California Independent System
Operator (CAISO, 45%), ISO New
England (38%), and New York ISO (36%).
Meanwhile, CCUS, hydrogen, wind, and
solar PV were much further down the list,
with many regions sporting IRRs ranging
from 4% to 13% for those technologies. ■
-Aaron Larson is POWER's
executive editor.
5
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