The Four Product Future Transforming the Energy Industry Today

by Editorial Team

Last year, renewable energy sources represented more than half the new power capacity around the world.

While this is an important step toward achieving a clean energy future, successfully integrating this large amount of renewable generation into the current U.S. transmission system – in a safe and reliable manner – is currently a monumental challenge. The intermittent nature of both wind and solar challenges our ability to fully depend on these resources. As we see in Figure 1, not only is wind energy variable, but it can also defy forecasting – even “hour-ahead” forecasting. 

To date, no state, company or organization has cracked the code as to how to best fill in the gaps when renewables do not generate power. Therefore, it becomes necessary for all of us – inside NRG and beyond – to think more broadly about ways to move towards a clean energy future.

At NRG, we spend a lot of time thinking about the design of the electricity markets of the future— 

• What technologies will be needed to meet our national carbon emissions reductions targets and simultaneously maintain system reliability and affordability? 

• How can we design today’s energy markets to drive the investments necessary to deploy these advanced green technologies?

• Where should corporations and energy companies invest capital today to maximize returns in the changing, increasingly lower carbon energy economy of tomorrow?  

Thinking comprehensively about long-term solutions to support the clean energy future and decarbonization of energy and our economy at large, we conclude that markets will need to support four broad categories of infrastructure investments and innovation: renewable energy, energy storage, controllable demand, and fast-ramping gas. We refer to this as the “Four Product Future,” and we especially observe these categories and trends in California, a state that often leads  in energy trends.

The Four Product Future provides individual consumers (large and small) and regulators a guiding view for where to direct investment and research dollars in order to drive low-carbon outcomes. The areas include: 

1. Renewables: We believe the bedrock of the future electric grid will be renewable energy.  In fact, the only way we can meet our economy-wide carbon reduction targets is to dramatically increase renewable energy production.  However, renewable generation is, inherently, variable. Already in Texas (figure 1) and California today, we regularly witness several thousand megawatts of renewable energy entering (or leaving) the grid over the course of an hour, or in some cases, minutes. As the percentage of renewable power on our system increases, the fluctuations will increase as well. Balancing these fluctuations will require major investments in each of the other three products.   

2. Energy storage: Improvements in our ability to store energy during times of peak renewable production, and then tap into that power during periods where the wind or sun are not cooperating will be key to the energy system of the future. Energy storage can come in a variety of forms (e.g. thermal, chemical, etc.).  The main challenge for batteries, however, is that they are currently among the most expensive energy technologies. That said, battery technology continues to improve in performance and cost, meaning that energy storage might soon have its own ‘solar’ moment in terms of rapid innovation and deployment.  

3. Controllable demand: Controllable demand will change the way Americans interact with the power grid in both large and subtle ways. Customers will automatically and seamlessly modulate their energy consumption in response to demand – e.g. intermittent renewables and load peaks – thus radically reshaping and reducing the amount of fossil fuel generation needed. Controllable demand could take shape in “smart” appliances that can optimize run time based on grid availability. In the century that brought us the Internet and Nest Thermostats, fantasy football and transportation on command, we can certainly find ways to optimize consumer energy demand to match conditions on the grid in real-time.

4. Fast-ramp gas: New, efficient fast-ramping natural gas facilities complete the picture. Weather patterns are, by nature, uncertain (see again figure 1), so a power generation system entirely tied to weather may not provide the reliability Americans have come to expect and need. The combination of battery storage and controllable demand are unlikely, by themselves, to completely balance the volatility in renewable generation across the entire system. In order to reliably match supply and demand, energy markets will require generation with the ability to turn on, or off, very quickly to adapt to changing conditions. Modern natural gas fired generation meets such high performance requirements, since it can often start and stop multiple times per day and ramp in minutes (unlike with nuclear, coal or older gas-fired power plants which take hours to ramp).

We also spend a lot of time thinking about how market structures should evolve to support the cost-effective deployment of all of these technologies, working in concert. What types of ancillary services market reforms do we need to value fast-ramping natural gas?  How can we utilize competitive forces to drive down energy storage costs? How should markets value and drive controllable demand? 

The ability of these four sets of technologies to interoperate and support one another, successfully managing supply and demand and safely and reliably ensuring customer satisfaction. As forward-thinking businesses know, many of these technologies are ripe for installation today with others coming into their prime in the next few years. 

As an industry, our goal should be to continue honing the regulatory framework, technologies, and business models necessary to bring the Four Product Future further into the mainstream today. At NRG, we’re on it.

Let us know what you think. Is your company ready for onsite renewables and controllable demand as part of its sustainability goals?

[1] IEA raises its five-year renewable growth forecast as 2015 marks record year, October 25, 2016 (https://www.iea.org/newsroom/news/2016/october/iea-raises-its-five-year-renewable-growth-forecast-as-2015-marks-record-year.html)

[2] According to Next 10, compared to all other states, California ranks among the lowest in the nation for both per capita energy consumption and per capita energy spending. http://www.next10.org/ca-energy