Blog September 18, 2019 Michael Westberg Vertical Expert , Tele2 IoT

Utilities Update: We’re Reaching the Renewable Tipping Point

The main focus of my last blog post was the dramatic (and rapid) decrease in large-scale wind and solar-based electricity production costs, and the ensuing consequences.  Now, ten months later, it’s time for an update on what is happening today on the energy/utilities front.

In this blog I’ll take a look at the situation in Sweden. Now, Sweden (as well as Norway and Finland) is a bit of a special case since electricity production is already almost 100% fossil free, with wind power being the lowest-cost alternative for new sites. Compared to many other countries, Sweden is thus very well-positioned to meet the proposed EU goals of zero carbon footprint by 2050. The main challenges for us Swedes is to minimize carbon footprint in transportation, heavy industry, and heating.

Globally, we are rapidly reaching the point where the total cost for renewables is lower than fossil-based production, i.e. when factoring in the significant costs of upgrades in the distribution network, large capacity storage, etc. The intermittent character of wind/solar requires pretty big investments in the electricity distribution grid, as well as new processes and market mechanisms in order to handle peak loads in a smart way*. So, just looking at production costs is not enough.

I recently spent a few days at Almedalen, Sweden’s annual open political festival that takes place in the charming medieval city of Visby, on the Baltic island of Gotland.  The week-long event has taken place during the first week of July for fifty years, and it’s a space where not just national politicians gather but where all actors in Swedish society – municipalities, NGOs, media, public and private enterprise – meet to discuss, debate, and maybe even decide on societal issues. The event also includes the full range of stakeholders in the energy sector, from the ministerial level to large and small utilities to entrepreneurs and innovators. While there, I met with a number of people in the industry and listened in on several energy-related seminars.

 

The big topic for the energy sector was the lack of capacity in the Swedish electricity distribution grid. There is no shortage of production capacity, it’s just not situated where the energy is used. Massive replacement of fossil fuels to clean electricity will be fundamental not only in the transport sector, but also in heavy industries like steel and cement production, as well as tree and paper.

There is a general consensus between politicians, the industry, and regulators in Sweden that electricity distribution is key in transitioning to a low-carbon society bottleneck.  There are several factors behind this:

  • The combination of high economic and population growth in large metropolitan areas
  • The transition to non-fossil production and transportation (Electric Vehicles)
  • The very slow approval processes (10-15 years!) for building new distribution infrastructure, particularly long-haul high-voltage transmission.

I would also add that there has been a certain amount of complacency within the utility sector up until quite recently. Today, however, we’re actually seeing buildout of much-needed housing, as well as new businesses, halted due to the lack of available capacity. The industry is struggling to accommodate this as well as the low-carbon transition.

There is not a single solution, but the discussions cover all the issues:

  • Smarter regulation for more flexible business models
  • Shorter approval processes (moving from sequential to concurrent bureaucratic approvals)
  • Significantly more local production, combined with improvements in the grid
  • New demand-response models for peak shaving.

One example of this kind of mixed approach is in the Swedish city of Uppsala, which hit the capacity ceiling in 2018.  Vattenfall, the local Distribution Network Operator (DSO), and the city have made it possible for large customers to sign off on new flexible demand/responsible agreements in order to stabilize the grid, which has freed capacity and made it possible to (again) connect new customers. Near-real-time IoT communications is a must for managing capacity usage.

The bottom line is that the above challenges are absolutely possible to address at a reasonable cost. While a lot of details will have to be ironed out my impression is that there is a common understanding between the key actors in Sweden on the general direction and strategy and, more importantly, a political will to get moving ASAP with the required activities and investments. Doing so will almost certainly generate both medium to long-term savings across the board, efficiency improvement, and new business and export opportunities.

*Interesting example from the US: https://www.greentechmedia.com/articles/read/glendale-drops-gas-peaker-in-favor-of-clean-and-distributed-portfolio#gs.uc5rjw



Michael Westberg
michael.westberg@tele2.com
Vertical Expert
Tele2 IoT