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First dimension: Decarbonisation.The world of power generation has

transformed dramatically over the lastfew years. In Europe and the UK, coalhas been rapidly phased out andreplaced by cleaner forms of electricitygeneration. This includes gas –particularly in the UK where gas-firedpower plants are still the main sourceof electricity – but most notablyrenewable energy.

In 2017 the UK reached two majordecarbonisation milestones. In April,the National Grid announced that, forthe first time since fossil fuel steam-driven power stations were introducedin 1882, Britain went a full workingday without turning on its coal-firedpower stations. The second milestonewas the year of 2017, when Britainsupplied more than 50% of electricityfrom low carbon sources. Theseachievements are a direct consequenceof a dramatic ramp-up of renewableenergy deployment over the last fewyears.

These significant milestones werepossible because of the growth in therenewables sector, driven bygovernment policies designed toincentivise the deployment of cleanenergy generation. This kind of activityis not limited to the UK – in fact,following the Paris agreement in 2016,most global governments have re-confirmed their commitment torenewables and CO2 reduction targets.Encouragingly, in the years since thesegovernments first committed todecarbonisation (in Europe throughvarious Renewable Energy directivesfrom 2001), renewable energy policiesthat aimed to support the installationof clean capacity via numeroussubsidy regimes have achieved theirobjective and transformed the powersector.

The large and quick deployment ofcarbon-free power plants around theglobe has accelerated the natural cycleof technological advances in theindustry. Wind turbines and solarmodules are now more efficient than

Dario BertagnaPrincipal, Clean Energy InfrastructureCapital Dynamics

DARIO BERTAGNA OF CAPITAL DYNAMICS DISCUSSES HOW DEVELOPMENTS IN RENEWABLE ENERGY ARETRANSFORMING THE WAY WE THINK OF THE POWER SECTOR

“…in the years sincegovernments firstcommitted todecarbonisation [...],renewable energypolicies that aimed tosupport theinstallation of cleancapacity vianumerous subsidyregimes haveachieved theirobjective andtransformed thepower sector.”

3D renewables: Decarbonising,Decentralising and Disrupting

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Figure 1: Low carbon sources supplied more than half of UK electricity in 2017

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they ever were, and, even moresignificantly, their manufacturing andbuilding costs have decreased to thepoint where renewable energy is costcompetitive with conventional powergenerators in most locations.Renewables, to use the industry jargon,have finally reached “grid parity”.

These advancements – the declines incosts and the technological progresses– have been so far mostly evolutionary.However, we are now on the brink of arevolutionary transformation that willreshape the way we think about powergeneration.

Second dimension:DecentralisationThe main issue with two of the most

common renewables sources – windand solar power – is the inability tocontrol when the electricity isgenerated. In simple terms, solar plantsproduce electricity when the sun isshining and wind farms generatepower when the wind blows. Theseweather dependent technologies do notcome with an on/off switch and,therefore, the electricity is instantlydispatched to the grid as soon as it isgenerated.

Or, at least, this was the case…

The reality is that the final missingpiece to a puzzle made with 100%renewables power is rapidly coming to

the market. Battery storage is thesolution to the intermittency issue andabsence of control over the electricitydispatch. When a wind or solar farm isconnected to a battery, it immediatelygains the flexibility to store electricity

and to use it whenever there isdemand. Batteries do not even need tobe installed directly adjacent to arenewable plant. As long as they areboth connected to the samedistribution infrastructure, renewableplants and batteries can be locatedmiles away, allowing a storage facilityto absorb power from the grid andthen discharge whenever there is aneed for it.

The advent of battery storagetechnologies has been accelerated bythe fast growing electric vehiclemarket. This new market has attractedhuge investments which have led to asubstantial reduction in battery cost aswell as an increase in efficiencies:battery prices have already more than

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Figure 2: Levelised Cost of Energy (“LCOE”) by Generation Type1

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Figure 3: Battery cell cost projections, 2010-20302,3

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halved since 20112, or 20% annuallysince 20093 and the cost reduction isexpected to continue over the nextdecade. In fact, it is predicted thatelectric vehicles will be cheaper thantraditional internal combustion enginecars by 2022.

The result of this is that there is, andwill continue to be, less and less needfor large conventional powergenerating plants. This addedflexibility decentralises electricitygeneration, leading to the rise ofsmaller embedded renewable-generating parks found in morefavourable conditions and locations.

This new world of distributed anddecentralised, easily controllablerenewable energy will increasinglyserve as a baseload power source –shaking up a century old industry andtransforming the way we think of thepower sector.

Third dimension: Disruption andbeyondWhat does a decentralised and

efficient renewables power plantgenerate? Two things: clean electricityand disruption.

After you eliminate the need for largebaseload power plants and replacethem with distributed renewables, anew era for the electricity marketemerges where small scale generatorscan supply electricity directly to theend consumer, and large-scale fuelfired power stations get replaced bydistributed virtual power plants.

There is a fourth “D” in therenewables equation and that isdigitalisation. With the Internet ofThings and the introduction of peer-to-peer technologies such as blockchain,smart devices built with efficiency attheir core can control power needs andbalance a power supply chain madeentirely of renewables.

Once you free the power market fromthe fuel cost of conventional energygenerators, you create a system withvirtually zero marginal cost forproducing electricity from renewables.Large industrial companies can enterinto direct power purchase agreementswith clean energy generators, servingthe dual purpose of cutting theirelectricity bills and reducing theircarbon footprint.

Continuing investment in the sectoris required to accelerate thisrevolutionary transformation to thepower sector. Investors that have beenactively participating from the outsetare best positioned to read andnavigate a transforming market.Renewables have created a new set ofdimensions and not only they are mostrelevant than ever, but they have neverbeen more exciting!

1. Renewable Energy data shown on an unsubsidised basis.“Power & Renewables Disruptive Drivers: North AmericaFocus.” Wood Mackenzie. February 2018. ConventionalEnergy data per “US Power Market Update.” MorganStanley Research. February 2018. Assumes$3.50/mmBTUgas price.

2. “What Needs to Happen Before Electric Cars Take Over theWorld.” New York Times. December 18, 2017.

3. “The Electric Car Tipping Point.” Boston Consulting Group.November 6, 2017. (3) “Bottom up cost scenarios forlithium-ion batteries.” Bloomberg New Energy Finance.February 6, 2017.