Transition Is Not Linear

The race to Net Zero is no longer a question of "if" or "when", but "how". Indeed, the costs of building renewables, particularly utility scale solar plants, has reached the point where they are often the cheapest form of electricity generation. Yet, the energy transition still remains a complex journey, and — as we move away from a fossil-fuel based system — novel challenges emerge.

Some of them are physical. The sun does not always shine, and the wind does not always blow. This means that as we phase out dispatchable fossil fuel plants, we face the intermittency of renewables. To keep the lights on, we need flexible resources. Batteries are emerging as one essential solution for managing daily fluctuations. However, batteries have physical limits, particularly for durations longer than a day. To handle the so-called Dunkelflaute — periods where renewable generation drops for weeks — we need a combination of longer duration storage technologies (e.g. compressed air) and hydro and nuclear power, as well as novel clean technologies, such as hydrogen-based power plants. 

Perhaps the most underutilized resource is the people themselves. Demand-side response, i.e. engaging consumers to shift their energy usage, will be an essential source of flexibility. Yet, activating this at scale is difficult. It requires not just technology, but a fundamental shift in how people interact with the energy system, even though citizen energy communities are currently offering successful examples.

The Cannibalization of Profits

Even if we solve the intermittency, we still face daunting economic challenges; one example is profit cannibalization. In simple terms, both renewables and batteries can be victims of their own success. When the sun is shining, solar power plants flood the grid with cheap power, driving wholesale prices near zero. This creates a phenomenon known as cannibalization. As more renewable capacity is added, the market price of that electricity drops. Analyses I conducted suggest that in 2030 a mere 10% increase in renewable capacity could reduce renewable profits by nearly 20%. This creates a dangerous feedback loop: the more we build, the harder it becomes to finance the next project.

To counter these risks, governments have introduced support schemes such as Contracts for Difference (CfDs) to guarantee revenue for renewable developers. While important, these schemes still suffer from a considerable lack of harmonization across Europe. Some countries use hourly reference prices; others use monthly averages. Some contracts last 15 years; others 20. This regulatory fragmentation may push investors to chase the subsidy, not the sunshine. Furthermore, some incentives still encourage a "produce-and-forget" mentality. If a generator is paid a guaranteed price regardless of market demand, they have no incentive to stop producing when the grid is congested or to build closer to demand centers.

Rethinking the System

We must also recognize that the very climate change that we want to fight will introduce profound shifts in solar irradiance, wind speeds and precipitation. These shifts will fundamentally alter generation potential and grid reliability, increasing the complexity of the energy models used to inform policymakers. 

The energy transition is not just about building renewables, but it is about rethinking the whole energy system in a holistic and interdisciplinary approach to build effective and long-lasting solutions.