What are the challenges of renewable energy in power markets?

What are the challenges of renewable energy in power markets?

Unlocking the power of renewable energy and integrating it into our national grids is the key to a stable and fit-for-purpose grid in the future.  We take a look at the limitations and benefits of renewable energy and how to optimise them for a responsive grid.  

1. Variability and intermittency of renewables 

One of renewable energy’s most prominent drawbacks is its intermittency, which is partly due to its reliance on the weather to generate energy, which cannot be controlled. Unlike fossil fuels, renewable energy cannot be turned on and off in response to energy demand. 

2. Need for grid modernisation 

This variability of renewable energy makes it currently an unreliable source of energy. Wind and solar fully rely on weather patterns to generate energy, with wind speed governing wind plant output and sunlight governing solar output. If there is too much heat, that can also affect solar output. This level of intermittency poses a problem for our current energy grid setup. It can be difficult to integrate into traditional grid setups because we can't turn energy off depending on demand like we can with fossil fuels. This is because traditional grid setups deal with traditional power sources which are dispatchable - the ability to turn on and off on demand - so aren't flexible, which calls for a focus on modernisation of the current grid to incorporate renewables successfully.   

3. Market design limitations 

To combat this issue of interconnectivity, we need to look at the current design limitations of the grid about renewable energy. Our current grids aren't particularly flexible in design due to the legacy equipment present in traditional plants and also used to connect them. New grids need to utilise modern technology in their design, including the Internet of Things (IoT) and integrate the methodologies of decentralised grids for increased optimisation. 

How to optimise power markets for renewable energy 

To successfully integrate renewable energy into future power markets, certain methodologies, innovations and upgrades need to take place. We take a look at four key factors. 

1. Implementing market-based pricing for renewables 

Market-based pricing may help optimise the power market for renewable energy. When renewable plants experience downtime, this can restrict the amount of energy available on the market and cause the market to fluctuate and the price of renewable energy to increase, making it an inferior option financially compared to fossil fuels. Implementing market-based pricing for renewables can mitigate these fluctuations and cause renewable energy to be competitive with more traditional fuel sources such as fossil fuels.  

2. Enhancing grid flexibility and energy storage 

To further strengthen the grid in the face of intermittent renewable input,  flexible backup solutions that store energy energy could be introduced to the grid, making it more flexible. One of these methods is battery storage, which stores excess energy generated by renewable sources during high output. Battery storage serves two purposes: to conserve the energy from low-output renewable energy periods and to stabilise the grid by diverting surges of energy away and into storage facilities. A number of different options for energy storage exist, including hydro-energy storage systems, lithium-ion batteries that use a chemical reaction to convert and revert electricity when it's required at a later date and supercapacitors, which deliver energy very quickly and have a longer recharge life.  

3. Strengthening demand response programs 

There are two elements to a supply-and-demand model - supply: the renewable energy output, and demand: the energy required by consumers. When demand outstrips supply, this is because plants cannot generate enough energy to fulfil demand or demand has spiked; when supply outstrips demand, this is usually due to an energy production spike - for example, in the case of wind energy, a storm. Changes to the energy sector that could help strengthen the demand response system could include imposing restrictions on high-energy-demand sectors such as heavy industry or aviation to reduce the amount of energy they require from the grid. Other methods to strengthen demand response programs could be integrating predictive data analytics to determine when high-demand periods might be, for example during seasonal events such as high heating or cooling needs due to fluctuations in temperature.   

4. Improving transmission infrastructure 

Renewable technology is very expensive, and this is in part due to the cost of integrating infrastructure. Factors such as climate change can be responsible to degradation of infrastructure, with storms damaging or reducing the lifespan of renewable equipment. This is further exasperated by the fact that some renewable equipment - for example wind turbines - usually need to be placed in exposed areas to generate energy, leaving them more vulnerable to damage and downtime periods during repair. This can restrict the amount of energy available on the market. When dispatchable - such as fossil fuels - and non-dispatchable energy sources -such as renewable energy - are integrated using the same infrastructure this can also be challenging, but upgrading the grid to prepare it for both methods is an expensive task.  

Policy and regulatory reforms to support renewable energy 

It’s important that to stabilise the grid and cause renewable energy to become a realistic global energy solution, that governments around the world implement policy and regulatory measures to support clean energy sources. Current reforms gaining momentum are introducing carbon markets due to government policies mandating the reduction of carbon emissions by businesses. This helps generate finance for renewable projects, reduce overall carbon emissions and helps the sector to transition to competitive electricity markets.  

1. Introducing carbon pricing and incentives 

The carbon market is a tool to regulate carbon emissions, which causes carbon markets and carbon pricing to develop. In this market, carbon emissions can be traded, with ‘offset’ carbon is given a monetary value to be traded on the carbon market. Businesses that offset carbon emissions can be bought by companies that are over-producing carbon emissions to help them avoid penalties associated with over-producing or to help achieve carbon reduction goals.  

2. Promoting decentralised energy systems 

Building grids based on the needs of specific localities away from the national grid is called decentralisation. It allows the management of transmission, consumption, and generation of energy to be done off of the wider grid, allowing grid optimisation in relation to specific energy demand and issues with certain communities. Quicker response to things like shutdowns is beneficial, as is building overall grid reliance.   

3. The role of technology and innovation 

Emerging technologies have a role in optimising power markets for renewable energy. Blockchain is a key element in this optimisation, making energy transitions simpler, clearer, quicker, and more easily verifiable. Blockchain removes the utility providers and brokers using smart contracts, which factor in consumers' actual energy use. A price is then fixed using a Power Purchase Agreement (PPA). This could be automated further by introducing AI as an element within Blockchain implementation, streamlining the process even further.  

Overcoming renewable energy's market challenges requires smarter grids, strong policies, and tech innovation to ensure a stable, clean, and competitive energy future.