5 Trends Reshaping The Renewable Power Market

by | Jul 18, 2021 | Blog

Two investors standing beside solar panels powering light bulbs representing five top market trends.

Summary

  • Renewable energy markets are having to move to real-time in order to manage changing dynamics and complexities. This has resulted in many power markets adopting shorter settlement periods, which include 5-minute and 15-minute settlements.
  • Algorithmic and programming tools are quickly becoming standard practice in the energy market, as these developments can help to improve profitability and alleviate the 24/7 demand on human capital.
  • The liberalisation of power markets across the globe continues. There may also be potential for achieving a homogenised power market that could span across entire continents.
  • When excess power is generated, the surplus energy from home-produced renewable energy can be directed back to the grid via net metering. This opportunity signals the rise of the “prosumer”. The once-traditional electricity consumer can now become a producer of energy, which adds complexity to existing market participants.
  • Until recently, one of the most significant challenges has been the expense and effectiveness of battery storage facilities for both small and large scale renewable energy projects. With technological advancements, the price of battery storage has plummeted – bringing new possibilities to the renewable energy market.

Introduction

Regional power markets around the globe have arguably undergone more changes over the past decade than most other markets. Technological advancements, structural market changes, regulatory interventions, and political influences all contribute to changes in asset mixes, operating rules, and commercial risks.

The influences of renewable energy sources have had a powerful impact on the market. This article will look at the five major trends reshaping the renewable power market – from technological breakthroughs to consumers having a direct influence.

1. Real-Time Renewable Energy Markets

With ongoing investment in renewable energy, the reality of unpredictable challenges should not be ignored.

The IEA’s 2019 Renewables report estimates that renewable energy will grow by a staggering 50% between 2019 and 2024. As positive as this news is for the energy sector and the planet, sources such as solar and wind may offer a less reliable and more intermittent form of electricity – forcing power markets to adopt near real-time intraday markets and consider increased cross-border trading. In addition, the complexities that come with renewable energy mean that many power markets are adopting shorter settlement periods, which include 5-minute and 15-minute settlements.

With ongoing investment in renewable energy, the reality of unpredictable challenges should not be ignored. Due to the intermittent nature of solar energy and wind energy, the power grids will need to address energy shortfalls to maintain grid frequency as soon as possible. This could have a knock-on effect due to the heightened volatility around intraday rates – as grid operators price incremental resources such as gas-driven turbines in and out of the market to provide stability.

Because of this unpredictability, Australia has recently instructed a move from 30 minutes to five minutes for settling electricity spot prices. The Australian government believes this will help support a more significant transition to renewables, provide better price signals, and improve their national electricity market margins.

The USA is also following suit with several power markets moving closer to real-time markets. Markets such as the California Independent System Operator (CAISO) are taking steps towards the mandated transition to 100% renewable energy. The implementation of real-time or near real-time markets will help utilities by providing them with the capability to better respond to the variable nature of renewable energy sources.

Real-time could also radically affect markets such as the European Union, with grid operators working to iron out the complexities of cross-border trading while the region’s power grids gradually become more connected. In addition, the EU is rapidly transitioning to renewable energy – intending to meet its 2020 and 2030 targets. This sense of urgency has resulted in the region’s power market leading the way in solving the intricacies associated with trading renewable energy.

2. Algorithmic and Programmatic Trading

Algorithmic tools will become standard practice and increasingly essential to improve profitability and alleviate the 24/7 demand on human capital.

New approaches and strategies in renewable energy are causing the market to proceed at a faster pace. As the power markets move closer to real-time, traders have to tackle new challenges to process an abundance of data points and information resources needed to make rational trading decisions. For example, traders have to move from just 24 daily increments with hourly settlements to 96 daily increments with 15-minute settlements (marking a 300% information increase) and 288 daily increments with 5-minute settlements (marking an 1100% information increase). Expanding the traders’ daily information from anywhere between four to 12 times per day has created an eruption of data. As you can imagine, there are many changes for traders to get accustomed to.

Algorithmic tools will become standard practice and increasingly essential to improve profitability and alleviate the 24/7 demand on human capital. The European energy markets are currently trailblazing the adoption of these algorithmic tools. However, power traders need to establish parameters like price floors and ceilings for trades.

Many traders now depend on a system to run pre-programmed strategies, complete trades, communicate with the exchange, and then pass the necessary information to Energy Trade and Risk Management (ETRM) units. Recent data indicates that as much as 25% of intraday cross-border deals in EU markets are operated via algorithms, and this trend is expected to keep growing.

3. The Ongoing Liberalisation of Global Power Markets

Canada has long been a global standard for open power markets that other regions have tried to emulate to varying degrees.

Matured markets (such as those in Canada, Europe, and Japan) are embracing integration and liberalisation. Canada has long been a global standard for open power markets that other regions have tried to emulate to varying degrees. It’s also incredibly dynamic due to the vast and varied territories that are impacted by Canadian energy. According to Canada Energy Regulator, the general goal is for these resources to be as functional, helpful and competitive as possible.

The European Union started its journey in 1996 to pursue policies and build a unified electricity market. Their efforts have ramped up again in recent years, with regions solidifying their plans as part of the Energy Union. These integration plans have faced challenges and resistance from various member countries, especially those with a history of national utility monopolies. However, the aggressive goals to reduce carbon emissions with renewable energy have overcome many regulatory obstacles. Moreover, with more and more regions turning towards renewable sources, many of the individual European member states have had no alternative but to rely on cross-border trading to meet the high energy requirements. This could soon result in achieving a homogenised power market that will span the entire continent.

Despite the obvious potential challenges, Europe has witnessed early success with a liberalised power market. In the build-up to 2025, the Energy Union proposes that all transmission system operators should make at least 75% of their capacity accessible for bidding zones.

Moving across to Japan, the nation experienced radical changes and uncertainty following the Fukushima nuclear disaster in 2011. It drove the country to further rely on LNG, oil, and coal as their principal fuel sources. Since then, Japanese markets have pursued power market liberalisation – a process that was achieved in 2016. From that moment onwards, the Japanese Parliament has offered incentives for power companies to invest in new projects in an effort to back renewable energy projects such as solar arrays and offshore wind farms.

Elsewhere in Asia-Pacific, additional countries are also pursuing liberalisation policies. These advancements are evident in:

  • Thailand
  • Malaysia
  • Singapore
  • South Korea
  • Taiwan
  • The Philippines

Like Japan, many of these nations are pursuing liberalisation in the industrial and commercial sectors to promote investment in new generation capacity. This is a necessity as the region is expected to lead energy demand through 2050.

4. A Rise in “Prosumers”

From small-scale residential rooftops to large-scale installations, all microgrids currently experience the same issue of consumption not matching production.

The once-traditional electricity consumer can now become a producer of energy, which adds complexity to existing market participants. It has been reported by the International Energy Agency (IEA) that renewable power build-out was responsible for 75% of all growth in global net power capacity in 2019. As countries across the globe are investing in significant utility-scale projects like solar arrays and offshore wind farms, distributed energy sources are increasing. Usually, these have been incentivised by government-backed schemes, but in recent times, the cost of solar generation has become so low that it is now more attainable for consumers who are interested in generating their own power and net metering.

From small-scale residential rooftops to large-scale installations, all microgrids currently experience the same issue of consumption not matching production. Moreover, even with the new batteries available on the market, these microgrids still need to count on a dependable connection to the central power grid – safeguarding continuous access to power.

During the times that more power is generated than consumed, the surplus from home-produced renewable energy is directed back to the grid via net metering. This ultimately turns the consumer into a producer, otherwise known as a “prosumer”. The situation creates a give-and-take scenario that requires power markets to adapt in new ways.

5. Advancements in Battery Storage

Thanks to various technological advancements and the booming electric vehicle industry, the price of battery storage has plummeted.

Infographic of energy sources connected to a battery and powering a lightbulb.

Efficient storage for renewable energy sources has become a requirement and is driving fundamental changes in how power is managed, distributed, and consumed across the globe. One of the greatest challenges impacting both small and large scale renewable energy projects has been the expense and effectiveness of battery storage.

Thanks to various technological advancements and the booming electric vehicle industry, the price of battery storage has plummeted. This has brought new possibilities for the expansion of renewable energy. For example, small microgrid systems can now store and withdraw power from batteries during peak demand and charge up during off-peak periods.

Most operators can reasonably afford to hook up megawatt-scale battery installations with renewable grids for vast utility projects. The Energy Storage News reported that the total installed capacity of grid-scale batteries could achieve 40 gigawatts by 2050. As far as battery capabilities and new facilities are concerned, costs may go on to drop, making battery technology more accessible on a larger scale.

Closing Thoughts

With all these changes impacting the industry, power markets need to make some quick adjustments. Perhaps the most significant change resulting from these trends will be the growing abundance of data. Market participants who innovate and prepare will have a competitive advantage over those who fail to adjust.

In addition to the flood of new data, power market players will have to acclimate to changing regulations, ongoing market liberalisations, and quickly transforming technologies. Those who adapt to the uncertainty and volatility will take advantage of the new opportunities in a changing market.

It’s now more crucial than ever for energy organisations that trade, sell or buy energy to be ready and equipped for ongoing innovation. They will need an energy trading and risk management (ETRM) solution competent in delivering innovation, adaptability, scalability, and tools that can cope with current dynamics while minimising risks.

Frequently Asked Questions (FAQs)

How does the energy market work?

In most counties, suppliers purchase energy from the wholesale market and sell it to their customers. These suppliers work in a very competitive market, and customers can select the supplier of their choice to provide them with gas and electricity.

 

What share of the energy market is represented by renewables?

It is estimated that in 2018, renewables made up around 26.2% of global electricity generation. This figure is expected to increase to 45% by 2040. The majority of the increase is likely to come from solar, wind, and hydropower.

 

Is global energy consumption experiencing an uptrend or a downtrend?

On a global scale, primary energy consumption has increased nearly every year for at least half a century. One of the leading causes for the increase in emerging consumption is the rise in the global population. As the worldwide population and rates of energy consumption increase, there is a need to expand our energy supplies and to do so in a sustainable way.

 

What is the fastest-growing energy source in Canada?

According to the Canadian government, solar photovoltaic (PV) energy and wind energy are the fastest-growing sources of electricity in Canada. At present, moving water is the most distinctive Canadian renewable energy source, delivering almost 60% of Canada’s electricity generation. In addition, Canada is now the second-biggest producer of hydroelectricity in the world.

 

What is the outlook for renewable energy?

The outlook for renewable energy is a positive one. Renewable energy is projected to make up 30% of the world’s energy mix by 2024. Most of this is driven by a combination of solar energy and wind energy projects that continue to be rolled out at an astonishing rate.