Thermal 1_300-300A curious trend seems to be shaping up in the Energy sector. As Utilities struggle with emerging business models and new distributed market participants, the mainstays of thermal generation seem to be under assault!

Thermal generation has been paramount for both the Utility generation business model and for stability of the power system. The flywheel effects of very large thermal generating units have been at the core of power quality and power system stability. However, we are entering a new realm of power system operation and will not revisit these good old days ever again!

At a time when the bottom has dropped out of the oil market, you would think there would be a significant slowdown of investment in renewables. But this is not the case. New data by Bloomberg New Energy Finance showed renewables finishing another record-breaking year.

Thermal 2_300However, this is only part of the story. Once renewables are deployed they have no fuel costs, so the marginal price of generation is simply the depreciation—if any—and the maintenance costs, which are now competitive with thermal.

So renewable costs are low and can be bid into the electricity mix at extremely competitive rates. As a result, there are times when excess renewables force prices negative. In the below chart, you can see an example of this from the California Independent System Operator (CAISO) where thermal unit owners bid negative prices to ensure they didn’t have to go through black start, potentially multiple times per day!

Thermal 3_300The net result is that thermal units are taken out of their maximum efficiency operating point, utilization is reduced, and the ROI originally envisaged for the units gets eroded. Over time, this erosion will accelerate as renewables’ cost-efficiency improves and more and more come online.

Some Power Generation and Utilities companies like E.ON have chosen to divest their thermal assets, and this trend is likely to accelerate, or risk getting stuck with stranded thermal generation assets in a dramatically evolving energy marketplace.

The implication to the power systems operation and control is becoming just as dramatic. With grid-scale solar and wind able to drop hundreds of megawatts in under a minute, backfill for the loss becomes a challenge.

Technology-based solutions will be more and more important in solving the emerging balancing challenge, at a scale the industry hasn’t seen before. New networking and computing models will also be required, thus accelerating its transition to the cloud.

We are entering a brave new world!

You can more about Microsoft’s solutions for Power & Utilities companies here.

LinkedIn: Larry Cochrane