Two Years in the Energy Industry – Reflections on a Rapidly Changing Market
I’ve been working full-time in the energy sector for just over two years now, and even though there have been both ups and downs, I don’t think I’ve ever learned so much in such a short time before.
One of the things that has probably surprised me the most is how quickly the market has changed.
Just a few years ago, the renewable energy market was still relatively untapped in many places. Projects were traded at very different multiples, and many wind farms had extremely strong business cases. Many solar projects generated revenue at very attractive capture rates, and large segments of the market still expected that the expansion of renewable energy would almost automatically lead to strong and stable investments.
In a relatively short period of time, however, the market has in many cases virtually cannibalized itself.
Projects that previously had an index of 107 now have an index of around 79 because capture rates have fallen, curtailment has increased, and the power grid has simply been unable to keep pace with the speed at which Europe has been expanding renewable energy (RE).
And honestly, I think it’s been a real eye-opener for me to see just how big a difference there is between building production capacity and actually integrating that capacity into an energy system.
After all, it turns out that production is no longer the only challenge.
In many places, integration has become the real bottleneck.
That’s also why I now spend at least as much time on:
risk management
regulatory conditions
network structure
connection agreements
project development
system services
…as well as on the development itself.
Another thing that has really surprised me is how quickly batteries have gone from being something of a niche concept to something the entire market is now chasing after.
On paper, it certainly makes sense. Batteries can provide system services more quickly and cost-effectively than many traditional alternatives, while also helping to stabilize a power grid that no longer benefits from the same natural stability provided by large power plants that operate around the clock.
At the same time, batteries can store excess power when electricity prices plummet and demand is low, and then feed that energy back into the grid when demand rises again.
It's actually quite elegant.
The problem is that we weren't the only ones who noticed it.
It almost feels as though there isn't a single power grid in Europe today that isn't overwhelmed with battery applications.
And it has actually come as something of a surprise to me just how primitive many of these processes still are. In many countries, grant applications are still kept in one big black box where projects are processed on a first-in, first-out basis, regardless of whether the project is actually ready to go or consists merely of a plot of land on a map and a grid connection application.
This means that in many places, projects with a very flimsy foundation exist side by side with projects where:
land has been secured
The project plans are complete
Investors are ready
the technology has been selected
and the entire execution setup is in place
…without the system really distinguishing between them.
I actually think it’s pretty amazing that, at the same time, there’s such a huge willingness to invest—from both companies and private investors—in building battery storage facilities that, in the long run, could very well become one of the most important pieces in stabilizing Europe’s power grid.
After all, the last few years have shown us that internet stability can no longer be taken for granted.
Last year’s Iberian blackout, in which large parts of Spain and Portugal lost power, clearly demonstrated just how vulnerable the system can become when large amounts of renewable energy must be balanced in real time without sufficient flexibility and system services to support it. Millions of people lost power, and the incident served as a stark reminder of how dependent modern societies are on a stable power grid.
At the same time, Energinet announced earlier this year that the grid can no longer accommodate new projects in many areas and has therefore put new applications on hold. And that is somewhat paradoxical, given that some of the battery capacity being held back is potentially exactly what could, in the long term, help relieve the strain on the grid and increase capture rates—particularly for solar power generation.
After all, a battery will very rarely place a load on the grid when it is under the most strain and prices are falling below zero. On the contrary, the whole logic behind the battery business is precisely to buy electricity when there is a surplus and sell it back when demand rises again.
However, I also think we're starting to see signs that the market is moving in the right direction.
In my opinion, Energinet’s new guidelines on prioritizing projects that reduce grid congestion are an important step. However, the categorization of batteries still needs to be addressed before the grid can truly be opened up to this type of project.
Along with Redispatch 2.0, Germany has sought to create a better framework for batteries and flexibility in general.
My sense is that we’re actually moving in the right direction, but also that we still have a ways to go.
We ourselves have had battery applications pending for nearly two years that are only now nearing approval.
A major lesson for me personally has therefore been that patience is a particularly important virtue in this industry.
And even though the market sometimes feels slow, chaotic, and extremely complex, I still firmly believe in the importance of battery storage in the European energy system over the coming years.