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CERAWeek: US, German utilities invest to cut carbon

05 March 2021 Cristina Brooks

Electric utilities at the forefront of state-led energy transitions must invest to decarbonize, the CEOs of Edison International in California and EnBW in Germany told audiences at the CERAWeek by IHS Markit conference.

Utility holding company Edison International, which provides electric power and transmission services in California through its Southern California Edison (SCE) subsidiary, must comply with the state's 2018 bill requiring all electricity procured for retail customers by utilities be carbon-free or sourced from renewables by 2045. The state itself aims to reach a carbon emissions target of 80% below 1990 levels by 2050.

Setting milestones on the path to that goal, SCE has pledged to reach carbon neutrality by 2040. SCE's strategy involves investing in renewables, transportation, and industrial electrification, as well as energy storage, and the mix will ultimately include a small amount of traditional natural gas.

"And actually, in our analysis, you know, there's a little delta between wholesale and retail. So, we see that the most economic way for society to get there is still to have a minimal use of fossil fuels. We see about 6% of electrons in 2045 still coming from gas, probably about 40% of that gas would be coming from renewable sources itself," said Edison International CEO Pedro Pizarro.

Investing in renewables is not the only tactic in its toolbox. "We estimate that across all California, to put it in context, [the state is] about the world's fifth largest economy, adding that 80 gigawatts [GW] of renewables and 30 GW of bulk power storage, in addition to what's going on behind the meter, would require something like $175 billion of investment between now and 2045, plus another $70 billion or so of investment on the grid side to make sure the grid can manage all that," said Pizarro.

While the planned investments are massive, they will save costs paid by consumers, so the rate of payback can be increased over time. "Because of the greater efficiency of the electric motors and heat pumps and other electric devices, that's where we then see the average customer bill dropping by 30% once you're past all that investment. So that is an important pot of gold at the end of the rainbow that can then be used to help pay down some of the investments that need to be made now," said Pizarro.

Grid investments are essential as well, Pizarro said. A strong grid is needed to handle transmission of renewable energy.

In addition, California utilities must not only prevent, but also adapt to, climate change in response to wildfires in recent years. "We are now in the middle of a significant effort to harden our grid to make it more resilient to the wildfire issue," said Pizarro. "You've seen the experience here recently in Texas … So, I think each location around the world has its form of climate change adaptation that will be needed."

SCE is not the only California utility aiming to reduce wildfire risk. Utility Pacific Gas & Electric shut off electricity for around 2.8 million people over five days in 2019 to cut the risk that live electric cables would start fires in strong gusts of wind.

German greening spreads wings

European utilities face similar state-mandated targets. Not only is Germany following the EU in its quest to legislate for carbon neutrality by 2050, it called for utilities' gradual exit from coal-fired generation by 2038 through the Coal Phase-out Act.

EnBW aims to chip away its remaining 4.6 GW of coal generation capacity to zero two years ahead of that deadline. For EnBW, which has said renewable energy makes up 32% of its total installed output, key investment areas include not only renewables but also hydrogen, electric vehicles, grid upgrades, and broadband technologies, said CEO Frank Mastiaux.

By expanding its broadband capabilities through the 2019 acquisition of Plusnet, the executive said EnBW's sustainability infrastructure services in electric vehicles, neighborhood development, and communications infrastructure had been enhanced.

"[It's] just about €12 billion in the next five years, going in a variety of projects, not just in Germany, but also in France, in Sweden, in the UK, in the US and actually in Taiwan. At least that's the plan. We haven't landed the licensing there yet," continued Mastiaux.

"But we try to cover an international footprint to balance the implied risks that you have by investing in certain technologies. We spread our wings a bit wider than just in one economy," he said.

He sees hydrogen as the final technology pillar. "In a way, there's transition following the transition. So, energy transition is followed by mobility transition is followed by, say, hydrogen transition," he added.

Mastiaux said the next innovation could come from combining technologies. "I'm not sure whether we're going to see a step-change coming from one thing. But we're going to see incremental changes of technology plus digital, of material science, that will add a notch every time. More economical technologies, be it the blade design in a wind turbine, or the material you use, be it the optic compound in a solar system, or the conjunction between the technology and the grid, so that the cost of the package goes down."

Storage potential gamechanger

Storage is an area of technology research and development that both utilities are watching closely.

In Edison International's case, the potential lies with post-lithium-ion battery research. "I think there's a lot of promise in alternate chemistries that don't use lithium-ion, that also can be less reliant on some of the rare earth materials. And they can bring different power-density and cost curves to the equation. So that is one that could be a larger step-change and pretty exciting," Pizarro said.

In Germany, a top energy storage market in Europe, hydrogen is the final frontier. "We have quite a number of applications for storage plus, say a wind turbine, or where we, we haven't spoken about gas and hydrogen too much today. But that's the next piece of adding to the energy transition that we look at," said Mastiaux.

While EnBW is not a technology company, it has been working on storage technologies with German developers that are world leaders. "I would echo what Pedro [Pizarro] said, storage is the next one where we're going to see the costs come down," he said.

Posted 05 March 2021 by Cristina Brooks, Senior Journalist, Climate & Sustainability, IHS Markit

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