On the Level with Eric Gimon, Energy Innovation
August 21, 2019
Eric Gimon consults as a technical expert, research scholar and policy adviser with Energy Innovation. He is a main contributor to America’s Power Plan, a platform for innovative thinking and collaboration on policy solutions for clean, reliable and affordable electric power in the U.S. More specifically, Eric works on questions of renewable energy integration both in the context of today’s challenges as well as for future pathways.
We caught up with Eric to get his thoughts on the renewable energy transition and the role private business has to play.
According to a recent Energy Innovation report, America has entered the “coal cost crossover,” where existing coal is more expensive than cleaner alternatives. Do you think that free market economics will naturally result in a clean energy transition, or is government intervention required?
I believe that the clean energy transition is well on its way, driven mostly by free market economics and a broad societal desire to clean up the electricity sector (think green branding benefits for companies that clean up their supply). But government at the federal, state, and local levels still has an important role to play in speeding along the transition and minimizing social and financial dislocations along the way.
Right now, what do you see as the biggest barrier to a transition to clean energy in the U.S.?
I just penned a column on this topic focused on barriers to the distribution scale transformation, with another to come on the bulk/infrastructure dimension of the transformation. In each case the barriers are many and inter-related. But fundamentally, most of these come back to the paradigm shift we are facing. Energy today is a commodity business with many incentives that are misaligned with aggregate needs and razor-thin profit margins for potential disruptors. The clean energy transition requires new ways to connect consumer behavior and system needs – flexible demand will be key – while moving us from an energy unit delivery mindset (like kilowatt-hours or BTUs of gas) to a service delivery mindset (e.g. cooling and heating or healthy indoor air).
What role will businesses play in the energy transition?
I think that by virtue of their size as customers, ability to manage large amounts of their load, and their fiscal discipline, businesses play a very important role in the clean energy transition. Today, because of their sustainability and cost-reduction targets, companies (especially large companies) are driving demand for new clean energy projects and prodding entrenched utilities and state decision-makers to think outside their comfort zone.
My hope is that business can also be at the leading edge of price-responsive demand. For the most cost-effective and resource-efficient clean energy transition, we need to move away from a paradigm where supply continuously adjusts to demand, like a virtuoso dancer adjusting to a clumsy beginner, to one where supply and demand play an equal role in matching up, like an experienced pair of dancers. Businesses can apply fiscal discipline to evaluate opportunities to reduce cost or add to profits in participating and investing in demand-side management.
Demand from businesses for renewable energy has surged, but still, the percentage of corporations that have committed to offsetting their carbon emissions through renewable energy procurement is still very small. What is needed in the market to get more businesses involved?
Ultimately, businesses want to focus on their core competencies and comparative advantage. Energy is not always a significant cost, and barriers to becoming more actively involved in their energy use and procurement may make engagement on these issues a low priority. If you are spending $10 million a year on personnel costs versus $50,000 per year on energy costs in a given building, human resources will be much more of a priority than the physical plant, except to the extent that the physical plant affect worker health, happiness, and productivity. It’s natural that we’ve mostly seen engagement from companies with high energy inputs or the scale to employ specialized staff to scrutinize and negotiate energy contracts.
What is needed for more businesses to get involved is two-fold. First, we need simpler, more standardized clean energy products without a complicated risk profile that businesses can elect to buy without dedicating too much strategic and operational bandwidth to participation. Businesses don’t want to think about basis risk or production risk, they just want a clear product with decision elements that are aligned with things they can control or predict internally (like the quantities and prices they are comfortable with or desire to lock-in for long periods). Second, engaging more businesses in demand management will require clear, predictable, and simple opportunities to offer their flexibility into the energy markets in ways that maximize the ratio of benefits to mind-share.
In your opinion, which renewable energy trends or developments aren’t getting enough media attention?
I am constantly amazed at how fast costs are dropping for wind, solar, EVs, and batteries – they have reached transformational low levels and will likely continue to do so. Even the most attentive observers of this space have to constantly re-calibrate: we did not expect the “coal cost crossover” to happen so soon. Policy-makers and decision makers are often looking at stale data to the detriment of the best possible decisions.
Batteries are making quite a splash these days, becoming an almost inevitable component of new power purchase agreements. Yet people are worrying too early about seasonal storage and peak capacity needs, while ignoring the opportunities to usefully and profitably deploy shorter duration batteries, like thirty-minute or one-hour batteries. Recent work by Ascend Analytics points to gigawatts of short duration batteries that can be deployed to take advantage of price-spikes in the California real-time wholesale market with very low payback times.
Climate change headlines can be full of doom and gloom; what gives you hope?
Hope is an active verb; it requires courage and commitment to work towards a better future unlike simple optimism that passively posits that things will come out alright in the end. Part of what gives me hope is the need to address the climate challenge for our children and our future. Many, many people are responding positively to this challenge in ways big and small. Because of this, the clean energy transition is happening at a much faster pace than previous energy transitions – hopefully in time to avert some of the worse climate disruption. Here ignorance is a virtue: We know enough to be motivated but not enough to simply give up.