Smart Energy: Can intelligent systems save our climate?

Smart Energy: Can intelligent systems save our climate?

What is smart energy and how can the world benefit from it?

Sabrina Haumann

Oct 6, 2021

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12

min read

Smart energy has long been seen as a beacon of hope for climate change mitigation. But what exactly is it? And does it really bring as many opportunities as is constantly being said?

No need to search the internet for hours! We made the research and summarized all you need to know about the smart energy sector - and have summarised it in four digestible parts. Over the course of the next few weeks, you’ll learn more about renewable energy, energy distribution, energy efficiency, and energy management.

Read on as for today, we’ll focus on what smart energy actually is and how we can make use of it in our combat against climate change. And on top of that, we’ll deep dive into the renewable energy sector, telling you more about its strengths, challenges it still has to face and opportunities for future growth. 🌍

It’s an open secret that greenhouse gas (GHG) emissions have been on a constant rise for years. Still, it’s disturbing to see by how much and in what short amount of time global emissions have skyrocketed. In fact, there is more carbon dioxide in our atmosphere than at any other point of time in human history. In February and March 2021, sensors at the Mauna Loa observatory in Hawaii detected CO2 concentrations of more than 417 parts per million (ppm). Pre-industrial levels were 278 ppm, which means that humans are halfway to doubling the concentration of CO2 in the atmosphere compared to the period between 1750 and 1800. (The last time Earth’s atmosphere contained this much CO2 was more than three million years ago, when sea levels were several metres higher and trees grew at the South Pole.)

GHG emissions in the energy sector

GHG emissions are (nowadays) mainly coming from four sectors: Energy, Agriculture, Waste, and Industry. The energy sector makes up the largest share of global GHG emissions - accounting for 73% of the total and 36 billion tonnes CO2e in absolute numbers. This includes 5.88 billion tonnes of energy-related CO2e coming from transport and 8.85 billion tonnes of CO2e from energy use in buildings. Keep these numbers in mind as we will deep dive into these sectors later on.

Emissions by sector
SOURCE: OUR WORLD IN DATA

With GHG emissions increasing and climate change on the rise, we must rapidly decarbonize our entire energy system. And, oh wonder, turns out this is not so easy. Some pioneering countries exist, such as Germany, for example, which took a lead when setting a 2045 net zero target in May 2021and, even before that, increased the production of renewable energy over the years (see below).

Gross electricity production from renewable energy sources
SOURCE: BMWI

Note

Having said that, it’s important to note that Germany is still more reliant on some non-renewable energies than you would think. Non-renewables accounted for 57% of Germany’s total energy consumption in the first half of 2021

Making energy smarter

Over the last few decades, it became fairly easy to take energy – and especially electricity – for granted. For many (particularly in the Western world), it's difficult to imagine not having a heating system, or light and electricity available on-demand 24/7 all year long. None of us would like to excessively reduce our own energy consumption to the extreme. Therefore, we have to think of other ways to transform our energy system and make it more sustainable. But how do we do this? How to convert a system as persistent and large as the energy system?

As we try to cut down on GHG emissions from the energy sector, you’ll be hearing more about a ‘smarter’ energy network, which is supposed to make the energy system greener.

But what does smart energy stand for and what does it mean for us? In layman’s terms, this means that Germany (as well as other countries) will not be able to complete an entire shift to a cleaner, greener energy system without first upgrading the electrical network – making it ‘smarter’, in other words. It’s a task that will require a total rethink of how we generate, manage, consume, store, and monitor our energy use.

Keep on reading to learn more about smart energy, its different facets, and how it is changing our lives forever.

What is smart energy?  

Smart Energy is a collective term for so-called ‘intelligent technologies’ from the areas of energy generation, energy storage, energy distribution, and consumption. Smart Energy offers an approach that overturns the traditional way of generating, distributing, and consuming energy, seeking to maximize the efficiency of the process. It focuses on powerful, sustainable renewable energy sources that promote greater eco-friendliness while driving down costs, therefore improving the overall environmental footprint of the entire energy value chain. Following this, the increasingly decentralised energy supply with local energy converters, such as wind, solar, hydro, geothermal, and biogas power plants is an essential factor of Smart Energy.

Various ‘smart’ terms have been coined for this concept, such as ‘smart grid’, ‘smart metering’, ‘smart home’, and ‘smart city’, which are part of the smart energy concept and will be further elaborated later on here.

Want to invest in Smart Energy?

Would you like to invest in the smart energy sector and benefit from the new technologies? We have analysed three companies related to renewable energies from a financial and impact perspective. You can find the analysis ready to download at the end of this article!

Drivers

There are several drivers and reasons behind smart energy that are making the concept increasingly important.

First of all, a smarter energy infrastructure that uses digital technologies will have greater flexibility to balance energy supply and demand. Also, a smarter infrastructure will help people to integrate more renewables into the energy system, taking into account their intermittent nature and thus reducing the risk of spikes and blackouts. In addition, continuous innovations in digital technology allow for two-way communication between suppliers and households, with smart meters and smart grids creating contact points in every home, making energy distribution more efficient. They provide the system with information to add more capacity when needed, change our electricity consumption patterns, and make it easier to add electric vehicles (EVs), solar panels, wind turbines, and heat pumps to the energy system.

Over the past couple of years, the world has seen a robust investment increase in smart grid technologies which is required in order to transform to renewable energies. In Europe, investments remained solid at nearly USD 50 billion/EUR 47 billion (in 2019), with rising expenditures allocated to upgrading and refurbishing the existing grid as variable renewables and electrification become more important.

Furthermore, there are various innovation opportunities in the market too, such as advanced batteries, hydrogen electrolysers, and direct carbon air capture and storage. Even though today these technologies are mostly in the prototype stage and research and development phases, they should ultimately enable significant CO2 reduction between 2030 and 2050 according to the IEA.

Annual CO2 emissions savings
SOURCE: IEA

Over the course of the past years, an accelerating shift towards efficient energy technologies, advanced metering infrastructure, and investment in smart grid technologies have boosted the growth of the global smart energy market. While being valued at “only” USD124 billion in 2019, the global smart energy market is projected to reach USD253 billion by 2027, growing at a compound annual growth rate of 9.6% from 2020 to 2027. A growing emphasis on the application of sustainable energy resources, such as solar and wind, coupled with the installation of smart meters will drive market growth in the future.

However, the smart energy market is not entirely free from challenges either.

Since the outbreak of Covid-19, the market witnessed a significant decline in demand from the manufacturing and production centres, due to a large number of shutdowns in the industrial sector. Next to this, social distancing norms and lockdown measures across the globe led to supply chain disruption in the market.

However, experts remain positive: with an increase in renewable energy sources online, the expansion of energy infrastructure, rise in clean energy demand from the residential sector, the market is expected to grow and the challenges - combated.

Renewable energy

Greenhouse gas emissions avoided through renewable energy
SOURCE: BMWI

General:  

Renewable energy, often referred to as clean energy, comes from natural sources or processes that are constantly replenished. There are several types of renewable energies: hydrogen, biomass, hydro, geothermal and, of course, wind and solar energy, The two latter sources are currently the most common ones: in solar, photovoltaic panels use the sun's energy to produce electricity; in wind, turbines utilize the force of the wind to produce electricity or mechanical power. Companies in the solar energy sector can either be producers of solar cells and modules (which are made out of polysilicon), supply equipment or act as project or service companies for the residential sector. Companies in the wind energy sector mostly develop, produce, manufacture and operate wind turbines.

Strengths:  

The most prevalent strength of the renewable energy sector is the simple fact that the sources of energy simply won’t run out  —well, not for a few billion years at least. Some energy sources like wind, sunshine, or tides won't ever be used up as opposed to fossil fuels which are limited and are therefore increasing in costs and negative environmental impact. In addition, the cost of renewable energies has dropped significantly over the past decade. Looking at the levelized cost of energy (which is a fancy term for the average lifetime cost of an electricity generating plant), you can see that with increasingly widespread implementation of renewable energy sources, costs for renewables have declined — most notably for solar. In fact, over the past 10 years, the levelized cost of energy of solar panels has declined from about USD360 per MWh to USD45 per MWh! This especially highlights the cost advantage that renewables now have in comparison to conventional energy sources like gas or coal.

levelized cost of energy
SOURCE: LAZARD’S LEVELIZED COST OF ENERGY ANALYSIS

Next to this, renewables are generating energy that produces no greenhouse gas emissions from fossil fuels and reduces certain types of air pollution. Even when including ‘life-cycle’ emissions (i.e. the emissions from each stage of a technology’s life, including manufacturing, installing, operating, etc) of clean energy, the global warming emissions associated with renewable energy are minimal compared to fossil fuels. This becomes even clearer as we look at the following numbers:

Life-cycle emissions CO2e:

Also, when generating electricity from low-carbon energy sources, the need for fossil fuel power generation is reduced, decreasing emissions of harmful gases like nitrogen oxides, sulfur dioxide, and carbon dioxide. This concludes an overall smaller carbon footprint and a more positive impact on both people and the natural environment. The air and water pollution emitted by coal and natural gas plants is linked with breathing problems, neurological damage, heart attacks, cancer, premature death, and a host of other serious problems. Most of these negative health impacts come from air and water pollution that clean energy technologies simply don’t produce. Renewable electricity projects could actually have public health benefits worth millions of dollars a year, according to a study investigating the monetary health benefits of different projects in the U.S. The authors conclude that the monetary public health benefits of implementing renewable energies can range from USD5.7 to USD210 million a year, depending on the project type and location.

Furthermore, with renewable energies, a country becomes less reliant on foreign energy sources, meaning it can generate electricity locally and be more cost- and environmentally friendly.

Weaknesses:

The first weakness which comes to mind when thinking of renewables is their intermittency. Even though renewable energies won't diminish anytime soon and are globally available, they are not accessible 24/7 and are therefore intermittent. Obviously there is no solar energy when there is no sunshine - it makes sense that winter months won’t generate as much solar power compared to summer days. Also, depending on which country you live in, the weather will impact the amount of renewable energy generated. For instance, wind-powered renewable energy is reliant on wind strength to turn turbines that generate power. In comparison, fossil fuels are not intermittent and can be turned on or off at any given time. For these reasons, it’s difficult to match demand and supply with renewable energy. Given that the demand for electricity is fluctuating, the imbalance between power generation and utilization occurs often. We simply can’t blindly rely on the sun or wind to be there when we need it — so we need significantly sized batteries to store excess energy, something that isn’t as easy as it might sound since renewable energies still face a lot of storage limitations.

Food for thought:

One way to solve this issue is the use of lithium-ion batteries (LIBs): first commercially produced by Sony in the early 1990s, lithium-ion batteries were originally used for small-scale consumer items like cellphones. Recently, they have been used for larger-scale battery storage and electric vehicles. Though still fairly expensive, they have become an increasingly economical solution to load balancing challenges. In this context, load balancing refersto the use of various techniques by electrical power stations to store excess electrical power during low demand periods for release as demand rises. They are now an increasingly viable method of providing hourly and daily load balancing in heavily decarbonized electricity markets. Among several battery technologies, LIBs exhibit high energy efficiency (more than 95%), long cycle life (3000 cycles at deep discharge of 80%), and relatively high energy density (up to 200 Wh/kg). At the end of 2017, the cost of a lithium-ion battery pack for electric vehicles fell to USD209/kWh, assuming a life-cycle of 10-15 years. With rising demand (see below), Bloomberg New Energy Finance predicts that lithium-ion batteries will cost less than USD100 kWh by 2025. However, they aren’t (yet) close to meeting the need for seasonal storage solutions due to the nature of renewables and the still very insufficient market compensation for “stand-by” services.


Annual lithium ion battery demand
SOURCE: ENERGYCENTRAL

Next to this, renewable energy sites require a large sum of initial capital investment (one wind turbine, for example, costs around USD3-4 million) to cover the cost of setting up the generators and the labor involved. They can’t be developed in any random location; it needs to be ensured that there’s an area of land large enough to set up the site (just think of whole solar farms). Wherever these sites are set up, they will take away from nature's environment although research into Agri-Solar, a solution which combines agricultural land management with solar farms to make land dual-purpose, is reducing this risk.

Growth Potential/Opportunities:  

The renewable energy sector offers high growth opportunities, particularly when it comes to wind and solar energy. Getting on track for net-zero emissions in 2050 means deploying commercially available abatement technologies (any mechanism, process or method that has the potential to reduce exposure to radioactive or any other harmful air emissions) in each sector within this decade. More than 3/4 of the effort to cut emissions in the next nine years falls to the power sector and to faster deployment of wind and solar. Wind and solar are projected to meet 56% of the global energy demand by 2050. Demand for energy is expected to rise significantly as Europe will become the fastest growing region when it comes to renewable energy adoption towards the end of 2021, following the deep covid-induced economic slump in 2020. On a high level, the renewable energy sector is growing at a rate of 8.3% -- nearly double the rate of the global economy. Next to this, initial investments required in solar technologies, such as PV, have seen a huge reduction over the past years. In fact, the price of solar photovoltaic panels has declined 99% over the last four decades, from USD74/Win 1972 to less than 70 cents/Win 2014. While the first 1,000GW of wind and PV took 20 years to deploy, getting to net-zero emissions in the Green Scenario will need about 1,400GW of renewables to be deployed every year for the next three decades.

Risks:  

Critical and rare metals are vital for renewable energy technologies, such as solar panels.

For example, tellurium, one of the rarest elements on Earth, is required for the production of thin-film solar cells. The good thing is that the amount of rare metals required for production isn’t enough to raise concerns about shortages. However, the production of elements like tellurium is concentrated in just a few countries. China in particular, mines 93% of the world’s rare earth elements. If China’s ports were impacted by a natural disaster, for instance, world trade and the global economy would feel the repercussions.

Renewable energy companies are increasingly positioned at the forefront of ensuring Europe’s energy security. Therefore, energy security considerations and the fear of disrupted energy supply are reasonable. Considering the weaknesses already elaborated above, they will be scrutinized by both policymakers and the public in order to ensure uninterrupted supply during changing weather conditions and address cyber security threats.

Next to this, local communities have shown some resistance to the installation of solar panels and wind farms. In the past, they have been likelyto object, for example, due to disruptions during construction work, the amount of space that solar farms take from the natural environment (which leads to species having to find other habitats) or the noise and appearance of wind turbines during their operational phase. However, this has been overcome to a great extent (at least in Germany and Scandinavia) as communities were allowed ownership and a say in local renewable energy projects.

Conclusion

The use of renewable energy offers many opportunities to make our planet a better place, but there are also some disadvantages to using the sun or the wind to generate energy. These are mainly due to the fact that we humans cannot influence the weather.

Therefore, in the future, we will need intelligent energies, smart energy, to make the use of renewable energies possible for as many people as possible.

The next part of our series on the smart energy sector will be about "energy distribution". If you don't want to miss it, don't forget to subscribe to our newsletter.

Are you convinced about the smart energy sector and would like to invest?

Simply download the Cooler Future app and create a savings plan for the Smart Energy Fund. This way you can easily invest in various companies in the sector.

We have also analysed three companies related to renewable energies from a financial and impact perspectives. You can find the analysis here.

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