Navigating the physical realities of the energy transition

Roger Caiazza

A recent McKinsey Global Institute report The hard stuff: Navigating the physical realities of the energy transition (McKinsey Report) describes the challenges of the energy transition transformation for those who want a decarbonized society.  This post describes my review of the description of the power sector with respect to my primary concerns for the New York Climate Leadership & Community Leadership Act transition of the electric grid to zero-emissions by 2040.  Those concerns are the need for a dispatchable emissions-free resource (DEFR) and the enormous risk associated with determining how much DEFR must be deployed to prevent blackouts in electric grids that depend on variable renewable energy resources, .i.e., wind and solar.

The McKinsey Report describes the realities of the global clean energy transition that proponents claim is necessary to address the existential threat of climate change.  I think the authors did a good job explaining many of the complicated issues associated with the energy transition.  The scope of the report is enormous because they are trying to cover the entire global energy system:

The energy system consists of the production, conversion, delivery, and consumption of energy resources across sectors as both fuels and feedstocks (that is, inputs for the production of different materials).  The system is a massive, interlocking physical entity that has been optimized over centuries. It has served billions of people—if not yet all of humanity—well. But in an era in which countries and companies around the world are aspiring to address climate change, the high emissions resulting from the current energy system are now firmly in focus. The world has duly embarked on a huge transformation, centered on switching from the high-emissions assets and processes on which the system is largely based to new low-emissions solutions.

The summary describes the key points in the report:

• The energy transition is in its early stages, with about 10 percent of required deployment of low-emissions technologies by 2050 achieved in most areas. Optimized over centuries, today’s energy system has many advantages, but the production and consumption of energy account for more than 85 percent of global carbon dioxide (CO2) emissions. Creating a low-emissions system, even while expanding energy access globally, would require deploying millions of new assets. Progress has occurred in some areas, but thus far has largely been in less difficult use cases.
• Twenty-five interlinked physical challenges would need to be tackled to advance the transition. They involve developing and deploying new low-emissions technologies, and entirely new supply chains and infrastructure to support them.
• About half of energy-related CO2 emissions reduction depends on addressing the most demanding physical challenges. Examples are managing power systems with a large share of variable renewables, addressing range and payload challenges in electric trucks, finding alternative heat sources and feedstocks for producing industrial materials, and deploying hydrogen and carbon capture in these and other use cases.
• The most demanding challenges share three features. First, some use cases lack established low-emissions technologies that can deliver the same performance as high-emissions ones.  Second, the most demanding challenges depend on addressing other difficult ones, calling for a systemic approach. Finally, the sheer scale of the deployment required is tough given constraints and the lack of a track record.
• Understanding these physical challenges can enable CEOs and policy makers to navigate a successful transition. They can determine where to play offense to capture viable opportunities today, where to anticipate and address bottlenecks, and how best to tackle the most demanding challenges through a blend of innovation and system reconfiguration.

I am only going to consider the power sector and not the other six end-use sectors discussed.  Twenty-five physical challenges are described for these sectors.  Each of the challenges is described relative to the difficulty of the challenge.  This review focuses on the power sector energy transition physical challenges that are shown in the following figure.

Exhibit E1: McKinsey Global Institute The hard stuff: Navigating the physical realities of the energy transition

The description of the power sector physical challenges explains:

Addressing physical challenges in power is fundamental to the entire transition because abating emissions in the huge energy-consuming sectors—mobility, industry, and buildings—requires sweeping electrification under typical decarbonization scenarios. Two difficult challenges arise: managing the variability of renewables such as solar and wind, as they grow their share of total generation; and doing so specifically for emerging power systems that need to grow, often more rapidly and by more than advanced power systems. These two are classified as Level 3 because addressing variability challenges would require the use of novel technologies that have not yet been deployed commercially and face other substantial barriers. Four other challenges, classified as Level 2, relate to constraints on scaling more established technologies, inputs, and infrastructure, where accelerated progress would be needed for the transition.

Quality Review Concerns

The two review concerns for a power sector depend upon weather-dependent resources that I think must be addressed in any assessment of the quality of the report are the need for a new resource to address long-term wind and solar deficits and the challenge of specifying how much of those resources is needed.

In my opinion, all credible analyses of future electric energy systems depending upon wind and solar must acknowledge the need for a new resource to backup up weather dependent resources that New York has named DEFR.  Francis Menton explains that this creates a likely impossible challenge: 

The reason is that the intermittency of wind and solar generators means that they require full back-up from some other source. But the back-up source will by hypothesis be woefully underused and idle most of the time so long as most of the electricity comes from wind and sun. No back-up source can possibly be economical under these conditions, and therefore nobody will develop and deploy such a source.

There is another aspect of DEFRs that needs to be considered.  Menton also did a post on September 28, 2023 that covered a Report then just out from Britain’s Royal Society dealing with issues of long-term energy storage to back up wind and solar generators that concisely describes my other quality concern.  He explains that the Royal Society had collected weather data for Britain for some 37 years and documented that “there are worst-case wind and sun “droughts,” comparable to rain droughts, that may occur only once every 20 years or more.” 

The Royal Society: Large-scale electricity storage, Issued: September 2023 DES6851_1, ISBN: 978-1-78252-666-7

To be a credible analysis of future power sector projected needs, ten both of these concerns need to be considered.  If they are not included, then the complexity will be underestimated and the magnitude of resources required overlooked.

McKinsey Report Analysis of Concerns

For the power sector the McKinsey report addressed six challenges.  I will describe the relevant challenges and mention the challenges that affect the global system but not the New York power sector.

Challenge 1: Managing renewables variability (Level 3):

With the energy transition, Variable Renewable Energy (VRE) sources, such as solar and wind, would be required to grow and reach a relatively high share of total generation. As this happens, the output of power systems would become progressively more variable, exceeding demand on some days but falling substantially short on others. Consider Germany. VRE could potentially account for 90 percent of all power generation by 2050, in the McKinsey 2023 Achieved Commitments scenario. Nonetheless, there could still be about 75 days a year when VRE generation would be insufficient to meet a large share of demand (meaning that at least one-quarter of demand would have to be met by other sources) (Exhibit 6). VRE-heavy power systems would therefore require much more supply-side flexibility. This could come from storage (both power and heat), backup generation capacity (including thermal generation like gas power and beyond), and interconnections. Such flexibility solutions may need to scale by as much as two to seven times faster than overall power demand globally in the next three decades.  However, these forms of flexibility in turn face significant barriers relating, for example, to critical inputs (for some forms of energy storage) and other factors such as market design mechanisms (for backup generation). Most critically, some of the technologies that would be crucial for providing flexibility to the power system over the course of seasons, including novel long-duration energy storage (LDES) and hydrogen-based generation, would need to scale hundreds of times by 2050 from a negligible base today.

Exhibit 6: McKinsey Global Institute The hard stuff: Navigating the physical realities of the energy transition

The Challenge 1 description emphasizes the need for supply-side flexibility.  Exhibit 6 notes that at least one quarter of the days will require backup resources to resolve VRE intermittency explaining that “novel long-duration energy storage (LDES) and hydrogen-based generation” is needed “over the course of seasons”.  The example resources can be used for DEFR but it does not address my second concern, the worst-case wind and sun drought.  This study appears to only consider average conditions, which is a common flaw in academic assessments.  For electric system resource planners, the emphasis on reliability for all periods mandates that the analysis addresses extreme conditions.    As a result, the magnitude of DEFR support necessary to keep the lights on at all times is underestimated in this analysis.

The second challenge, “scaling emerging power systems”, is also rated as Level 3. The description notes that “Many countries, especially those that are lower-income, need faster and more significant growth in their power systems to increase access to electricity.”  This is not an issue for New York. 

The description of Challenge 3: Flexing power demand (Level 2) notes that “Alongside supply-side flexibility, there may be more opportunity for demand-side flexibility in power as the world electrifies” and does not address either concern. The McKinsey Report claims that this kind of flexibility could provide as much as 25 percent of the total amount needed to accommodate VRE in 2050, in the IEA’s Net Zero scenario.  However, it exposes a weakness in studies that use averages.  Industry planners do not rely on demand-side flexibility because in the worst-case scenarios the capability of those resources is much lower and can be essentially worthless.  This means that studies that only look at averages miss the point that to keep the lights on demand-side resources may not displace as many supply-side resources during the worst-case scenario as they project.  In my opinion, the value of any resource that does not provide firm energy during the worst-case scenario should be downrated.

Challenge 4, “securing land for renewables” is rated as Level 2.  This is a problem for any jurisdiction that tries to rely on VRE because wind and solar resources are diffuse.  This challenge does not address either of my concerns.

Challenge 5: Connecting through grid expansion (Level 2):

With the growth of the power system and the addition of more geographically dispersed energy sources such as VRE, grids would need to become larger and more distributed, interconnected, and resilient. They may need to more than double in size by 2050, growing 40 to 50 percent faster than they are currently. However, lead times for the permitting and construction of transmission lines are long, especially in mature markets such as the EU and the United States, where they have tended to be between five and 15 years. Among other initiatives, accelerating permitting with new streamlined processes could facilitate the expansion of grids.

This challenge does not address either of my concerns.

Challenge 6: Navigating nuclear and other clean firm energy (Level 2):

Increased deployment of clean firm power, such as nuclear, geothermal, and low-emissions thermal plants (for example, hydrogen, biogas, and natural gas with CCUS), could reduce the challenges of variability, land use, and grid expansion. Nuclear is an example of a clean firm technology that is mature and gaining momentum. At COP28, for example, a group of economies announced commitments to triple nuclear capacity by 2050.  Nonetheless, increasing the deployment of nuclear requires managing complex engineering, supply chain, skills, and siting issues as well as safety considerations. In combination, these issues could result in long lead times, frequent delays, and cost overruns. Addressing these would require, for instance, standardizing the design of nuclear plants and building multiple plants using the same designs to leverage shared learning, training workforces in the skills they need, and developing necessary supply chains.

These issues affect the deployment of DEFR but do not address my concerns directly.

Discussion

Although there is useful information in this report, it fails to address my concerns about the need for a new resource to address the specific problem of worst-case wind and solar “droughts” and the related problem of defining just how much of the new resources will be needed to prevent blackouts for the worst of the worst-case periods.

I think the main problem can be traced to the use of averages rather than worst-case conditions for evaluation of resource requirements.  I searched the document for the terms “worst” and “extreme”.  The term “worst” did not appear.  The term “extreme” did show up relative to battery electric vehicle use and heat pumps.  The McKinsey Report noted that special considerations were needed for the worst-case extremes for those applications.  Unfortunately, the authors did not extend that consideration to the power sector.

There is one other consideration unmentioned in the power sector challenges.  Wind and solar resources do not provide the ancillary services necessary to support the transmission system.  The McKinsey Report did note that transmission requirements would be a challenge but overlooked this aspect.

Conclusion

The report concludes that:

The path of the energy transition will not be straightforward, and stark trade-offs and consequences lie ahead. Taking time for the transition to play out, as in many physical transformations of the past, could allow for the physical realities of the transformation to be confronted more gradually with time to innovate and scale new low-emissions technologies, address bottlenecks, and reconfigure the system. While this may make navigating the physical challenges easier, such a path would almost certainly involve compromising on the climate goals that countries and companies across the world have agreed to, with consequences for rising physical risks. However, driving the transition forward without confronting physical realities would most likely compromise the performance of the energy system—and as a result challenge energy access, growth, prosperity, and support for the transition itself.

Alternatively, stakeholders could confront difficult physical challenges head-on—in fact, they could use an understanding of physical realities to guide the way forward to an affordable, reliable, competitive path to net zero. While many open questions remain on what precise path would enable the physical challenges to be addressed, this analysis sheds light on some crucial ingredients that would have to be present in a successful energy transition.

The power sector analysis appears to use averages to project future needs.  As a result, it fails to address my concerns about the need for DEFR and the related risk that improper assessment of the amount of DEFR needed threatens the reliability of the electric system.  The ultimate concern is that the conditions associated with extreme wind and solar droughts are also associated with extreme hot and cold weather when the electrified society will be most vulnerable if there is a blackout.  The report sheds some light on crucial ingredients but overlooks a potential fatal flaw.

Clearly there is no question in the minds of the authors that the transformation to net-zero is necessary. The conclusion talks about trade-offs and consequences but does not acknowledge that there may not be an “affordable, reliable, competitive path to net zero” using VRE.   Given the vulnerability risk, I remain convinced that the VRE transition will do more harm than good in New York and elsewhere.  I think the nuclear option is the only path forward for those who want to decarbonize.

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Roger Caiazza blogs on New York energy and environmental issues at Pragmatic Environmentalist of New York.  This represents his opinion and not the opinion of any of his previous employers or any other company with which he has been associated.