The Role of Renewable Energy and Smart Grids in Sustainable Energy Transition

Abstract

In the recent past, environmentalists, civil organisations, governments and influential global bodies have conducted extensive campaigns to create and increase awareness of the need to promote environmental and energy sustainability. In this regard, the field of green engineering emerged and has sparked widespread interest in the development of sustainable innovations particularly in construction, manufacturing processes, energy production and infrastructure.

The proposed research aims to review model used in Europe, United States and China where feed-in tariffs have been successfully incorporated into national grids, examine the models in the Saudi Arabian context to determine the most appropriate with regard to cost implications, compatibility with the existing grid, period required for return on assets and long-term benefits, and investigate the use of renewable resources in meeting peak demands without destabilising power supply in the grid.

A suitable model will be used to analyse different feed-in-tariffs prototypes used in successful countries such as the United States, United Kingdom, Germany and China. The model will be set over long planning horizons (20 years) and will be replicated and optimised over the whole horizon. The main advantage of using a suitable model to examine feed-in tariffs is that it has the capacity to match full-information assumption in a majority of economic models.

Introduction

Research Topic

Renewable energy and energy efficiency are understood to be the twin pillars of energy sustainability [11], [17]. Globally, considerable progress has been achieved in the transition from reliance on fossil fuels to generate electricity to ecologically sustainable systems whose supply is inexhaustible. In most countries, governments have developed policies to accelerate renewable energy deployments such as renewable portfolio standard (RPS), tax incentives and feed-in tariffs (FITs) [9]. Feed-in tariffs policy is the most widely used in promoting investment in renewable energy [3]. For instance, in Germany, feed-in tariffs are influential policy tools that have aided significantly in the deployment of renewable energy. The country has managed to attain energy security and emissions reduction objectives. Also, power companies are harnessing the combined benefits of technological advancements and renewable energy. The most common approach is the use of smart grids. As such, renewable sources of energy such as wind, tidal waves and solar are erratic in nature, which makes them unreliable. Some researchers have found that the inherent problems associated with renewable resources can be resolved to an extent using the smart grids [2]. Smart grids incorporate modern digital technology in electricity transmission grids thereby preventing wastage through regulation of supply to meet the actual demand [7]. Therefore, smart grids are part of the renewable energy revolution since they play a critical role in increasing the efficiency and reliability of electricity distribution. In the modern world, industrialisation is increasingly characterised by massive energy production and consumption [10]. Apart from fossil fuels, electricity is a major energy source required for various commercial, residential and industrial uses. In countries with huge fossil fuels resource endowment such as Saudi Arabia and Qatar, petroleum, diesel and gas are used in power generators that produce electrical energy [11]. In contrast, countries without such resources opt to produce electricity using other means such as hydropower, wind turbines and solar photovoltaic cells.

The aim of the proposed research is to investigate possible application of smart grids system and use of renewable energy in Saudi Arabia. As part of the kingdom’s 2030 vision, Saudi Arabia aims to cut down overreliance on oil and gas as the principal sources of energy in the generation of electricity. The use of smart grids is intended for checking actual demand and matching it with corresponding supply to avoid overproduction. Additionally, incorporation of feed-in systems would address occasional blackouts due to shut downs, failures or repairs. Since the kingdom has invested in electrical transmission, the proposed project will use models to examine different prototypes used in different countries using the existing grid. The most appropriate model will be picked based on pricing, relevance and long term benefits.

Background Information

The fossils fuels are not only exerting a devastating consequence on the environment but are also rapidly approaching exhaustion [15]. Renewable energy technologies are the most promising alternatives and will play a crucial role in providing the energy supply mix of the future [4]. Developed countries such as Germany, United Kingdom and the United States have long realised the importance of investing in renewable energy to meet future demands and as a result, they have invested heavily in solar, hydroelectric and wind energy. Also, developing countries and emerging economies such as the Kingdom of Saudi Arabia and China have formulated policies to encourage investors to venture into mass production of renewable energy. In fact, China’s investment in renewable resources to produce electricity exceeds that of nuclear and fossil fuels.

Saudi Arabia is the largest market for electricity in the Arab world [7]. The market is expanding rapidly driven by impressive economic growth and industrialisation [1]. However, the investment in renewable resources is strikingly low in Saudi Arabia mainly due to the fact that the country has enormous endowment in fossil fuels [9]. In fact, the country is the largest producer and exporter of oil. As it would be expected, industrial fuel prices are below international prices by a significant margin and industry players in the country base their decisions on the low costs of energy. Electricity costs in the country are cheaper when compared to those of other countries. Some researchers [1], [9] suggest that oil-powered generators are the cheaper alternatives as compared to renewable energy which is expensive at first since it is deployed in large scale. Saudi Arabia’s grid system is prone to occasional blackouts due to repairs at power stations, which bring about considerable losses [14]. Additionally, the lack of a smart grid system that responds to actual demand especially during off peak hours means that power is oversupplied. The researchers also note that the government has not placed adequate measures to induce a transition from oil-powered electrical generation to renewable resources. Summer temperatures in Saudi Arabia may reach 50⁰ C in summer between the months of May and September [17].

During the daytime, air conditioning is peak, and it places strain on the national grid. According to ECRA report of 2015, summer peak loads have increased by a margin of about 6 ‒ 8 percent since 2013. In the context of a sound understanding of the kingdom’s consumption trends and peak loads, solar energy is the most ideal response in addressing a factor that causes an electrical load to peak. For example, the daily afternoon peak coincides with the period when the sun is brightest and hottest and solar panels. Similarly, solar panels are the most productive during such periods. In this case, a core need that draws much energy from the grid system can be addressed using renewable resources. In this regard, the kingdom has exceedingly high potential to develop wind and solar power projects to meet its goals as outlined in its 2030 vision. On one hand, the country is large enough to provide the huge acreage required to set up solar and wind farms. On the other hand, the high costs of implementation hinder the deployment of smart grids and feed-in tariff systems.

Problem Statement

As stated earlier, the negative impact of burning fossil fuels and their likelihood of exhaustion in the near future inform current research into renewable energy systems. In Gulf countries such as Saudi Arabia, there is a minimal endowment of rivers suitable for hydropower generation, which makes it difficult to invest in hydropower. However, the countries may invest in alternative sources such as solar, wind and tidal energy and incorporate the energy into the main grid through a favourable feed-in policy that will attract investment. Considering that smart grids will revolutionise power transmission in the near future, there is a need for the kingdom to conduct pilot and small-scale projects before such systems are rolled out countrywide. Smart grids are vital in meeting rising demand, increasing the quality, reliability and efficiency of power supplies. Additionally, smart grids will allow integration of low carbon sources with minimal environmental impact on the power networks. To attain the vision 2030, Saudi Arabia needs to harness the power of smart grids which have the demand response capacity to assist in balancing consumption with supply. In the long term, renewable energy, smart grids and feed-in tariffs will improve reliability, reduce maintenance costs, capital expenditures and electrical losses and provide more reliable supply for posterity.

Research Aims

Review feed-in tariff models used Europe, United States and China where they have been successfully incorporated into the national grids.

Examine the models in the Saudi Arabian context to determine the most appropriate with regard to cost implications, compatibility with the existing grid, period required for return on assets and long-term benefits.

Investigate the use of renewable resources in meeting peak demands without destabilising power supply in the grid.

Literature Review

This chapters reviews the findings of other researchers in the application of modern technologies and renewable resources to create sustainable energy systems. It adopts a scholarly approach with the aim of identifying gaps in the current knowledge base to inform current and future research.

Prospects of Renewable Energy in Saudi Arabia

Since 2000, Saudi Arabia’s annual growth rate in oil consumption has been maintained at 5% [14], [20]. The issue has raised concerns about the ability of the country to maintain its export margins. As stated earlier, lower fuel prices have promoted an increase in deployment of fossil-fuel powered generators since this means of generation has lower cost-to-benefit ratio and therefore more profitable in the short term [19]. The researchers propose radical government interventions to spur the growth of renewable energy in the country. For instance, formulation of policies to facilitate a successful transition from oil-based electricity generation to renewable sources of energy, over a span of several decades. Additionally, the government may opt to deregulate industrial fuel prices, which would allow market forces to control oil prices instead of the government. As such, unpredictability in the price of the essential resource would prompt players in the industry to invest in renewable sources. The move to deregulate fuel prices would also be undertaken gradually. Further, the government may introduce favourable feed-in tariffs to renewable energy producers who inject their power directly into the national grid. Such investment credits may not only attract financier but would also accelerate the transition from oil-based electricity generation. The authors simulated prospective models of the introduction of renewable energy and feed-in tariffs. They found that the combination of large investments in alternative technology and lower cash flows would yield negative flows in the early years but would dissipate over time once equipment mix stabilises. In this case, investment in renewable energy would bring about huge cash outflows and probably require government support since consumer prices would not be expected to rise significantly. In a joint public-private partnership where the government shoulders some part of the costs, the cost burden passed on to the consumer would be lower when compared to strictly private investment. Further, the researchers established that the current fuel pricing policies are impediments to development of renewable energy. From modelling, they found that immediate deregulation of prices in the country would result in a surge in renewable technologies since profit margins would likely dip once oil prices become competitive and unpredictable. However, due to overreliance on oil and gas, immediate investment in mass scale would be unlikely. It is important to note that under deregulation, investment credits in feed-in tariffs would reduce the initial capital expenses thereby bringing the relative cost of fuel closer to relative costs under deregulation.

Upon reviewing renewable energy tariffs for different countries, several important and relevant lessons can be drawn for Saudi Arabia [15]. They found that in developing countries, the uptake of renewable energy is superseding that of nuclear power in both policy and investment. Most countries use various policies including but not limited to feed-in tariffs, export support, reduction in import duty, preferential loans, government green purchasing preferences tax credits for investment and production and consumer purchasing incentives. From China, the researchers highlighted several lessons for Saudi Arabia. China’s wind energy production has increased due to implementation of several support policies designed to support wind power installation. Some important lessons include the need to anchor policies in law. An important observation is that government agencies and industry players must cooperate to ensure success. In most countries with outstanding installations of renewable energy, the most workable and supporting policy is feed-in tariff mechanism that requires power utility companies to purchase energy from renewable energy producers from their areas of operation. For example, the United States has succeeded because of passing the National Feed-in Law that mandates power companies to purchase renewable energy. In 32 countries with feed-in laws, investment in solar power as a form of renewable energy has increased largely due to the assurance of market for the electricity. Feed-in tariffs are designed by public authorities for renewable energy producers and are guaranteed for a definite period [18].

In Australia, Zahedi developed an economical model to determine optimal feed-in tariffs for connected photovoltaic electricity [16]. Similar policies have been formulated in New Zealand, China and Malaysia and the results have been promising. In Saudi Arabia, the government may develop laws to improve investor confidence in the sector. Additionally, it may provide favourable feed-in tariffs which would allow investors to recoup their investments in the shortest time possible and thence lower the prices of renewable energy. Besides, the country may provide benefits to investors through other means such as markets, benefits and tax rebates. Such motivations are necessary if the country is to attain the projected 9.5GW by 2023 and 54GW of renewable energy by 2030.

Smart Grids and Models of Feed-in Tariffs for Saudi Arabia

Feed-in tariff system gained international prominence after provoking considerable growth in solar energy in Italy and Germany [3], [4]. Similarly, smart grids have been shown to promote power savings by matching demand to supply. As such, power stations may operate at lower capacities when the demand is low which can be translated to cost reduction. In this case, smart grids use a combination of sensors and control devices such as smart meters and actuators to measure load demands. Additionally, they facilitate communication between command centres responsible for power generation, transmission, distribution and consumption thereby allowing technicians to respond in accordance to the prevailing grid condition.

Feed-in tariffs in Saudi Arabia would comprise of generation and export tariffs. According to ECRA, generation tariffs are paid to suppliers of energy for each kilowatt-hour generated by them. It is important to note that the payment varies according to inflation and the type of technology used. For renewable sources, photovoltaic electricity would attract the highest payment. Next, the export tariff consists of a bonus payment for every kilowatt-hour of electricity generated and not used but exported to electricity grid. The payment will have a “floor price”, which is an additional incentive to encourage investors and assure them of more payment for surplus electricity.

The proposed model below resonates with existing conditions in Saudi Arabia and proposes introduction of high prices during the first year, which reduce gradually in a span of 20 years. A recursive approach has been employed and entails a long planning horizon with optimisation over the period. The prices are informed by inflation, forex adjustments in acquiring renewable systems from other countries and profit margins.

Table 1: The first proposed model for feed-in tariffs in Saudi Arabia. Adapted from Ofgem (2017).

Methodology

This chapter discusses the procedures to be observed when undertaking the proposed research project.

Research Approach

A quasi-secondary research approach will be used. As such, data will be gathered from industry publications, recent research findings, government publications, journal articles and reputable energy companies.

Research Method

A suitable model will be used to analyse different feed-in prototypes used in successful countries in this area such as the United States, United Kingdom, Germany and China. The model will analyse various contextual factors unique to Saudi Arabia to determine suitable feed-in tariffs for the country as part of the objectives contained in the vision 2030. The model will be set over long planning horizons (20 years) and will be replicated and optimised over the whole horizon. The main advantage of using a multi-period model to examine feed-in tariffs is that it has the capacity to match full-information assumption in a majority of economic models.

Data Analysis

The proposed research will use KAPSARC Energy Model (KEM) to analyse data [14]. The choice is informed by the fact that KEM uses a bounded rationality known as recursive dynamics, which is suitable in this case since planning is long term.

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Preliminary Research Plan

Estimated Budget

References

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