Clean energy transitions will bring a major structural change to electricity systems around the world. Variable renewable generation has already surged over the past decade. The trend is set to continue and even accelerate as solar PV and wind become among the cheapest electricity resources and contribute to achieving climate change objectives. In the IEA Sustainable Development Scenario, the average annual share of variable renewables in total generation would reach 45% by 2040.
Such rapid growth in variable renewable resources will help alleviate traditional fuel security concerns, but it will call for a fast increase of flexibility in power systems. On the other hand, conventional power plants, which provide the vast majority of flexibility today, are stagnating or declining, notably those using coal and nuclear. On the demand side, electrification will increase demand for electricity, and technology and digitalisation are enabling a more active role for consumers as part of more decentralised systems.
Traditional frameworks for ensuring electricity security will not be sufficient in the face of these changes. The challenge for policy makers and system planners is to update policies, regulation and market design features to ensure that power systems remain secure throughout their clean energy transitions.
Experience in a number of countries has shown that variable renewables can be reliably integrated in power systems. Many countries and regions in many parts of the world have succeeded in this task using different approaches and taking advantage of their flexibility resources. They leave to the world a large set of tools and lessons to be integrated into the policy maker toolkit.
Making the best use of existing flexibility assets and ensuring these are kept when needed should be a policy priority. This will require market and regulatory reforms to better reward all forms of flexibility as well as careful adequacy assessments of the impact of decommissioning plans of dispatchable supplies.
However, going forward, new additional flexibility resources need to develop in parallel with expanding solar and wind, especially in emerging and developing economies that are facing strong electricity demand growth. Maintaining reliability in the face of greater supply and demand variability will require greater and more timely investments in networks and flexible resources – including demand side, distributed, and storage resources – to ensure that power systems are sufficiently flexible and diverse at all times.
Notably, current investment trends do not support such requirements and will need to be upgraded accordingly, sooner rather than later. Grids are a particular concern, as investment has been decreasing by 16.3% since 2015. Grids also require long-term planning, have long construction lead times and often face social acceptance issues.
Building new assets to provide needed adequacy and flexibility will require an update to market design. Increased reliance on renewables will augment the need for technologies that provide flexibility and adequacy to the system. This will include storage, interconnections, natural gas-fired plants in many regions, and demand-side response enabled by digitalisation. Updated approaches to planning will also be necessary, with more advanced probabilistic analyses that account for and enable contributions from all available technologies to adequacy.