A new perspective on trade in renewable energy systems

by Johannes Schmidt (reFUEL PI) and Sebastian Wehrle (Doctoral Research in reFUEL)

It seems to be a consensus among researchers, policy makers and practitioners in energy systems: energy systems with high shares of renewables are more regionalized than current fossil fuel based systems. As future energy systems are envisioned to be largely electrified and electricity is thought to be generated mostly from local renewable energy sources such as wind and solar energy, the need for long-distance trade of energy carriers is declining.

Yet, in such a scenario we see several challenges ahead:

  • Regional renewable energy generation requires more land close to demand than current fossil fueled generators. Particularly in densely populated areas this gives rise to new conflicts regarding land-use that may hinder further deployment of renewable energy generators.

  • As the most suitable spots for renewable energy generation are usually used first, added capacities will increasingly have to be installed at less suitable locations. This leads to an increase in generation cost as renewables expand.

  • Further cost increase comes with (very) high renewable electricity generation as integration costs – the cost of keeping the system safely working at any point in time – are rising with increasing renewables penetration.

  • Along with the transition to a highly electrified, renewable energy system, fossil fuels and the related infrastructure, such as pipelines or gas distribution grids, are losing their value and become “stranded assets”. In effect, profiteers of the current fossil fuels system have little incentive to support the energy transition.

Long distance (intercontinental) trade in renewable fuels, generated from electricity or directly from sunlight, could help to overcome such challenges:

  • Trade in renewable fuels would allow to use the most suitable locations globally for energy production. This could be locations with good renewable resource endowment, favorable economic conditions, and high land availability.

  • While such benefits could in principle also be achieved by trade in biofuels, renewable fuels such as hydrogen or methane generated from electricity have a far higher land-use efficiency, which alleviates land-use conflicts.

  • Combining renewable fuels with intermittent renewable electricity generation has the potential to lower integration cost significantly as power plants running on such fuels could provide zero-emission backup capacity and balance fluctuations in intermittent generation even seasonally.

  • Renewable fuels could therefore avoid some stranded assets and increase support for the decarbonization of the energy system.

In our reFUEL project, we are assessing such benefits to better understand the real potential of future renewable fuel trade streams. We focus on bio-physical renewable resource endowment, demand and generation densities, and the potential of renewable fuels to lower renewable energy system cost (mostly in importing countries). We complement this global analysis by looking into local impacts of infrastructure deployment and how this might trigger conflicts in different world regions.

Johannes Schmidt