Unlocking Opportunity During The Energy Crisis
By Thomas Kiessling, CTO, Siemens Smart Infrastructure, and Stefan Niessen, Siemens Technology
The current energy crisis is bringing out the sceptic in many of us. As the industry grapples with skyrocketing prices, unchanged demand for fossil fuels, and complicated incentive models – we mustn’t lose hope. There is a light at the end of this tunnel, which can be turned on with the flick of the commercial and industrial (C&I) solar switch.
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To understand where we could be heading, we must reflect on where we are coming from. It’s easy to find gloomy sentiment around the energy crisis. One case in point is an article by Reuters, offering a cornucopia of challenges, threats by the industry to declare certain EU countries as non-competitive and concern about the state of manufacturing – in particular the base chemical industry – as manufacturers across continental Europe risk shutdown. The risk of companies leaving a region can be seen in two waves. The first is as a result of energy-induced marginal costs increases above viable limits. One such example is that of ammonia production, which has already left Germany. The second wave is more scattered and can happen with every future investment decision – the next new plant or plant extension will simply be located in a place with lower energy costs.
To help address the immediate energy crisis, resultant high prices and low availability, governments are offering subsidies. While a welcome reprieve to those at the (fossil fuel) coalface, it’s only a short-term measure. Conversely, economically viable steps towards a long-term solution must start with leveraging incentives for innovation around clean energy production paired with digitalization to create effective operations, and driving regulatory change.
Pricing challenge and opportunity
New electricity generation projects should be built on renewables, as solar and wind energy costs less than natural gas and fossil fuels. For a point of reference, while natural gas was once touted as the transitory technology for Europe’s decarbonization, Europe is now paying more than five times more for this resource than its US counterparts. So, is it even viable?
The good news is that there are economically viable ways to help kick off renewable projects, such as investment incentives like the energy auctions that have replaced the model to subsidise projects with feed-in tariffs. For example, the auction model used by Germany is interesting. The German state outlines the number of megawatts (MW) of renewable energy up for auction in a year and opens bids.
The winner of the bid is usually the group able to build photovoltaic (PV) or wind energy at the lowest price per unit of electricity, which is then paid the difference between this and the electricity wholesale price. The ongoing incentive for the investor is that when wholesale prices are higher than the bid price, the additional profit is paid to the investor, and when it is lower, it is compensated by the state. For example, in Germany bid costs are usually five or six cents per kilowatt hour (kWh), and recent prices have been as much as nine times as high as this. Investors see it as a win-win, driving strong investment.
Cutting through red tape
So then why isn’t the industry jumping on building solar? It’s not always from lack of trying but rather the red tape, as new energy doesn’t equate to new or more effective authorities. The number of different authorities is large, and they have to approve plant development and grid connections, sign off on environmental and archaeological regulations, and ensure neighbours agree on rights-of-way. The industry is desperately longing for a fast track through this jungle of approvals.
All of this depends on highly skilled individuals both in the private and public sectors, and the need for sufficiently staffed and efficient authorities to ensure timely processing. It also requires the technical know-how to expand the grid to accommodate the energy feeds, which depends on being granted the right to build new lines. If you are thinking this all sounds confusing and complicated, you are right.
On the flip side, commercial solar is a no-brainer because it doesn’t require a grid connection for an organisation to use or reap immediate benefits. Decarbonisation studies regularly highlight that rooftop PV is always a viable option with limitations extending only to panel and installer availability.
C&I Solar, the incentive
None of these challenges are so steep that they can’t be turned into an opportunity that could open a new job market across Europe. Just look at the Biden Administration’s announcement that it will build 40 Gigawatts of offshore wind. That, on its own, has ignited and mobilised a whole new industry.
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The incentives to follow this route are already there for C&I solar, and the savings are not only aligned with the physical energy cost. For C&I entrepreneurs in Germany before the gas crisis, the electricity price used to be at around 12 or 13 cents per kWh, including energy, taxes, tariffs, and grid fees. If you can find an installer, a rooftop PV plant can have similar installation costs, therefore with the actual cost of energy sitting at around 40 cents per kWh, you really are being incentivised to produce energy.
These benefits allow you to win on multiple levels. Your energy becomes cheaper, you immediately have more in your business toolkit to meet your corporate sustainability goals, and you can use your solar energy to electrify and thus decarbonize other aspects of your business – such as heat pumps and furnaces.
Energy independence
A renewable strategy must provide energy independence and economic strength. Demonstrating this is the Siemens plant in Amberg, Germany – a technologically state-of-the-art production facility – that is set to become carbon-neutral by 2030. Its ambitious decarbonization roadmap has seen it harness digital twin technology to analyze the state of the electrical, heating, and cooling system and replicate it as a mathematical model. The resulting insight enables the simulation to calculate the feasible and affordable technological changes that will make the plant carbon-neutral. The digital twin is supplemented with renewable energy sources such as equipping the entire roof with a photovoltaic system.
However, Amberg cannot currently operate without gas altogether because it needs annealing furnaces for the treatment of metal parts. To address this, it is planning to switch from natural gas to biomethane while also investigating the extent to which it can replace natural gas with hydrogen. Not only is Amberg expecting operations to be totally carbon-neutral by 2030, it is also reaping the rewards of being less exposed to price risks thanks to its reduced reliance on fossil fuels.
Where does one start? Look at how current energy incentives support a renewable model and leverage these. It’s doubtful energy prices will return to normalcy in a hurry. Still, with a C&I solar installation, an organisation can adapt their energy strategy, reduce costs, become more sustainable and reduce risk so that they are more flexible to react to changes in future primary energy prices.
Other long-term benefits are adopting digitalization solutions to take a step towards intelligently correlating energy generation and consumption – reducing the need to also pay for energy storages.
Conclusion
The current energy crisis is having an adverse impact on businesses and consumers alike. It’s not good news for anyone in Europe when a factory closes, or consumers are asked to reduce their consumption.
For continental Europe, the time to act is now. There is growing investment in the sector, barriers to entry are coming down, and incentives make it very viable. This is not just for commercial businesses looking for energy independence but an entire solar sector that is yet to be penetrated. The bottom line? The long-term solution to the energy crisis has been on the table for a long time. Decarbonization—the decreased reliance on and eventual avoidance of fossil fuels – facilitated by digitalization.
