KoreaToday Energy Industry Faces Paradigm Shift

This is the ninth in a 12-part series of “The Korea Times ― the Boston Consulting Group (BCG) Joint Project” designed to identify new realities in the post-crisis world and provide winning strategies for leading Korean firms in 11 key industries. In cooperation with BCG, The Korea Times will look into a wide variety of issues both in the global economy and major indstries. ― ED.

Business Opportunities Reach Beyond Renewable Energies

By Holger Rubel, Choi In-jin

We are witnessing a paradigm change. Historically, electricity generation has been designed to follow demand. Now, we are moving toward a world in which virtually continuous demand is expected to be met, to a large extent, by energy sources ― wind and sun ― that are not ``on,'' or able to generate, much of the time. This challenge makes electricity storage critical, especially on a large-scale.

Large-Scale Electricity Storage

Large-scale electricity storage refers to harnessing excess power generated in times of abundant availability, or low

demand, and releasing it into the grid later when power generation is low, or demand is high. There are five main types of storage and key technologies within those categories.

The first is mechanical storage, including pumped hydroelectric storage, compressed air energy storage (CAES), and flywheel energy storage. The second is thermal storage, including hot-water storage, molten-salt storage, and phase-change material storage.

Thirdly, electrical storage is also a viable option, including super-capacitors and superconducting magnets. The fourth is electrochemical storage, including flow and static batteries. Finally, there is chemical or hydrogen storage.

Among these, the technologies that look most promising today for large-scale deployment are CAES, hydrogen storage, batteries, and pumped hydroelectric storage. All of these are capable of storing significant amounts of energy, which is essential for balancing fluctuating renewable sourcess.

Fluctuation Management

While the business case for investing in storage is currently weak, that situation will change. Today's fluctuations in generation are compensated for relatively easily and cheaply by flexible conventional power plants, but there are limits to how much these plants will be able to provide. Simultaneously, the march toward a fossil-fuel-free energy landscape continues: ambitious targets for the share of electricity to be provided by renewable sources have been formulated and confirmed. Wind and solar photovoltaics are the most competitive and widely available renewable sources and will certainly account for the lion's share of renewable energy produced ― and they require storage to be viable.

To realize fruit from their investments through subsidies in building a renewable generation base, governments will necessarily turn their attention to integration. And compensating for the fluctuations induced by wind and solar power generation, a big piece of the integration challenge, will require massive financing. A tremendously large market will develop around fluctuation management technologies, and large-scale electricity storage will account for a good part of those investments. Indeed, we expect a strongly growing market around electricity storage, with annual revenue well above 10 billion euros by 2020. Already, the beginnings of that market are evident: the first projects are being tendered, research activities are picking up, and venture capital is viewing electricity storage as a key investment topic in clean technology. All participants in the industry value chain would therefore be wise to take the initiative and start positioning themselves for the inevitable. The race for the best technologies, the most advantageous sites, gaining operational experiences, and shaping standards and policies is open, and the commercial payoff for getting into that race early stands to be significant.

Role of Governments

Governments that are committed to fluctuating renewable energy need to be similarly proactive. Given its current economics, storage needs a push to get it off the ground, and governments are uniquely positioned to provide it.

As was the case with renewable electricity generation itself some years ago, the right and timely incentives will spur private capital. That investment, in turn, will ensure that adequate storage capacity exists to allow the realization of gains from the earlier heavy funding in renewable capacity ― and that the vision of a truly sustainable electricity supply can become a reality

As a specialist in industrial goods, energy and technology practices, Holger Rubel is a partner and managing director at the Boston Consulting Group (BCG) Frankfurt. After joining the consultancy in 1997, Rubel participated mainly in projects in the high industrial goods industries, comprising fossil power generation and distribution as well as a broad range of renewable energy topics. Included in his other relevant experiences are strategy development, technology assessments, product development and market introduction and price management, to name but a few. Based on his experiences and expertise, he is currently the co-leader of BCG's worldwide sustainability sector with focus on energy technology and is leading the sustainability group in Germany. Rubel studied physics and mathematics at the universities of Heidelberg and Cambridge. He earned a doctorate in semiconductor technology from the Max-Planck-Institute in Stuttgart. Choi In-jin is a project leader at BCG. His case experiences include commercial due diligence in cross-border mergers and acquisitions (M&A), best practice research in the mobile phone industry and new business launching strategies. Before joining the consulting company, he worked for a leading industrial equipments manufacturer in Korea. As a research engineer, he accumulated the latest theories and practices of high-tech product manufacturing. He studied mechanical design and analysis at Seoul National University and gained an MBA at the Kellogg School of Management at Northwestern University.