The transition of the energy industry and rise of the 'gentailers'

As the energy industry continues to transition away from fossil fuels at pace, one trend on the rise is that of 'gentailers'; retail suppliers and their customers who are increasingly responsible for the generation of green energy.

By John Craig Swartz, SVP of Risk360, POWWR

Driven by economics

Over the summer, solar power accounted for 11.6% of Electric Reliability Council of Texas's (ERCOT’s) total summer demand in Texas – a 40% increase on 2023. The transformation in California has been equally pronounced. In those regions, solar energy is playing a key part to overall grid reliability, especially during times when the grid is most tested.

Perhaps unsurprisingly, the path towards net zero is being driven by economics as much as the desire to be green. Renewable energy production is getting cheaper all the time.

Solar panels and batteries have never been cheaper. This has made set-up costs far more palatable than they were in the past. Plus, in many regions renewable energy initiatives are still being subsidised by government, making it even cheaper still.

Today, the average cost of generating a MWh of electricity is as little as $27 for onshore wind farms and $29 for solar PV. This is even before any government subsidies have been taken into account.

This compares favourability with the up to $108 per MWh it costs with gas and the $168 it costs with coal.

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Efficiency gains still needed

Continued growth in solar capacity will push renewables’ share of total energy produced even higher over the next two years.

According to ERCOT data, 26,087MW of solar capacity is currently installed on the system. By next summer, it expects an additional 6,380MW.

However, efficiency gains could still be improved. After all, it is said that six to ten percent of energy is still lost during its journey through the grid. This is primarily due to the waste heat released in the air when it is travelling through power lines, but also includes conversion losses in transformers and other line equipment.

Having customers deploy their own generation methods mitigates such line losses since the electricity does not have to travel through the grid anymore. Also, as more generation sources come online, it reduces the strain on the grid, which can also reduce line losses substantially.

Rise of the gentailers

To maximise margins, the industry is also increasingly moving towards the generation side.

In fact, we are now seeing suppliers enter the market that are 100% Gentailers and bringing their own generation resources.

Producing their own energy also helps them hedge and manage risk far more effectively.

Retailers are incentivising both residential and corporate customers to assist with the generation side too. Thus far, much of this effort has been focused on solar. And for good reason. Set up costs, as we have seen, are going down all the time. Plus, a solar array takes up far less room than an equivalent system designed to harness the wind. It is only a matter of time, however, until we see more wind and nuclear generation harnessed by larger corporate consumers.

Battery storage adding to grid reliability

Battery storage technologies have improved exponentially in recent times.

Modern lithium-ion batteries have far better energy density than in the past, allowing for longer-lasting batteries in smaller, lighter packages. As efficiency has increased, cost has gone down.

The rapid addition of battery storage capacity has also played a part in helping the industry transition to a more sustainable future. Just four years ago, there was essentially zero battery storage capacity across the grid in the US, but now there is more than 20,000MW and it is increasing monthly.

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Battery storage is greatly adding to grid reliability and playing an important role in helping with net peak demands which, after all, generally occur after the sun has set and solar generation has ended.

Without the battery power flowing back onto the grid during these net peak hours, additional thermal generation from fossil fuels (likely gas) would be required.

Shifts are happening across the world

In California alone, solar capacity has risen by almost 40% in two years, from 15,608MW to 21,411MW. Battery storage capacity has increased even faster, more than doubling from 3,913MW in August 2022 to 9,309MW today. Similar shifts are happening across the world.

With the weather extremes we have seen across several markets this year, this transition has been particularly timely and helped illustrate how renewable energy and storage can reliably run power systems as they move away from fossil fuels.

The winners will be those in the industry that ensure they remain ahead of the transition curve. In the coming years, a retail supplier’s competitive advantage will be more and more down to whether or not they own the generation of renewable energy. And for good reason. By cutting out the middleman, they can increase margins and reduce risk.