Why sector coupling is a golden opportunity for the energy sector

Successfully achieving a sustainable, low-carbon energy system requires a new way of thinking about energy production, its transport and its ultimate use. Coupling these sectors is a big part of the answer and will inevitably lead to new market opportunities, writes Matthew Robinson of PSC Consulting.

As the world witnesses new record-breaking temperatures and the bits that aren’t flooded are apparently on fire, it is increasingly being recognised that climate change is an existential challenge.

The need for an energy transition from fossil fuels to cleaner, low-carbon alternatives is clear, but this doesn’t make the monumental scale of the task any smaller. And, although biofuels are available, they can never be the whole answer.

The most compelling method for the majority of the energy transition is to swap hydrocarbon-based fuel sources for renewable energy via electrification.

However, perhaps the key barrier to the large-scale deployment of renewable energy is the inherent variability of resources like wind and sun.

The key then is transforming wind and solar into different and more appropriate energy vectors that can be used as alternatives to fossil sources like natural gas.

Examples include gases like hydrogen, liquids such as ammonia or directly powering transport solutions by charging batteries for electric vehicles. This kind of transformation will also provide access to the long- and short-term energy storage needed to address natural variability between resource availability and the demand for energy.

Have you read?
Offshore wind must accelerate early development phases – Youwind
European renewable PPA prices declined in Q4 – report

Of course, the kind of fundamental disruption such a change represents also means there is a real opportunity for new business models and innovation to evolve.

We’re already seeing the rise of electric vehicles and new automotive giants like Tesla, while the emergence of battery storage technologies has also spawned a new industry. Other new markets are also set to evolve from the transition, such as novel trading models, like energy as a service.

It’s clear then, that an enterprise that can deploy this kind of sector coupling to balance the energy system will be able to generate substantial additional economic value.

The winds of change

There’s growing evidence that sector coupling is not only underway but gathering significant momentum. At Punta Arenas in the Magallanes Region of Chile, the world’s first full-scale demonstration project for a renewable energy-based e-fuels facility is already operating.

It uses wind-powered hydrolysis to split water, combining the hydrogen produced with CO₂ from the atmosphere to create liquid carbon-neutral synthetic fuels.

This $74 million project uses a 3.4MW wind turbine and a 1.2MW electrolyser to produce 350 tonnes of eMethanol and 130,000 litres of eGasoline annually. The site is also expected to produce green Liquefied Natural Gas (eLNG).

The project, known as Haru Oni, is owned by HIF Global and was developed with co-founder Porsche. Initially, Porsche Experience Centres will be the fuel off-taker although production capacity is expected to increase up to 550 million litres over the coming years, opening the door to further use of green e-fuels.

Indeed, drop-in e-fuels also allow current fuel infrastructure and even internal combustion engines to use green energy without any modification and thus have a distinct advantage over some alternatives.

And, although Haru Oni and similar developments are pioneering these new industries, the trend linking renewable electricity to alternative energy vectors is clearly gathering momentum.

A new analysis by S&P Global Commodity Insights, for example, notes that the global ammonia market is expected to increase ten-fold by 2050 with nearly all of this growth coming from low-carbon supplies. According to S&P, low-carbon ammonia is expected to grow from its current nascent state to 420 million tonnes by 2050, accounting for two-thirds of the total market by then.

The demand for low-carbon ammonia will come from producing marine bunker fuel, as an industry feedstock and as a carrier for hydrogen used in power generation. Meanwhile, S&P says the current pipeline of low-carbon ammonia projects for power generation illustrates the shift towards a broader group of market participants, with owners consisting of public utilities, oil and gas majors, investment funds and others. Joint ventures between renewable energy producers, hydrogen producers and ammonia producers can also be expected to emerge, the analysis says.

It is clear that, despite some uncertainties, ammonia production based on low-carbon energy is set to completely transform the current market, diversifying supply sources and prompting new ammonia applications to emerge.

Also of interest: How intelligent sector coupling enables cities to double wind and solar potential

The challenges of realising a unified energy system

Unifying the gas, transport, and electricity sectors through renewables and vectors like hydrogen, ammonia and chemical batteries is the most viable solution to the energy transition as it brings the entire energy value chain (from producer to consumer) together.

Rather than the individual sectors like electricity, transport, or gas attempting to solve the energy trilemma of security, sustainability and cost, the unified approach will allow potential synergies to be realised. The alternative is an ill-coordinated, piecemeal solution that will have multiple redundancies and a far higher price tag.  

However, for all its benefits, sector coupling is not a solution that can simply be rolled out. Before that goal can be realised, there are still some big questions that must be addressed. For instance, how will the role of regulation and policy play out? How will the voice of the consumer be heard, and how do we change behaviours, beliefs, and attitudes towards the clean energy system of the future?

Bringing the sectors together drives innovation and new thinking, but the market still needs to ensure the system is resilient, reliable and secure. Even more so than previously because there are more dependencies on a single form of energy.

Coupling sectors is evidently complex and involves integrating or merging all manner of different systems, interdependencies, stakeholders and the different cultures and ways of working across industries. It requires careful planning, stakeholder engagement and centralised frameworks and this extends to the merging of policy and regulatory frameworks, and market structures and rules.

Key enablers for sector coupling will include suitable and supportive policies, enabling regulation and appropriate market rules. It will also require collaboration and planning between the public and private sectors – for example by funding pilot schemes with a combination of grants and private equity or Public Private Partnership (PPP) models, as well as innovation funding designed to prove new technologies before they scale up.

Buy-in is essential from every stratum, the importance of stakeholder engagement between sectors, and at every level of policy, regulatory and market participant, including the various supply chains and end users, cannot be over-emphasised.

In Australia, for example, this issue has become prominent in states like NSW and Victoria where public opposition to large-scale overhead transmission lines has rapidly emerged. The Australian Energy Market Operator (AEMO) has identified a need to install more than 6,000 miles (10,000 km) of new transmission lines, but public opposition makes this mammoth task all the more challenging.

Realising the opportunities

With the realisation that sector coupling will mean disruption to the current system, massive opportunities exist in coupling sectors around electrification. Economic benefits will come from innovation that creates new integrated business models and that yields value through synergies and reduced interfaces.

This means more market participants and greater supply options. Examples include EV owners participating in system management, where at times they soak up excess production to charge their vehicles, and at other times they supply energy from their vehicle batteries.

Have you read?
Rolls-Royce battery containers help balance Singapore’s grid
berdrola instals 735kW solar community project in Spain

An apartment block with a car park full of EVs connected to a smart network offers a substantial uninterruptible energy supply resource. This ties into wider energy system management in which questions about energy supply and demand are easier to address as a coupled system. Recent analysis from the UK motoring organisation the RAC Foundation found that the average car or van in England is driven just 4% of the time, a figure that has barely changed in quarter of a century.

Given that a 2022 analysis by McKinsey Battery Insights projects that the entire lithium-ion battery chain could grow by some 30% annually through to 2030 with batteries for EVs accounting for the vast bulk of demand. These facts suggest there are clear opportunities to realise efficiencies, avoid the duplication of efforts and more effectively harness the resources that are tied up in these assets.

Furthermore, by coupling different systems together such as gas, electricity, transportation or industry, it will be possible to coordinate them more effectively and efficiently. For example, if the gas system is coupled with the electricity system the gas system has inherent storage, whereas electricity traditionally does not. This means there is an opportunity to leverage thinking and design approaches from the gas network and deploy them in the electricity sector.

New technologies and new opportunities are also certain to emerge. For example, leveraging existing technology to unlock its capabilities and adapt it to new uses just as we have seen with the mobile telephone.

This innovation phase, for example using the capability of EV or household batteries in the energy system in new ways as greater understanding emerges, will yield developments that have yet to be imagined. They will, in time, profoundly impact the system and how the market operates.

These changes are not even necessarily a choice - they will occur naturally through the electrification of various sectors, driven by the desire to decarbonise. Bringing the sectors together will clearly drive innovation and necessitate new ways of thinking about energy production and use.

But while sector coupling clearly tests the conventional energy value chain it does not threaten it. It should instead be seen as a golden opportunity for both suppliers and consumers of clean electricity.