This blog was co-authored with Cecilia Han Springer, who is a Postdoctoral Fellow at the Belfer Center for Science and International Affairs, Harvard Kennedy School.

 

Abstract
Renewable energy is an essential component of our defense against emergent climate risk. While renewable generation and distribution technologies hold enormous promise now and are enjoying rapid innovation, they also face serious constraints to their global diffusion. Among these are capacity-load mismatches, intermittency, and affordability for the world’s poor majority. This brief essay argues that more determined efforts to globalize renewable energy transmission can confer significantly higher economic and environmental benefits from renewables on billions of people. This can be done by exploiting spatial differences between electricity loads and net renewable generation across time zones (temporal arbitrage) and latitude (seasonal arbitrage). Using very long distance, ultra-high voltage (UHV) transmission infrastructure, temporal and spatial arbitrage can move low-cost clean electricity from areas with excess capacity to high demand zones in other countries and even continents.

Keywords
Renewables
Globalization
Arbitrage

 

Background

Globalization turns differences in local resource endowments into worldwide opportunities for higher income and consumption. Local capacity for producing renewable electricity varies around the world due to differences in geographic and weather conditions, while its profitability is constrained by intermittency and local institutional conditions like regulation, property rights, and the investment climate. We believe that globalizing renewable energy transmission can help overcome the latter constraints and confer significantly higher economic and environmental benefits from renewables on billions of people.

China has the world’s largest installed renewable energy capacity, yet a substantial proportion of these resources are currently curtailed because of technical and institutional constraints. At the same time, China has committed to massive electricity transmission investments on the Eurasian subcontinent. We believe these circumstances offer an unprecedented opportunity for long-distance renewable energy arbitrage. As we define it, this means exploiting spatial differences between electricity loads and net renewable generation across time zones (temporal arbitrage) and latitude (seasonal arbitrage). Using very long distance, ultra-high voltage (UHV) transmission infrastructure, temporal and spatial arbitrage can move low-cost clean electricity from areas with excess capacity to high demand zones in other countries and even continents.

China’s Belt and Road Initiative (BRI) is the largest infrastructure investment program in history. This massive effort seeks to overcome geographic and logistical barriers on a continental scale, financing and building a web of infrastructure that spans Asia and integrates the historic perimeter of maritime trade routes that sustained earlier phases of globalization. At the 2015 UN Sustainable Development Summit, China’s President Xi Jinping proposed a global energy internet that could use clean power to meet ever-growing regional and global energy demand.[1] China’s leading electric utility, the State Grid Corporation of China, has already commercialized UHV transmission within China and by 2016 had an investment portfolio of $2.3 billion across BRI partner economies.[2]

Long-distance UHV transmission is increasingly being considered as a way to match electricity supply and demand as energy markets continue to expand and mature. Chinese researchers have advanced the idea of the global energy internet,[3] which builds on the concept of the ‘energy internet’ as a flexible infrastructure that is responsive to real-time data (sometimes called a ‘smart grid’).[4] This concept has also been espoused in the context of “green data centers” taking advantage of the ability to instantaneously move data loads to areas where renewable, low-cost electricity is available.[5] Studies such as Grossmann et al. find that (e.g.) a Pan-American grid can enable cost savings by reducing overcapacity and can improve availability of electricity.[6] Others find that the climate benefits of such systems are on par with or cheaper than other mitigation options.[7,8]

 

Capacity and Load Matching on a Global Scale

Solar generation resources offer the opportunity for arbitrage across both time zones and latitude, taking advantage of temporal and seasonal variation in local insolation and electricity loads across long distances. For example, the following figure illustrates how China’s average daily solar generation curve closely tracks Europe’s load curve for a typical winter day. This occurs because demand for electricity in Europe peaks in their evening, as people return home from work. At that point, it is mid-day in China, when solar generation capacity is greatest. China’s current solar generation alone could meet almost one third of Europe’s peak demand.

Figure 1: China’s Solar Generation Profile Matches Europe’s Load Profile

China’s current renewable capacity remains a fraction of Europe’s overall energy demand, yet this figure suggests that expanding Chinese capacity could significantly benefit both sides. Europe has committed to renewables, but is already experiencing some resistance to build-out of renewables in populous areas. This has made further decarbonization and its attendant environmental and health benefits increasingly expensive. By contrast, China has a renewables “comparative advantage”, with abundant capacity in regions with negligible alternative uses. Moreover, China’s peak solar capacity is already aligned with Europe’s peak demand differential, suggesting that temporal arbitrage could smooth Europe’s net energy demand and eliminate the need for substantial off-hour and backstop fossil fuel generation.

In Figure 2, a similar pattern is apparent for wind generation, which in China already faces severe curtailment because of oversupply. Winter months with the most Chinese wind capacity correspond with the coldest times in Europe, when electricity consumption for heating is highest. This presents another opportunity for temporal arbitrage, taking advantage of shared seasonal generation and consumption patterns.

In addition to temporal arbitrage on an hourly and monthly scale, we propose the idea of seasonal arbitrage. This would take advantage of the differentials in load and renewable capacity across hemispheres, when high-load winter seasons in the northern hemisphere correspond to high-solar generation months in the southern hemisphere, and vice versa. To illustrate this potential, we use the case of Chile and the Southeastern United States, which are in offsetting latitudes (about equally distant from the equator) and in the same time zone, isolating the seasonal (hemispheric) from any temporal arbitrage opportunities. On a typical winter day, Chile’s solar generation peaks around the same time as load in the Southeastern United States due to the long days in the southern hemisphere. At the same time, throughout the year, Chile’s wind patterns follow load patterns in the Southeastern United States.

 

Long-Term Investment

With these temporal and seasonal opportunities in mind, we pose the question: What if countries could increase their renewable generation and dedicate some share for export? For exporters, the scale of the destination markets suggests very substantial revenue potential. For importers, benefits should not only be measured by the economic advantage of lower cost renewables, but also the environmental and public health benefits of decarbonization. Indeed, emerging research in this area suggests that, in OECD economies, the public health savings from decarbonization, in terms of averted medical cost, premature death, and productivity losses, are commensurate with the cost of renewable infrastructure itself.[15]

China has already achieved and mostly superseded the targets it set for renewable energy by 2020, and the government is now considering a 30% target for electricity generation from renewables by 2030. Meanwhile, engineering evidence suggests that China’s ultimate renewable capacity is far greater. China’s BRI transmission investment initiatives have also begun to reach in the direction of renewable globalization, but the demand side needs to actively engage if the promises of temporal and temporal arbitrage are to be realized. The distances may seem great, but it should be recalled that 2.5 million miles of natural gas pipeline have been laid in the United States alone in response to similar market forces. As usual with large infrastructure, public institutions need to lead a commitment game, committing public funds and political good will to lower perceived private costs and risks.

The European Commission conducted a technical assessment of the costs of a China-EU transmission link in 2017, finding that the least-cost transmission route would cost around $17 billion. This is a small fraction of the estimated BRI total, which aims to spend over $4 trillion on infrastructure investments. However, multilateral finance would be more attractive for sharing both the risks and rewards of such an ambitious infrastructure network. Unlike energy storage and conventional fuel exploration and electricity generation technologies, the necessary UHV infrastructure will have a very long lifespan, well-suited to syndicated, multi-decade or even multi-century financing. Sovereign wealth funds could be a natural fit for such investments, since their goal is to invest in very long-term, predictable yield assets.

In conclusion, the scope of China’s efforts to deploy renewable capacity and long-distance UHV transmission infrastructure suggests an opportunity that can benefit many other nations. With determined, very long-term investments in transmission capacity, Europe and Asia as well as the Americas could be integrated with large-scale grids that deliver lower-cost, lower-carbon energy where and when it is needed. While such an initiative faces many challenges of multilateral cooperation and implementation, the existence of transcontinental pipelines, rail, road, and other infrastructure systems suggest that globalization of clean energy need be no more difficult than today’s multi-trillion dollar trade in natural gas, consumer goods, and tourism services.

 

References

1. Towards Win-win Partnership for Sustainable Development. Ministry of Foreign Affairs of the People’s Republic of China (2017). Available at: http://www.fmprc.gov.cn/mfa_eng/wjdt_665385/zyjh_665391/t1306508.shtml. (Accessed: 26th June 2018)
2. Chu, D. State Grid spearheads Belt, Road in electric transmission sector – Global Times. The Global Times (2017).
3. Global Energy Interconnection Development and Cooperation Organization | GEIDCO. (2018). Available at: http://www.geidco.org/html/qqnyhlwen/col2017080814/column_2017080814_1.html. (Accessed: 26th June 2018)
4. Zhou, K., Yang, S. & Shao, Z. Energy Internet: The business perspective. Appl. Energy 178, 212–222 (2016).
5. Rahman, A., Liu, X. & Kong, F. A Survey on Geographic Load Balancing Based Data Center Power Management in the Smart Grid Environment. IEEE Commun. Surv. Tutor. 16, 214–233 (2014).
6. Grossmann, W. D., Grossmann, I. & Steininger, K. W. Solar electricity generation across large geographic areas, Part II: A Pan-American energy system based on solar. Renew. Sustain. Energy Rev. 32, 983–993 (2014).
7. Ummel, K. & Wheeler, D. Desert power: the economics of solar thermal electricity for Europe, North Africa, and the Middle East. Cent. Glob. Dev. Work. Pap. (2008).
8. Ummel, K. Global Prospects for Utility-Scale Solar Power: Toward Spatially Explicit Modeling of Renewable Energy Systems. SSRN Electron. J. (2010). doi:10.2139/ssrn.1824543
9. ENTSO-E. Monthly Hourly Load Values. (2018). Available at: https://www.entsoe.eu/data/power-stats/hourly_load/. (Accessed: 28th June 2018)
10. He, G. & Kammen, D. M. Where, when and how much solar is available? A provincial-scale solar resource assessment for China. Renew. Energy 85, 74–82 (2016).
11. ENTSO-E. Monthly Domestic Values. (2018). Available at: https://www.entsoe.eu/data/power-stats/monthly-domestic/. (Accessed: 28th June 2018)
12. He, G. & Kammen, D. M. Where, when and how much wind is available? A provincial-scale wind resource assessment for China. Energy Policy 74, 116–122 (2014).
13. Staffell, I. & Pfenninger, S. Using bias-corrected reanalysis to simulate current and future wind power output. Energy 114, 1224–1239 (2016).
14. Pfenninger, S. & Staffell, I. Long-term patterns of European PV output using 30 years of validated hourly reanalysis and satellite data. Energy 114, 1251–1265 (2016).
15. Roland-Holst, D., Evans, S., Heft-Neal, S., Behnke, D. & Shim, L. Exploring Economic Impacts in Long-Term California Energy Scenarios. (Berkeley Economic Advising and Research, 2018).