Energy Evolution: What Technologies Are Leading the Way Today
It’s not uncommon to hear people talk about the energy transition. Yet, throughout its history, the power industry has almost always been transitioning in one way or another. There are constantly new technologies being developed, proven, and deployed to produce power in a more efficient and affordable way. Perhaps another term is more appropriate.
“I tend to use the word energy evolution,” Bernadette Johnson, general manager for Power and Renewables with Enverus, said during a webinar hosted by POWER in May. Johnson said the term transition implies there is a beginning and an end, but evolution suggests a more continuous state of change. “This evolution that we’re currently undergoing is really just a continuation of what’s always been happening,” she said.
Looking into the Future
During the webinar, Johnson presented a Sankey diagram showing primary energy flows using data sourced from the International Energy Agency (IEA). The top section displayed data from 2022 while the bottom section showed predictions for 2050 based on the IEA’s “Announced Pledges Scenario.” A broad shift from fossil fuels to renewables was obvious in the diagram. Also visible was a significant increase in electricity consumption, as movement toward the electrification of everything continues. Notably, electricity consumption in 2050 is expected to increase by a factor of 2.3 compared to 2022.
“This is a dramatic step change in the energy industry,” said Johnson. “That means investment in certain technologies. It means a change in how many countries actually derive revenue today versus what it will look like in 2050. The grid will have to change dramatically to support not just the new load—the new demand for power—but also where that power is going to come from, if it’s going to be primarily from renewables.”
This energy evolution presents significant risk to the power industry, but it also offers great opportunity. “All of this is going to take money—it’s going to take capital,” said Johnson. “A big part of what’s going on today is competition for capital.”
And the competition is fierce. According to Enverus, there have been 111 energy project deals of $500 million or more signed from 2022 through May 2024. The largest was worth $13.96 billion by oil majors BP and TotalEnergies, winners in a 7-GW offshore wind site auction in Germany. There were a dozen more projects on the list valued at $4 billion or higher. Gas, nuclear, and biofuels were all represented in that group, while several other projects included multiple technologies that weren’t specifically named. Further down the list, solar; carbon capture, utilization, and storage (CCUS); hydropower; green hydrogen; storage; and several other energy transition technologies were included.
The Hype Curve
To understand where all the various technologies stack up against each other, Enverus developed what it calls a “Hype Curve.” The y-axis depicts expectations from low to high, while the x-axis is a timeline. The curve is divided into five regions from left to right: Innovation Trigger, Peak of Inflated Expectations, Trough of Disillusionment, Slope of Enlightenment, and Plateau of Productivity.
At the start of the curve, expectations are low and remain fairly steady. Some technologies Enverus currently has in that region include fusion, natural hydrogen, and advanced nuclear reactors. About two-thirds of the way through the Innovation Trigger region, the curve turns up and quickly increases until it enters the Peak of Inflated Expectations section. Technologies currently in that area include green hydrogen, long-duration batteries, and CCUS.
As reality sets in, the curve turns down and progresses into the Trough of Disillusionment. Offshore wind presently sits at about the bottom of that trough, according to Enverus. Yet, cynicism doesn’t usually last forever, so the curve turns back to the upside and many technologies continue the progression into the Slope of Enlightenment section. Electric vehicles have entered that area on Enverus’ current Hype Curve, while short-duration batteries reside there too, albeit near the end of the region.
Lastly, technologies enter the Plateau of Productivity. This is where assets that are technologically and economically proven dwell. Enverus shows onshore wind, solar, nuclear, and hydro all somewhere along this area of the curve today. Johnson said some technologies may never reach the Plateau of Productivity and could die in the Trough of Disillusionment or elsewhere along the curve, but others will march their way through, achieving a solid market fit in the end.
“If you look in the media, you’re going to hear a lot of noise right now about some of these things that are on the left part of the chart, many of them not economic, but they’re competing for the same capital as the assets on the right,” Johnson said.
Internal Rate of Return
Looking at the internal rate of return (IRR) is one way to evaluate a project. Other things can be important, such as reliability, longevity, carbon emissions, and such, but IRR is often a big item for capital investors. When there’s competition for capital, like today, investors will generally lean toward projects with the higher IRR, Johnson explained.
So, what types of projects have the highest IRR currently? It turns out energy storage projects are among the best. “Battery storage is actually very economic, predominantly across the country right now,” said Johnson.
In a chart displaying IRR values for projects in various categories, storage in the Southwest Power Pool region had a 100% IRR on average. Storage in the PJM Interconnection was not far behind at 92%. Other regions with high storage IRRs were Electric Reliability Council of Texas (57%), California Independent System Operator (CAISO, 45%), ISO New England (38%), and New York ISO (36%). Meanwhile, CCUS, hydrogen, wind, and solar PV were much further down the list, with many regions sporting IRRs ranging from 4% to 13% for those technologies.
—Aaron Larson is POWER’s executive editor.