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Success factors for a low-carbon future in the power sector

Critical market frameworks, policies, and financing

While wind and solar PV technologies are rapidly expanding, nobody knows what alternative energy technologies lie around the corner, let alone which ones will be adopted at scale. What are the potential paths forward for low-carbon energy options, and what factors could accelerate their development and deployment and help lead to a low-carbon future?

Policies that promote adoption

Many governments and multilateral institutions are playing a key role in facilitating the energy transition by supporting development of new technologies and establishing a framework to mitigate risk. While every country is different, there are common attributes to these policy initiatives: incentivizing more renewables generation and building additional demand for renewable power. However, regional specifics or complexities can prove challenging, as a policy suited to one sector or market may not be easily implemented in another.

Success factors for a low-carbon future in the power sector

The need for creative financing and policies

Policies can help engender creative financing to address gaps in the market. Examples from around the world include community-based funding (Australia), cross-border cooperation and financing (Southeast Asia), and technology-agnostic funding (Australia). In addition, crowdfunding platforms can help close renewables financing gaps. But policy also involves promoting low-carbon innovation. For instance, some energy regulators are testing new models in sandboxes, or controlled environments, to trial new products, services, and business models in a real-world environment. These new approaches are intended to help regulators better understand new technologies and work with industry players to develop appropriate rules and regulations for new environments.

Technologies to accelerate the transition

Today, wind and solar installations are the public face of renewables. But the future of the energy sector may depend on a mix of other technologies that help address the most difficult challenges. Among these, storage is likely the single most important technology to integrate renewables and address grid bottlenecks, as the surge of renewables will require energy storage and demand response to enhance system flexibility. Carbon capture and sequestration (CCS) could yet prove a useful interim technology to extend the life of fossil plants while greatly decreasing their carbon emissions. There is also significant interest in green hydrogen not only for power generation and energy storage, but also for heating, transport, and industrial use. Decarbonized hydrogen can be used as a fuel for power generation, to provide load balancing for intermittent renewables. Indeed, many countries see hydrogen as a way to develop their own business and to gain a newfound energy independence and are willing to put funds toward research and development. And as renewable electricity capacity grows and costs continue to fall, production of green hydrogen becomes more realistic.

Navigating the future

In the medium to long term, the benefits in moving to a lower-carbon energy system outweigh the costs of this transition. But more immediately some climate policies could impact households and microenterprises. It will be crucial that the design of energy policies fairly spread the costs of tackling and adapting to climate change. Digitalization will likely be central to solving the challenges of integrating renewables—big data, virtual power plants, demand response technologies, smart grids, Internet of Things, artificial intelligence, and blockchain can help create a more flexible and efficient electricity system. In the meantime, companies will likely continue to focus on safety, reliability, and efficiency, increasingly relying on these digital technologies to provide the agility needed for adopting new technologies and business models and navigating the transition.

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