Alexander Hogeveen Rutter | Emerging Clean Technology Lead in Developing Asia, International Finance Corporation

2022-07-29
In this conversation we will be speaking with Alexander Hogeveen Rutter who was recently leading the IFC’s market creation efforts for energy storage and green hydrogen in developing Asia, and is now spearheading private sector development initiatives for the International Solar Alliance. In this conversation we dive into the economics of energy storage technology and whether renewable energy systems paired with storage can currently outcompete coal generation plants.
Links to referenced articles:

There is no economic case for new coal plants in India: https://econpapers.repec.org/paper/aloisipdp/21-04.htm
Coal Plant Repurposing for Ageing coal fleets in developing countries: https://esmap.org/esmap_coal_plant_repurposing_ageing_coal_fleets_in_developi

Topics covered in this episode:
1. Insight into what sparked Alexander's interest in the energy space
2. Main costs of energy storage technologies and how these costs have evolved over time
3. Breakdown analysis of "Where is RE + Storage cheaper than coal?"
4. Variable cost of coal vs. RE + storage
5. Key hurdles that must be overcome for storage technologies to ramp up

Transcript


00:02 Introduction
Are you looking to become a leader in clean energy and an expert in cleantech? Do you hope to get noticed in the crowd? As you pursue a career in this fastly growing industry, you are in the right place. Karan Takhar as he invites clean energy leaders to share industry development. I like cleantech investment opportunities and shed light on how you can increase their chances of employment in this high-growth sector. We will also discuss this. The energy transition across key emerging markets like India and explore partnership opportunities. For the US. Private and public sector, after all. This is the Zenergy Podcast.
In this conversation, we'll be speaking with Alexander Hogeveen Rutter, who's leading the AFC market creation efforts for energy storage in India. We discussed the main costs of energy storage systems in weather. Renewable energy generation complemented by storage can outcompete cold. I hope you enjoy this wide-ranging discussion.
Hi, Mr. Alexander Hogeveen Rutter. Thank you sincerely for taking the time. I've been looking forward to speaking with you and have been reading many of your very interesting articles via LinkedIn and others and prior to diving in, could you please briefly introduce yourself so that listeners can get an understanding of the extent of your involvement in the energy sector and also provides some insight into what got you interested in this space?

01:51 Alexander Hogeveen Rutter
Well, firstly, it's an honor to be here, so thanks so much for having me. I'm very excited to talk. Today, I've been passionate about this space for very long time. I remember when I was 16, I was in an entrepreneurial competition, and we proposed having solar panels, thin film, solar panels on blind. So, you know, I think climate change has been something I've been concerned about for a long time, and that's certainly been interested in, in looking at that. So, I've worked primarily for a power utility back in Canada, as we needed large utilities, and also worked on renewable energy integration there. I came into about five years ago. I did work in consulting a bit in the energy sector bit and recently joined IFC, where I'm very focused now on energy storage, specifically in India and across the Asia Pacific, and so we're looking at various forms of energy storage as well as green hydrogen, and so I think you know we had, I see, if I've made a big focus on climate change, and it's something that's very near and dear to my heart and, you know, the recent IPCC report just last week, I think that further reinforced the need that this is, you know, really a really pressing issue for everyone.

02:57 Karan Takhar
Thank you for providing that analysis of the Levelized cost of electricity, as you alluded to in your articles. You suggest that renewables are already cheaper sources of generation in coal in most cases, and I just wanted to dive a little bit deeper into the fact that because renewables are intermittent, storage obviously will need to play a more complementary role, especially if penetration levels continue to rise and as a result of that, integration costs possibly will continue to rise as well, and if you could provide insight into what are the main costs of energy storage technology and how these costs have evolved over time?

03:52 Alexander Hogeveen Rutter
First, I want to start with kind of the question about ground intervention see so. It is important to note that when you're at fairly low levels of renewable penetration, better grid management, changing your operating practices, having more flexible existing generators, having good pricing signals in place demand response, you know there are lots of kinds of fairly low-cost tools you can use. To help manage that independency, right? And I think as India kind of ramps up to its 450 Giga Watt.Target as countries around the world start to be more and more ambitious, going to see 100% renewable energy that's where you really need storage to get you from, you know, a low to. High amount. So, I mean, I think it's no secret. You know, everybody, you can look at the Bloomberg New Energy finance numbers on the cost of energy storage. They really, you know, dropped dramatically in over the past, you know, 510 years. A similar trajectory has happened with solar and wind in the previous decade. It's I think the one caveat I want to make, and this is true for solar as well, is that as the cost of the packs themselves comes down, the balance of plant costs isn’t coming down the same, right? So, your engineering costs are the same, development costs are the same, and your inverter costs aren't coming down as much. Those extra overheads you have are not coming down as much, so I think. You know, I saw someone else is recently balance of plant was actually more than 50% of the cost, right? And so you know, and this is true in solar, right as well, where even though the costs panels are, you know, $0.30 Watt or cheaper, the majority of the costs now is actually in that balance plant and engineering and all these other overheads. So, I think it really shows that there is a limit to how cheap you can get. I read the other day that lithium-ion the materials. Just the pure, like raw lithium and draw cobalt and all these other metals its going to cost at least $30 per kilowatt. So, at some point, you just have physical limits as to how cheap they can get, and you're going to have to look at other technologies like whether it's an iron error or what have you, but I think there is still some room for across to follow a bit more. But at some point, you are going to hit these hard limits where you know you're going to need to do engineering or any design, you're going to need an Inverter, and you just can't get around those costs.

05:56 Karan Takhar
Could you provide a breakdown of the various categories of costs for energy storage systems?

06:04 Alexander Hogeveen Rutter
Yeah, I mean well. I guess it depends on technology, right? Like obviously, pump storage is going to be very different, and I think there's a lot of innovative work. You know, whether it's the thermal storage or various types that are geologically limited, I'm guessing you're talking about batteries as they had a big, big cost of that right now at least is just, you know, the cells. Lithium is expensive manufacturing it is a very energy-intensive process. So that's going to be a big, you know, 30. To 40% of your final cost, the pack assembly, which is, you know, now India is getting to a point where they're doing a lot of pack assembly domestically, it's not trivial, but it's not a huge cost component. You've always got the MS in the software. That's you know again another 5-10 send, and then, as I said, almost half the cost now is going to be balanced. Planet Balance plans are really messy. Ugly term for everything else, right? You know, whether it's wiring, whether it's tables, whether it's protection equipment. And I think one big cost is the inverter. So, if you actually put your battery Co-located with the solar. And you can use the same inverter. You can actually can potentially save, you know, 20 to 30% with the caveat being that your inverter might be more expensive because your inverter is now a dual-purpose inverter, right? There's no such thing as a free lunch to get around it. But yeah, those with those because of the. Main cost components.

07:17 Karan Takhar
And do these cost categories fluctuate across, says storage systems for CNI consumers versus storage systems for larger utility-scale plants?

07:32 Alexander Hogeveen Rutter
Yes, that's actually a really great question. So, we're actually doing a project on CNI storage right now. Well, and one of the big barriers to a lot of big players entering the market is saying, well, people are expecting $300.00 per kWh. $250 per kWh because that's the utility-scale price, but to do at CNI level limits smaller scale. You know, maybe it's 600 or $700.00 per kWh because you're just you're overheads, your engineering, your sales. You're marketing your site checks all those things, you know, they seem kind of. a little bit abstract, but they really, really add up in aggregate. Especially you know the Tier 1 suppliers who you are going to have a long warranty and how they've got a service are they gonna service ever gonna maintain it? Are they going to provide a 10-year service contract? In a remote area well, that's not cheap, right? And so maybe that's $900 per kWh, and so, I think it's it's really important that it really depends on the context of what you're talking about, and people have to be realistic as to what price they're going to achieve given the actual site conditions. And given the scale that. We're talking about which is actually why one of the keys for, I think I'm locking this united storage market needs to come up with kind of modular solutions, and you see some providers now which will have, you know a box, and it's a fixed size. It's a 10-kWh box, and it's got the inverter and the battery in every cooling, all in kind of 1 modular container, and I think that's a step in the right direction, but then obviously that means maybe you have a sub-optimal size may be the optimal size is 7.5 and you have to choose between 5 and 10, and so you're potentially sub-optimizing your system to keep the cost down, and so that is that is a challenge for the mini space particular. So as it pertains to the CNI space in India, have there been a lot of companies or institutes which have already implemented storage systems Telecom has been, really big on this. You know, we have a lot of telephone powers and mode areas. They had very high uptime requirements, so they had diesel generators running, and so the business case for using energy storage instead of diesel is very strong. There another one is bank branches kind of World Bank branches rule ATM or third one is data centers where you. Again, you have very, very high up. And requirements, so you might actually you still have a diesel generator, but you have your grid power or your battery and your diesel generator, right? So, I think those three sectors are fairly well established, particularly telecom towers. You kind of have a very standard modularized solution, right? Everything is going to be 5 kWh until our solution, and so, you can come up with, and you can have a contract to say, I'm going to buy a thousand of these, and I'm going to maintain 1000 of these. So, because you can standardize that, you can lower these engineering costs lower. These overhead costs we. Talked about right. We're working right now to try and figure out how to expand that model to see any more generally whether it's, you know, manufacturing or models or hospitality or what have you. But it's just a bit tricky because your business case is not as straightforward, and different uptime requirements you have different size requirements. And you have different diesel consumption, and it just it gets a lot messier and more complicated.

10:36 Karan Takhar
Understood. How about from the grid-scale storage side could you provide some background into where India stands on that front? What projects have been implemented, and maybe what you foresee is the largest barriers to further unlocking that market?

10:55 Alexander Hogeveen Rutter
Yeah, so I think you. Know certainly moving in the right direction, as I alluded to earlier; I think people sort of hyped and excitement about the 175 gigawatts by 2022 target. But the bottom line is renewable energy, or this variable renewable energy, wind and solar. You know, it's only like 20% of India's energy mix right now, and people are often thrown off by the capacity figure they're thinking a 175. They go on sound like a lot of capacity. When we actually multiply that by the utilization factor, India is still at a very early stage in some medical journey. But right now, we're just starting to get to the inflection point when you start to get 253-5450. You're going to actually need storage integration. You can't just do that within good operating practices. And I think that's reflected in seeing about these pilots, Tata Power and Delhi with it, it's kind of 10 MW in our installation. You've got some legacy projects like there's this. Pumped hydro project in West Bengal that they've been using for decades for grid balancing, and it's 900 or 1200 megawatts, it's working right, and so I think there is that history, that legacy of using. Energy storage, but now you're really starting to see it ramp up. You got this tender meant PC, but this tenant Masaki. You had these RTC tenders in the last couple of years, and I think right now, people are still trying to figure it out. What the sizing is and what the technical parameters should be, and what kind of guarantees and warranties, and I think it's. Good that India is figuring it out. Right now, because I think it needs to ramp up by 2030, and so all the signs are positive that that's moving in the right direction for sure. So, as I said. I think a lot of this is time like I think we gotta pull out these tenders. See what works. You can't wait for things to be perfect and that figured everything out. You need to try something. See what discount they're interested in. Get grid operators comfortable using energy storage. Honestly, one of the biggest barriers is just operator comfort, and this is not a problem exclusive to India, even in Canada. I used to work in the Control Center, and you have these operators who operated for ten, 20-30 years, and now you're trying to add new things to their system, and it's a different mindset, right? Especially, you know, in India where ten years ago you were in a power deficit situation and so every kWh was a good kWh. This turning off a cold the middle of the day. Why would? You turn a coal plant off in the. Middle of the day. You want you want all that energy, right? And so, there's better use of forecasting, and there's, and there's better us of flexible Ising your existing assets. But a lot of it is just, you know, mindset change. You have to get people used to change the way they operate. And a lot of that is you have these legacy practices, and you also have legacy peas which you don't want to reopen existing PPA's like it's just going to reopen existing PS. But as these P expire, as the grid grows, hopefully, you're not sending any new coal PS will be with renewable energy and storage, and then as it starts to become a bigger, bigger fraction of the tool. Energy then I think grid operator will get more comfortable, but I think part of. It is just. It's just time to get that level of comfort. And firstly, I should make the caveat that these is my personal view. This isn't necessarily reflective of the IFC view. There are a couple of areas ancillary services market; there's this draft and voice services regulation. I think, again, that's a step in the right direction. There are these pilot schemes are as far as seeing these implemented. Nationwide, I think, would be a huge step in the right direction. I think that's the direction that we're moving anyway. Time of use pricing, I think, is a big factor. You know, right? Now, if the actual grid costs, the system cost of providing for that evening peak is higher. But there's no incentive for people to. Try and shift, and so, you know, whether it's agricultural consumers, you know, solarizing your, your agriculture pumps, putting them in the day. Whether it's, you know, trying to shift air conditioning load or using thermal storage. Whether it's, you know, as leaves come online, having smart TVs that are charging in the middle of the night rather than the evening peak. But ultimately none of those will happen by government dictate. Those will only happen if there's an economic incentive. So, you need some sort of demand charge. What kind of use incentive? And then once you've exhausted all those other options, again, energy storage will make sense on its own, and you look at, say, California or Ontario, where the difference between the peak price in the off-peak price. It is so large, and you can justify building that storage. And you don't need to dictate that people should add storage; they will add storage just based on the. A third piece, I would say, depending on what you call it, some people called contract for differences, but I, I kind of like to use the example of you know, Canada. What we had was we would sell, let's say, 500 megawatts firm power to our friends in the United States, and effectively, it's a market system. You can't. You're not allowed to write, allowed to sell bilaterally. You have to fit it in, and so what ended up happening was we would effectively always be selling. We would in our planning process, we would kind of account for those 500 megawatts as though it were domestic load, and they would account for 500 megawatts as though it was their load, and so from our kind of state-level of the provincial level planning exercise. They're assuming it's there's, we're assuming 3rd and then in real-time though, we're just selling it into the market, and they're buying from the market and whatever the market clearing price is, whatever the marketplace. And we've just got an agreement at the end of the month for the quarter of the year or whatever we're settling for. Whatever the difference is between, you know, the average market clearing price and what we agreed to in the contract. So, you get the benefits of you can as a discom or as a generator, you can have a long-term stability, which obviously an organization like IFC, we want to see bankability. We want to see a 10 to 15-year, 20-year PPA. The DISCOM obviously wants predictable prices for their consumers. They don't want to be exposing consumers to fluctuating prices. But you get the efficiency of the market and that the market is allocating resources in real-time. And right now, there's a disconnect in the Indian market where, I mean the perfect example of this is you have wind PPA's, these legacy wind PPA is coming in and say 5-6 rupees per unit and so, there's a very, very strong incentive whatever the government dictates on must run. Status is a very strong incentive for the discount to try and curtail that wind and say there's technical limitation or whatever but in reality, the marginal cost of going to zero, right? And so, you really want the market to be reflecting the actual genuine marginal economic cost and you want the contractual PPA. The actual how much it's going to, how much money is going. To change hands. That should be dealt with separately from the operations of the system and contract for differences. It's one way to do that.

17:25 Karan Takhar
Very interesting. That would lead nicely into the next question or segment, which involves analysis of the economics of energy storage systems as they pertain to other energy sources in your article, whereas RE plus storage is already cheaper than coal. He stated that in India, the US, Poland, and Australia, renewable energy plus storage is already cheaper than coal, and thus, there should be no new coal built purely for economic reasons in these regions. And I'm just curious as to how you conducted this analysis, and you could provide some insight into your methodology and how you got to this conclusion because that's a big time being.

18:16 Alexander Hogeveen Rutter
I will give the caveat that this is a fairly rough high-level analysis. I actually was just reading a paper from the Indian Institute of Statistical Science where they did a much deeper look at India specifically, and they tried to incorporate some of the societal costs as well, like the pollution costs and health costs and that sort of thing may be in the show notes. You can add the link to that. That's an even deeper dive. I came to the same. The analysis is fairly straightforward. I took the average cost of new renewable energy, which was either solar or wind or some combination, depending on the country, and added storage. And now here's here's the trick. How much storage do you really need? And a lot of people say, well you need 24 by 7 power, and if you actually want 24 by seven power. You need a lot, a lot, a lot of storage. But realistically, in today's environment you don't need 24-by-7 storage. Because you have, you know, you have hydro, you have gas, you have your legacy colors. Probably like a CPA, and again, working in distribution utility, working for a grid operator, realistically, you're really only trying to meet a handful of couple 100 hours a year. In this analysis, I used four hours; I think with four hours of storage, that can get you to say fifty 6070% renewable, getting that final 20% you might need. More storage or green hydrogen or or long-term storage or something. But this was framed in the sense of what is the cost of four hours store, and so it's it's pretty simple. It was OK; what's the cost of four hours of storage using 260 or $300.00 per kWh? Kind of a standard utility-scale cost event? Add that to the average solar wind. Compare that to the average full price. Now the caveat there is I'm looking at average full priced and it's new. So, it's new. Calls. That includes. The cap ex. It's certainly cheaper than new coal, but there is going to be variations. The SSE of a pithead pan pithead plant is going to be more competitive than a plant that needs to. Transport that coal 1500 kilometers, right? It's going to depend on your coal efficiency, but I think the value that the deal we came up with was, I think was, I want to say 3.5 rupees. Per unit for a new poll which if you look at the cost of codebase that have been signed in the last five years, I mean that's, if anything that's optimistic for cool. So, I think, if anything, these results are conservative. I think if you think about UFDs and the other environmental requirements and cold transport and hedging and all this, it would be tough to build a coal plant at a new coal plant. Straight after be permitted.

20:39 Karan Takhar
Thank you for expanding on that. Another important step in the decarbonization effort will be out-competing existing coal plants. At least some arguments or proponents of people who want to integrate renewable energy at higher levels. They state that to do so, they'll also need to replace unutilized full capacity, which will likely require renewable energy and storage to be cost-competitive with the variable cost of coal as opposed to when conducting analysis on new builds, I assume it's the variable cost of coal plus fixed cost tickle. If you could expand on whether you foresee renewable energy plus storage systems being able to outcompete just the variable cost of coal in the near future.

21:35 Alexander Hogeveen Rutter
Yeah, so if. There's one takeaway from this podcast it's please, no new coal, do not build new gold. This is an important discussion to have, but the priority should really be on making sure that no new goal is built. The legacy contracts, you know, you've got these legacy peas. They said I think honoring the sanctity of contracts just from an uh business stability and keeping the discount rate. The risk premium? Flow is so important, so I really wouldn't want to open up existing PDAs. For that said, I think there are a lot of, you know, if you look at the marginal cost curve of existing coal plants, you can go to Merritt, India, right now and look it up. It's all over. The place there are coal plants that are producing power and the marginal cost of 1 point ₹5 per unit, and there are coal plants that are at 4 or ₹5 per unit, right? And so if it's if your plant is at ₹5 per unit, your discount could potentially save a lot of money by switching to Arctic storage today. And now does that mean having some sort of payout to the existing coal plant? I think it's easier in many cases but just wait to the PPA retires and just simply don't renew PPA. If a gold plant needs a retrofit or an FGD replace, you know, upgrade, say let's, we're not going to retrofit it, we're not going to update. It we're just going to shut it down once you've done all that. You know, once you've hit your 450 gigawatts little energy, then maybe let's take a look at that. If we should start more systematically closing down coal plants, and this would be different in developed countries where your electricity load is no longer growing, right? Or you don't have demand growth anymore? And you have energy efficiency there. I think you should be looking at adding renewable energy and taking out existing coal. But in India, there should be enough demand growth in the next ten years to absorb a lot of let's make sure all that new incremental demand growth is being met by renewable energy. Let's make sure all the old, really old coal plants that need to be retrofitted or retired. Let's make sure those are places in renewable energy, and by 2050, I think you can get to 2050 media in 20402050. You'll still have a handful of coal plants that haven't reached their natural end of life, and you can look at trying to retire them, really, but I just wouldn't. Be a Priority for me; what would be a priority is looking at reducing their capacity. Doctor, so right now, an operator again would have a lot of hesitation to turn off a goal plan because you want to have those operating reserves. Maybe you have, you know, a legacy relationship because you used to have a vertically integrated utility and so there's both good technical reasons not to turn off that coal plant, and there's kind of these softer reasons not. To turn off that. Plan, and so you both need to have the confidence, whether it's energy storage acting as sacred, forming inverters, providing synthetic inertia. Maybe it's converting old coal plants was a really good paper from the World Bank recently on converting old coal plant's synchronous condensers to provide inertia, particularly near major load centers like Mumbai or Delhi. You need some inertia near that load center to make sure you have good stability, right? I mean, this is a pretty roundabout answer, but I think the bottom line is that you need to get comfortable turning off coal plants during the middle of the day when there's lots of solar and during monsoon season with lots. Win. And again, I'll use the example from back in Canada. We had these two gas plants in one cold plan, and they had capacity factors of like 5%, and they were there in case there was a drought. Or, in case there was some local stability issue, like a transmission line was out, you wanted that kind of local generation to support the voltage in that population centered in that hold center. And that was OK. The energy costs were super high. They were old inefficient plants, but they were there for emergency use, and effectively we paid a very high capacity cost to have that capacity. If we really need it to make sure. The lights stayed. On, but we weren't using them for energy. And I think shifting that mindset where maybe I have this legacy coal plant and maybe I'm not going to retire it because I still need that voltage support in that local area. If the transmission lines that run goes out, or maybe I still need it for 100 hours a year in the hottest day of year when everybody is running your AC. And maybe we're going to pay that fixed capacity charge on the PDA to keep that plant open just for those 100 hours a year. But we're going to run it. 100 hours. A year. We're going to run it $500.00 a year. And I think that's a huge in many cases, the PPA is take or pay, so you have to pay for it. But in many cases, the PPE, you know, yeah, you can do that, you can just. Pay for the. Capacity and not the energy, but it's that mindset shift of accepting that I'm going to. Have this asset. And hardly ever use it, which is very counter. Intuitive, right? Why would I? Buy a car if I'm hardly. Ever use it? But if you already have the car and it's sitting in your garage, take it when you really need it. But on most days with the metro, cheap or take the metro and if it's, you know if it's raining or you're going on vacation, and there is no. Metro Fine, take the car when you.

26:21 Karan Takhar
That makes a lot of sense. Thank you so much for your time, Mr. Hobin rudder. I really appreciate this. Lots of great insights.

26:29 Alexander Hogeveen Rutter
Thanks so much for reaching out. This is fun as a closing remark. I did want to thank my friend and colleague Devesh Singh, with whom I work with on many of these issues before this interview. We talked about some of these issues again to help prepare. So I just want to give him credit for all my mistakes or mine, but all those things are mistakes.

26:47 Karan Takhar
Thank you.

26:52 Conclusion
Thanks for listening. We hope you enjoyed the episode. Check out the episode description or show notes For more information on our guests. See you next time.

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