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De-Risking Decarbonization

November 30, 2018 Work Area: Energy Access

How do we get to the airport when we have an important flight to catch? What we don’t do is leave at the last minute without thinking about whether there is a traffic jam on the way, whether the airport parking garage is full or the length of the airport security lines. If we did this, we might still catch our flight, but only if we were lucky and everything went right. Instead, what most of us have learned to do is first look at Google Maps or Waze for traffic conditions, check the airport website for parking conditions and consider whether it is a busy time for airport security – and then adjust our travel plans as needed.

Why do we do this? Because there are many “what if” uncertainties involved with getting to the airport – traffic jams, full garages, and long security lines among others. If we don’t anticipate and manage these, the trip becomes risky. Our chances of catching the flight are better with planning, multiple travel routes and parking options, and the flexibility to adjust our way to the boarding gate. This doesn’t guarantee we’ll catch the flight but goes a long way to increasing our chances. Put another way, this is “de-risking” the travel process.

This type of thinking can also improve our chances of achieving full decarbonization in a timely manner. Some have posited that we can reach deep decarbonization by mid-century through deployment of 100 percent renewable energy resources. But, like catching a plane on time, relying on 100 percent renewables to achieve full decarbonization by mid-century presents many uncertainties. Since these create a significant risk of failure, we need instead to pursue a strategy that increases our chances of success.

The variables that create risk of failure for the 100 percent renewable pathway include:

  • Multiple elements: The 100% renewables path to full decarbonization rests on many technologies: wind and solar, a nationwide transmission grid, seasonal storage, and load management programs among others.
  • The essential nature of each: For these to fully decarbonize the electric sector, each is needed. Under the 100% renewables path, decarbonization does not rest on one or two or three of these elements, they are all essential.
  • Meaningful uncertainty with each: Each of these is also uncertain. To illustrate this, consider five questions. Will wind and solar be scaled up to provide 100% of energy given their land use impacts? Will the public accept a new nationwide transmission grid? Will new seasonal storage technologies be commercialized? Will customers accept load management and curtailment? Will the public pay the full system cost of all this?

Overcoming these uncertainties is certainly possible but taken together they make this a risky path to full decarbonization.

Consider this simple example. Assume each of the five uncertainties has a likelihood of 90%. If the only uncertainty was the wind and solar scale up, the overall chance of successful decarbonization would be 90%. But if there are two uncertainties – wind and solar scale up, and also transmission build out – the chances fall from 90% to 81% (simply 90% times 90%). As each additional uncertainty is added, the overall chance of success continues to drop. With five uncertainties, the overall chance of success is only 59%. That is close to a 50/50-coin flip, and far from a dependable approach.

What is the Likelihood of Success without Robust Risk Management?

Even if each element is reasonably achievable, the cumulative chance of achieving all five is materially lower. Assuming each has a 90% chance of being realized, the likelihood of achieving all five is just 59%.

Likelihood Success Risk Management Chart

These odds can be improved with multiple options and flexibility. To return to the example, if we had three independent paths, each with a likelihood of 59%, the overall chance of success would be 95%, a very substantial improvement over the 100% renewables path by itself.

Technological Diversity Increases the Likelihood of Success

Pursuing multiple technology paths in parallel increases the likelihood of success. Assuming each of three other technology paths has an overall 50% chance of being realized* the likelihood of full decarbonization rises from 59% to 95%.

Likelihood Success Technology Diversification_Chart
*Note this 50% assumption is the overall likelihood of each flexible base technology path, not the risk elements underlying those paths. As such it is comparable to the 50% overall likelihood of the VRE-Centric path and a conservative assumption in relative terms.

This observation, that strategies relying on diverse options and flexibility have better chances of success than inflexible strategies, is really just common sense. We would do well to use it in de-risking the decarbonization challenge.

For a more complete illustration of this concept, see this slide deck prepared for CATF and the Rand Corporation.

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