The role of gas in the energy transition
It seems counterintuitive, but gas plays a vital role in the world’s journey towards more renewable energy as a much-needed supplement to wind and solar power. Here, Quantitative Gas Trader Mikkel Holm Jensen adds some nuance to the important topic of the energy transition.
Wind turbines and solar panels are the most dominant renewable energy sources, and once installed they produce cheap, carbon-free power. Exactly what the world needs to reach the Paris Agreement’s goal of keeping global warming well below 2 degrees Celsius.
However, energy generation from wind and solar is highly dependent on the weather, and with the exception of hydro reservoirs in countries like Norway and Sweden, there is no efficient way of storing electricity in large quantities. At least not yet. To ensure a stable supply of power, we need a flexible energy source that can be put to use when the sun doesn’t shine and the wind doesn’t blow. As of now, this flexibility is only offered through conventional energy sources such as coal, oil, nuclear and gas.
The preferred source of flexibility
Out of these options, gas is the preferred source of flexibility for two main reasons: it releases less carbon when burned than oil and coal, and when needed, it can be ramped up and down much faster than coal and nuclear, making it more suitable as a supplement to the intermittent energy generation from wind and solar.
All over the world, governments are setting ambitious climate targets, and coal and nuclear power plants are being decommissioned to be replaced by renewable energy. As the influx of renewables in our energy system grows, so does the volatility of the energy production and the need for gas as a flexible asset. The rise in gas prices in 2021 underlined this point, because it was largely driven by a combination of increasing energy demand, lower-than-expected supply of natural gas and weather events like long, cold winters and periods of low wind.
New technologies are needed
The interdependency of renewables and flexibility from natural gas will continue in the coming years, and Europe will most likely need to diversify the sourcing of natural gas and invest in gas infrastructure side-by-side with investments in renewable energy sources. At the same time, we must also invest in new technologies such as batteries and hydrogen, which may be the long-term solution to the challenges of intermittent energy generation.
About Mikkel Holm Jensen
- Position: Quantitative Gas Trader
- Employed since: September 2019
- Educational background: Master’s in Finance