utilities

Metering & Smart Energy International had the opportunity to speak with EY Global Power & Utilities Leader Benoit Laclau about the significant impact current trends are having and will continue to have on the utility revolution and how best to accommodate a new energy ecosystem.

This article first appeared in Metering & Smart Energy International issue 2-2018. Read the full digital magazine here or subscribe here to receive a print copy.

When it comes to the business of energy, change is certainly the one constant we can rely on. However, the pace of change is proving to be dramatic, bringing with it a complete rethink in terms of the utility business model and the traditional role of energy provider.

The market is abuzz with talk of the increased adoption of renewables and associated impact on clean energy and the inclusion of energy efficiency programmes in utility service offerings to customers. Furthermore, the effects of grid defection as distributed energy resources grow in popularity present a new risk and opportunity landscape for utilities.

Decreasing costs associated with new technology, battery storage options, electric vehicles and diversifying microgrid networks require utilities to embrace an agile stance, ensuring technological disruption is a maximised opportunity, rather than an unmitigated threat.

Utilities need to make sound investments now to ensure they keep up with the demands of ‘prosumers’, as well as engage the regulatory bodies in a way that informs novel incentivisation and remuneration models.

With some global analysts predicting grid parity could materialise as early as 2021, now is the time to identify game changing innovation, create a transformation road map and realign strategic objectives. All this to secure a viable business model through diversification in terms of inter-sector partnerships and business ventures.

  1. What are the global trends utilities need to be preparing for?

Around the world, energy markets are transforming, and most are changing much faster than previously expected. More renewables, cheaper battery storage options, a powerful consumer culture and digital disruption are coming together to create a perfect storm of disruption. Every aspect of the utilities sector – how we generate, use and sell electricity – is undergoing a radical and irreversible shift.

Together with a leading global analyst firm, we recently conducted a global study that identifies three critical tipping points that mark utilities’ journey toward a new energy system: when self-generation is an affordable option for everyone; when electric vehicles become mainstream mobility options; and when delivering power via the grid costs more than it does for consumers to produce and store it themselves.

The first tipping point – when the cost of non-utility solar generation plus storage reaches grid parity with grid delivered electricity – will be reached as early as 2021 across Oceania. In Europe it will be 2022, but we don’t expect to see grid parity until at least 2028 in the US.

This year will continue to see a shift in the global energy market. Generation will become more diverse, decentralised and enabled by a digital grid powered by automation and data-led intelligence.

  1. How is the prosumer defining the future of the utility?

The process of energy market liberalisation and energy transition has led to a situation in which consumers are starting to generate their own electricity, for instance by installing solar panels and selling any surplus of electricity to their energy supplier – thereby becoming ‘prosumers’.

In this model, the traditional demand driven system is being substituted by a supply-driven system supported by the introduction of demand response programmes and the storage of electricity by means of facilities connected to the distribution grid.

As generation becomes more distributed and closer to the end consumer, this will become increasingly complex to maintain, in addition to being costlier, unless smart solutions are adopted. Over time, digital grids will be introduced that upgrade the current electricity grid with new IT and communication technologies and solutions that allow utilities to better plan and operate existing electricity grids, control generation intelligently, and enable new energy surfaces and efficiency improvements.

Such radical changes bring energy companies to a crossroads and utilities will have to confront existential questions, including: “What should we do next?”

But change needn’t be a threat. The new energy ecosystem offers opportunities for reinvention that many energy companies have been seeking, after years of eroding revenues. The potential for new paths to growth are waiting – for those utilities that start preparing now.

  1. How can utilities maintain viable revenue streams in light of decreasing demand for electricity?

Utilities that stand the best chance of success are those already taking steps to prepare now. As energy becomes more demanding, local and dynamic, the energy marketplace will need to be digitally transformed.

Developing data-driven solutions, investing in digital channels, and delivering personalised services are key stages on the journey from traditional monitoring to intelligence and active control. In particular, distributed energy resources will require grid upgrades and new digital capabilities. Utilities should take ‘no-regret’ decisions to accelerate digital grid investments, including smart meter installations, beyond the meter energy management, grid automation and grid modernisation. Utilities must focus on deploying fast and cheaply at scale.

With the number of electric vehicles on the road expected to surge, utilities should assess new business model opportunities, such as owning or servicing batteries, and opportunities to expand electric vehicle charging infrastructure. They need to start thinking now about how electric vehicles can be integrated into current strategy and investment decisions.

In addition, utilities should consider collaborations with innovators in other industries. Many businesses are already forming partnerships with companies in adjacent industries, such as battery manufacturers and technology firms, to enhance their capabilities in new energy services and develop innovative products and services.

  1. Are regulatory frameworks able to keep up with innovation and technological advancements?

In most markets, the regulatory models that shape energy investment are yet to catch up with the sector’s transformation. Different models of incentivising utilities could help drive the development of more innovation and new business models.

New incentives are also needed to ensure that prosumers play an active role in the evolution of the new energy ecosystem. Now is the time for energy companies to drive the discussion around their future roles to ensure relevancy and remuneration in the long-term.

  1. How are emerging markets comparing to the rest of the globe in terms of preparing for this digital disruption?

Making affordable power accessible to everyone is a dilemma that has long preoccupied governments, but so far progress has been slow. Now the rapid digital transformation of the global energy market may finally offer the opportunity to decisively address electricity injustice. Over the coming decades, digital technologies are set to make energy systems around the world more connected, intelligent, efficient, reliable and sustainable. But the right regulation and policy signals will be critical if we are to make the most of what may be a once-in-a-generation opportunity. MI *

EY: https://betterworkingworld.ey.com/digital/ energycountdownclock