By Christina Corcoran
Earlier this year, we were looking to define and predict trends in the energy industry1. That was before the world was turned upside down by a global pandemic. It is now becoming clear that even the forecasts made two or three months ago need to be recalibrated and rethought. Now, customers are having trouble paying their bills, and utilities have to manage that and work within that context. Regulators need to step in and help both the utility and customers to get through the real-time issues being dealt with today.
Over the last few years, the energy industry has gone through a transformative and dynamic phase. The technologies of generation and distribution—and customer expectations around the experience they want to have with vendors—have driven across-the-board changes in business processes and regulatory policies. Customer experiences have grown exponentially over the past few years, especially in the era of on-demand, Amazon, and Netflix. There is a whole generation that is attention driven and we need to respond to that in the context of distributed energy resources and what type of power people want to use and what type of service they want to engage with. The world is changing faster than the mechanisms that are currently in place to be able to keep up with those changes.
The energy stakeholders of the future need to consider how environmental regulations, technology, consumer demand as well as other factors could impact the country’s generation resource mix, utility resource planning decisions, and private sector investment.
New Considerations for Stakeholders
Looking forward to the future, we see new considerations for participants in the energy markets including:
- Power Generators, both large and small scale, need to think about the future fuel mix and related clean/cleaning technologies. A significant number of federal and local governments across the world have introduced clean energy and zero-emission goals for the next twenty years—some are more aggressive than others. While oil prices are experiencing unprecedented volatility, the scaling back of fracking creates push back in price drops in the U.S.2
- Energy Suppliers, which consists of utilities and non-utility suppliers, are faced with dramatic changes in the entire supply chain. The distributed energy technologies have made the traditional sales of kilowatt-hours at x cents per KWH is going the way of telecom service sold at cents per minute (for those of you who actually remember the days of Judge Green). Today, customers demand the incorporation of distributed energy—behind the meter or in front of the meter—and storage for many reasons: concerns about climate change, reliability and resilience of power source in the era of floods and fires, and in some cases, financial incentives that make on-site installations attractive.
- Utilities, which continue to operate the transmission and distribution monopolies, also need to re-think their future in the light of distributed generation. The resiliency and reliability of the entire power grid are, for want of a better word, up for grabs, and many of the lessons we learned over the last few years were lessons we had to learn the hard way: to cite a couple of examples, the rooftop solar generations were operational the morning after the hurricanes in the Carolinas whereas the land-lines took weeks and months to recover; the reverse congestion in Texas transmission lines thanks to the proliferation of wind power in the west driving spot prices negative, etc.
- Regulators and energy policymakers need to consider how these technologies as well as changes in consumer behavior and expectations in the age of smartphones affect the industry in a macro- and microeconomic sense. Once again, there have been a number of regulatory policy changes that sometimes have smacked of overreach, and in several northeastern states of the U.S., the restructured electricity and natural gas markets are under threat.
- Consumer Advocates also have to be active participants to protect the interests of the consumers – whether they be residential customers in Florida who want rooftop solar installations or commercial and industrial customers in Nevada. Regulatory policies and ballot initiatives influenced and financed by some segment of the industry threaten to stifle customers’ best interests.
- Vendors who supply enabling technologies to all of the above players have to be proactive in addressing the needs of the future. To cite just one example: the “smart” meter data opens up a slew of opportunities in energy management through analytics and modeling in order to provide the right technologies and the right offers to the customers. In the case of many utilities, while their operational technologies (OT) is from the current generation, their information technology (IT) is twenty or thirty years old, and simply not up to the current challenges.
The Evolving Role of Technology
There are many challenges to meeting the objectives of a secure, resilient, economically competitive, and environmentally responsible energy system. The number one challenge is technology. Technology is significantly disrupting the energy generation itself in the sense of renewable energy, smart meters, smart homes, electric vehicles (cars and truck fleets) and battery storage and the environmental pressures on policy that has affected each state differently.
In the past few years we’ve seen energy consumption grows exponentially due to the emergence of a larger market of remote workers (a trend that is expected to accelerate thanks to the current lockdown experience), smart cities, microgrids, the adoption of rooftop solar and community solar gardens.
“According to recently updated projections from the U.S. Energy Information Administration, solar PV and wind–still the darlings of the renewables surge—are together projected to account for three-quarters of all new electric generating capacity in the U.S. in 2020. Guidehouse Insights, a Guidehouse company, forecasts show new distributed energy resources (DER) capacity deployments, comprising a diverse portfolio of customer-sited assets, will outpace all-new centralized generation installments globally by nearly 190% (or around 250 GW) through 2030. Innovative use cases for enabling technologies such as artificial intelligence (AI) and blockchain are bolstering the feasibility of customer-centric solutions such as transactive energy and energy origin verification. Meanwhile, increased adoption of EVs introduces an entirely new fleet of mobile storage that breaks the geographic constraints of a power grid composed almost uniformly of stationary assets”.3
Even technologies to retrofit buildings for much higher efficiency at low cost will be challenging and important to capture significant energy savings and emissions benefits in the near term that otherwise would wait decades before the existing building stock was replaced.
As a leader in R&D on many energy technologies, the United States has the opportunity to lead the world in developing and manufacturing new clean energy technologies. Global clean electricity supply and energy efficiency markets are estimated by the International Energy Agency (IEA) to total $7 trillion and $8 trillion, respectively, by 2035.4 Once again, the current disruption of the global supply chains force us to rethink the priorities of manufacturing and distribution logistics.
Revamping Business Models
The landscape of the energy ecology and energy technology is rapidly changing. The age of selling cents by KwH is over, and the energy stakeholders need to reevaluate their business models to meet the challenges of change and compete in this new world. With the fossil fuel markets in significant turmoil, all of the stakeholders – utilities, independent generators (both large scale and small scale; traditional utility-grade and distributed facilities), retailers, energy management businesses, grid operators, regulators, and consumer advocates need to come together to face the challenges and help move the industry towards the future.
3 Guidehouse 2020 Outlook: Emerging Energy Technologies Trends Report, https://guidehouse.com/insights/energy/2020/emerging-energy-technology-trends