The growth of distributed energy resources (DERs) and energy efficiency is fundamentally changing the energy business, with potentially significant disruptions ahead for the utility sector.
The proposition of enabling the grid with more digital capabilities has the potential to dramatically improve the performance of the energy system, including better asset performance, optimization of power delivery, greater efficiency, more effective utilization of DERs, and new revenue from advanced services. However, as utilities face demand and revenue reductions due to new energy technologies, their traditional business model will be challenged.
In a new study Accenture seeks to quantify the disruptions. The company believes that with the right plan and effective monitoring and control, utilities can balance investment with an opportunity to establish a more cost-effective, optimized grid.
The new energy technologies that are disrupting demand include energy conservation and demand response; energy efficiency through insulation and efficient appliances; energy substitution such as the electrification of vehicles and heating; and distributed generation including PV, storage, and mini-and micro-combined heat and power.
Utility executive insights on DERs and energy efficiency
Accenture’s 2014 Digitally Enabled Grid study is in two parts – one a survey of utility executives on their perceptions of the impacts of DER and energy efficiency adoption, and the second, a modelling of the impacts on utility revenues.
The study polled 85 utility executives in 20 countries finding significantly greater awareness and concern compared with 2013.
● 61% expect grid faults to increase by 2020 as a result of LV distributed renewable generation, while 53% expect grid faults to increase as a result of large-/utility-scale renewables. These compare with 41% and 33% respectively in 2013.
● 61% expect distributed generation to have an impact on revenue reduction and 51% expect microgrids to have an impact on revenue reduction by 2030 (in 2013, 43% and 30% respectively).
● 73% expect competition from new entrants in power electronics hardware and services will increase and 81% expect competition from plug-in vehicles and associated charging infrastructure to increase in the next five years (in 2013, 46% and 59% respectively).
Nevertheless, despite these concerns 79% believe that it won’t be cost-effective for consumers to go off-grid without any subsidies until 2030 or beyond. Moreover, by 2035, just 12% of customers in North America and 11% in Europe are expected to become energy self-sufficient.
Accenture models three scenarios to 2025, ranging from a continuation of the status quo to a high technology adoption and significant load and revenue reductions. These project reductions in the US of US$48 billion (450TWh), and in Europe €61 billion (US$75.6 billion, 235TWh). (The EU-10 countries modelled are Belgium, France, Germany, Italy, Netherlands, Poland, Portugal, Spain, Sweden and UK)
However, Accenture believes the most likely path will be an intermediate one, which projects revenue reductions of US$18 billion in the US and €39 billion (US$48 billion) in Europe.
“Based on our research, Accenture believes that the most likely scenario in the next 10 years could lead to revenue losses at the lower end of our scale,” says Valentin de Miguel, global managing director of Accenture Smart Grid Services. “This is because adoption of energy efficiency and distributed generation will become possible without subsidies, which will lead to greater market penetration as a result of shifting consumer sentiment, falling technology costs and a moderate rise in electricity prices, especially across Europe.”
De Miguel continues that the ‘death spiral’ of utilities is a myth, saying it is unlikely and uneconomic for a large number of consumers to migrate off the grid or only use it as backup due to natural limitations on viability and cost constraints. However, the demand disruption caused by the growing adoption of energy demand-disrupting technologies is a very real threat to utilities’ business models.
“In addition to the financial pressure, this will cause significant operational challenges for utilities, increase technical stress on the grid and open the market to new competition for energy products and services.”
Planning for demand disruption
Accenture states that utility companies are at a tipping point of change. Technology is being adopted more aggressively as prices fall. The potential for customers to deploy distributed generation without subsidies looms large. Analysis shows that by 2015 solar PV will be at grid parity (equal to or less than the cost of power purchased from the grid) across Australia, many states in the US, and several European member states.
Utilities can navigate through demand disruption by rethinking their role going forward, evolving from the pure-play transporter of energy and expanding to sophisticated energy services; for example, beyond-the-meter services such as energy efficiency, storage and automation. To migrate to such a model, utilities should focus on engaging with regulators to define new models that will secure the long-term viability of the distribution business via the adoption of new tariff structures, opening up new markets for services, and aligning subsidies.
In addition, a real opportunity to improve supply reliability and increase earnings potential lies in investing in grid optimization. This comprises automation, sensing devices and real-time analytics capabilities to improve real-time management of the grid. It also includes advanced demand response solutions to encourage consumers to use energy in a more flexible way.