Utilities face increased challenges as compared to traditional companies to justify the pursuit of a more radical energy investment, and the supporting business and operating models.
Accenture’s Digitally Enabled Grid Global Executive Survey mapped the key national energy challenges of 15 countries, evaluating five challenges against potential network solutions for distribution companies.
Increased consumer concern about reliability, exacerbated by high-profile failures from extreme weather such as Cyclone Yasi have resulted in Australia, the United States and Canada highlighting similar priorities, notably improved network reliability and outage response. While Australia faces similar challenges, higher electricity prices along with the lack of interconnection may constrain its investment options, likely requiring additional efforts to build flexibility into the network.
European countries generally have the greatest challenge from high costs and significant pressure from renewables deployment and air quality legislation, yet parts of Australia and California are also experiencing the impact of mass adoption of small-scale solar photovoltaics. Cheaper storage combined with the increased affordability of distributed generation sources, such as rooftop solar PV panels and small-scale wind, are beginning to displace centralised power networks. As an increasing number of consumers move off-grid to alternative energy sources, utilities are developing a new set of challenges.
Australia faces limited energy security concerns compared with Japan and South Korea, who have the greatest energy security challenges. Both Japan and South Korea have limited energy resources and restricted electricity interconnection with other countries. Those with the lowest levels of challenge, unsurprisingly, host significant energy reserves; growth of tar sands in Canada, shale gas in the US, and bioethanol in Brazil have transformed the energy mix leading to increased stability.
4) Rising Costs
Developing economies face the greatest pressure from electricity demand growth due to industrial use, urbanisation and growing per capita usage. The US, Canada and Australia’s less significant demand challenges are mainly driven through population growth rather than per capita usage increases.
The choice to embrace smart-grid technologies will be most strongly influenced by government ideology, consumers and the utilities themselves. Across these groups, China, Japan and South Korea showed the greatest degree of support and appear most likely to deploy quickly. Australia was positioned in the middle with relatively even levels of support across government, utility and consumers. European countries, on the other hand, specifically the United Kingdom, Netherlands and Germany displayed some of the lowest levels of support, particularly from consumers.
While all assessed countries have unique national challenges that could drive smart-grid solutions in the near term, some face a broader set of challenges that could enable more pervasive action. The developing economies of China, India and Brazil face a wide-ranging set of challenges warranting a more immediate consideration of available smart-grid solutions. Australia, European and North American countries, are generally experiencing moderate degrees of challenge, suggesting near-term complexity for network operators.
No single model for smart-grid deployment, but wait at your own peril
A network business is neither credible nor sustainable if it cannot reliably meet demand. Rapid, concentrated energy growth presents serious challenges for highly utilised networks where there is a long lead time for traditional infrastructure replacement. In these cases, access to smart technologies and solutions that can be applied with pace and certainty to maintain security of supply are critical.
In every region of the world (starting with the sunniest), decreasing PV panel and installation prices combined with cheaper storage, threaten to displace centralised generation. If consumers have a cost-effective option to move off the grid, significant revenue is put at risk, which may result in the remaining consumers shouldering a higher proportion of the fixed costs, thereby driving further distributed generation adoption.
Utilities under threat from PV and other microgeneration technologies are incentivised to look at more radical strategies to develop new revenue streams and integrate new generation while maintaining quality and security of supply. Solutions could include developing new charging mechanisms to encourage consumers with microgeneration to stay connected to the network or developing and maintaining microgrid solutions on behalf of consumer groups.
Distributed generation, storage, plug-in electric vehicles and microgrids all have the potential to impact competition and regulatory models in a fundamental way over the longer term. Accenture’s survey of energy executives indicated a substantial degree of competition from new entrants is expected, even within the next five years.
There is no single path forward
A characteristic of many disruptive technologies in asset-intensive industries such as utilities is that while they take longer than anticipated to become mainstream, the disruption is often larger than expected. Caused by a combination of changes or technological improvements, which alone can have minimal impact, combined they can alter the landscape of an industry. The multipliers of low-cost distributed generation and cost effective storage solutions have the potential to be highly disruptive.
Utilities must understand and monitor such potential tipping points. Their positions should be reviewed each year as the environment develops to either accelerate or decelerate the pace of smart adoption and investment. Due to the wide-ranging, interconnected nature of many smart solutions, it is essential to verify that all parts of the business are considered when assessing potential investments.
Moving down the list of strategic responses, from incremental to more clearly disruptive approaches to smart-grid adoption, the level of investment risk increases, as does the potential for revenue outperformance; and the potential to manage disruptive changes to the business model. Australia is still in the early stages of smart-grid deployment, and there remain many uncertainties about the durability of regulatory support, maturity of technologies, strength of business cases and the degree of impact the solutions will have on business operations.
Nevertheless, further smartening of the distribution network is inevitable
Smart capabilities will be increasingly built into network assets, many consumers will demand increasing amounts of information and the costs of delivering smart solutions are likely to decrease as volumes rise. Smart solutions should be seen as a natural extension of the ongoing improvement of the distribution grid and distribution companies must be able to make decisions on whether to invest in a particular smart-grid solution as a standard part of asset investment planning processes.
Knowledge sharing with other utilities is vital to help clear these uncertainties and lower risks of deployment. National energy challenges, varying industry structures and legacy network characteristics mean that each distribution company needs to incorporate smart-grid technologies and solutions in a way that meets its specific needs. In the medium term, however, it is likely that pathfinder utilities will move ahead with large-scale deployments of smart-grid solutions, while the majority will look to deploy discrete solutions.
Faye Griffiths is a managing director within Accenture Australia’s Utilities practice.