When energy customers go off-grid, will utilities be left in the dark?

By

Benoit Laclau

EY Global Energy Leader

Experienced energy leader and advisor.

15 minute read 7 Jun 2018

Show resources

The countdown is on to when the utilities sector reaches three tipping points on a journey to a new energy ecosystem.

Utilities are on a countdown to reinvention.

 

The energy industry has long known that radical transformation is coming. Revenues have been under pressure from the rise in renewables; in 2016, clean energy accounted for almost two-thirds of net new power capacity around the world.[1]

The maturing of renewable energy technologies, the proliferation of distributed energy resources, the falling cost of battery storage, and changing, more empowered consumer behavior are shifting how we produce, use, value and trade electricity.

Together these forces have put the energy sector on a path to three critical tipping points:

Until now these milestones on a journey to a very different energy ecosystem have been vague future events. But now EY, together with one of the world’s leading global analyst houses, has calculated the interaction and amplification of 10 convergent technological trends to determine when these tipping points will be reached.

These dates will vary across global regions, because the trends driving change in the energy sector are different for different markets. But what is certain across all is that change is coming sooner than most of us previously expected.

Grid cost parity is 2021

  1. Tipping point 1 – when off-grid energy reaches cost and performance parity with grid-delivered energy – will arrive as early as 2021 in Oceania.
  2. Tipping point 2 – when electric vehicles (EVs) reach price and performance parity with combustion engine vehicles – will follow from 2025 across the globe.
  3. And tipping point 3 – when the cost of transporting electricity exceeds the cost of generating and storing it locally – will hit the US Northeast region first in 2039.
  • The energy industry is at the start of a period of unprecedented change, one that will fundamentally change the market place (presenting new challenges as well as new opportunities). Three tipping points will mark the emergence of a new energy system.

    Tipping point one is when self-generation reaches cost parity with grid-delivered electricity. To determine this date, we calculated the projected demand for electricity, future generation mix and cost of delivering electricity via a central grid between 2015 and 2050, and then compared it to the predicted cost of self-generating electricity using solar PV and battery storage.

    To help determine when these costs would reach parity, we worked with a leading global analyst house to model the expected adoption and interactive impacts on electricity demands and costs of 10 core distributed energy and information technologies: solar PV; battery storage; electric vehicles; microgrids; home and building energy management systems; P2P electricity exchange; smart meters; artificial intelligence; grid-edge technology; and cloud.

    The study also identified two further tipping points for the energy industry:

    • Tipping point 2: when the price of battery electric vehicles reaches cost and performance parity with traditional cars with internal combustion engines
    • Tipping point 3: when the mere cost of delivering electricity (i.e., the unit-cost of electricity transmission and distribution) exceeds the cost of self-generated electricity

    Because drivers vary across markets, the tipping points will hit different regions at different times. So far, we’ve developed models for Oceania, Europe and the US, with more to come. The American energy sector is complex and highly regionalized, making it difficult to get one clear picture of what is driving change. To provide clarity we’ve determined the tipping points for five US markets – ERCOT, Westcoast, Midwest, Northeast and Southeast, with a focus case study on California. We’ll update our models and clock every six months as technology and regulations change.

    For updates, sign up here.

Tipping points have game-changing consequences

These tipping points mark when everything changes for utilities. They herald the dawn of a radically different energy ecosystem – where self-generation is an affordable option for everyone, when EVs become mainstream mobility options and when consumers become “prosumers”, producing their own energy and leading to the proliferation of localized energy generation.

This will create game-changing consequences for utilities:

  • Increased complexity in integrating and managing distributed energy sources. Utilities will face more performance issues, as well as rising costs to maintain the grid.
  • Combined with the rapid drop in the cost of self-generation technologies, this will accelerate the defection of consumers and allow non-traditional competitors to steal market share, putting pressure on the business model that underpins utilities.
  • The expected large uptake in EVs will create additional load on the electricity system but charging, if managed well, could transform energy usage patterns and improve grid utilization by absorbing load during periods of high variable renewable energy output.
  • The energy market place will need to be digitally transformed as energy becomes more demanding, local and dynamic, requiring greater intervention at a distribution level to manage power quality.
  • New financial and regulatory models will be needed to manage the “information” grid.

Such radical changes bring energy companies to a crossroads.

It’s not enough to say that business as usual will no longer be an option – utilities will confront existential questions unlike any they’ve encountered until now. Perhaps the most important one will be: “What should we do next?”

Opportunities for reinvention

Change needn’t be a threat. The new energy ecosystem offers the 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 that get ready in time.

  • Microgrids: As generation continues to evolve toward a more diverse and decentralized network of intelligent flexible units, energy companies can help build community microgrids, connecting and managing the energy inputs from many different self-generating households.
  • EVs: Utilities could take a bigger role in the EV industry, investing in infrastructure that allows EV batteries to help stabilize the grid.
  • Emerging technologies: Energy companies could develop new digital applications that create virtual marketplaces to trade energy in new ways. Technologies such as blockchain and smart contracts will underpin this new transactive energy ecosystem.

The truth is that as technology evolves and sectors converge, the resulting business possibilities will grow exponentially and take forms that we cannot even imagine today. Twenty years ago, did telco bosses envision that one day we could control almost our entire lives from a handheld smartphone?

Instead of trying to predict the future of energy innovation, energy companies should focus on building an agile, collaborative business that is ready to quickly pivot to take advantage of new technology and trends. Our advice for utilities preparing for the imminent tipping points of their sector is to make smart “no regrets” investments now while planning for a very different future. Utilities should:

  • Invest in digital grid infrastructure: However the future energy ecosystem will evolve, it will be built on digital technology – the investments utilities make now will determine how well equipped they are to reap the benefits of digital applications tomorrow. Energy companies need to make strategic investments in digital grid enabling technologies, such as smart meters and advanced distribution management systems (ADMS), and the skills required to operate them.
  • Evaluate new business models: In the new energy ecosystem, revenue growth will come from enabling self-generation, growing digital-enabled energy services and the EV ecosystem. Utilities will need to consider potential business models supported by digital grid investment, such as EV infrastructure and microgrids.
  • Engage the regulators to shape a future role: In most markets, the regulatory models that shape energy investment are yet to catch up with the sector’s transformation. Different models of incentivizing utilities could encourage more innovation. Now is the time for energy companies to drive the discussion around their future roles to ensure relevancy and remuneration in the long-term.

Tomorrow’s energy winners are taking action now

The tipping points that mark the journey to a fundamentally different energy ecosystem are almost here. The energy companies that prepare will win in the new energy ecosystem – however it evolves. The key is to embrace the potential of change by taking bold steps now. Those that do will do more than simply survive, and thrive.

Sign up for updates.

[1] Renewables 2017, International Energy Agency, 2017

Engineers installing solar panels
(Chapter breaker)
1

Chapter 1

When data is worth more than energy, how will smart utilities profit?

We predict that Oceania's utilities sector will be the first to be changed forever by the impact of distributed energy resources (DER). What do utilities need to do to seize the opportunities of the new energy world?

When crisis meets opportunity

Sometimes crisis presents opportunity. Despite plentiful natural resources, Australia’s energy affordability, access and security have become some of the biggest issues both in politics and around kitchen tables. Motivated by fast growing energy bills and a recent spate of power outages, Australian business and residential electricity consumers are accelerating their adoption of renewables and new energy technologies. 

We’ve worked with a leading global analyst house to calculate that these drivers will come to a head in 2021. This is when, based on current trends, Oceania will reach grid parity - when it will cost the same to self-generate power as it will to buy it from a provider. This is a year ahead of Europe.

“The impact of grid parity goes beyond the immediate consequences of large numbers of consumers leaving the grid. It marks a critical tipping point on a journey to a radically different energy sector,” says Stuart Hartley, EY’s Power & Utilities APAC Advisory & Global Digital Leader.

“In 2021, not everyone will leave the electricity grid, but self-generation and battery storage will have matured to the point where traditional energy business models will be under increasing competitive pressure from viable alternatives," Hartley says. “How Australia’s utilities reimagine their competitive roles and capabilities will determine their success.”

And grid parity is just the first tipping point on a journey to a new energy world.

  • A second tipping point  – when EVs reach price and performance parity with internal combustion engine vehicles – follows shortly afterwards in 2025.
  • Tipping point 3 – when the cost of transporting electricity exceeds the cost of generating and storing it – will be reached in 2040.

Preparing for these changes will not be easy for Australia’s utilities. They already face challenges unlike those in many other markets - including transporting electricity over vast distances and with varied interconnectivity between states. Between now and 2021, they’ll have to tackle the increasing impact of less revenue from grid-connected customers, more complex DER to manage, increased regulatory scrutiny on costs and mounting political pressure around affordability. Finding intelligent new ways to tap the value of the grid, grow new revenue and drive productivity will be vital to survival.

Cashing in on grid defection

Hartley says “utility networks around the world are looking for opportunities for horizontal moves into new areas of the energy value chain such as directly offering new energy products to consumers, or even entering the EV market.”  So, what will be the best bets for Oceania energy players to reshape their businesses to withstand growing grid defection?

“The good news is that there are many exciting opportunities for agile network players to capture value by positioning as a future platform to connect energy supply and demand’”, says Hartley.

A connected, digitized grid also has the potential to become a platform for apps offered by third party providers. These apps could include services to manage the appliances in a connected home, charge EVs or conduct peer-to-peer transactions to trade solar energy with neighbors. Utilities may not develop or run these services but instead host the platform (ie. the digital grid) on which they are held – similar to the way that today’s technology giants host apps via smart phones and devices.

But Hartley says competition in this space will be fierce. “The jury is out as to whether behind the meter services will be an attractive segment for Oceania utilities in the current environment.”   

We anticipate that some of the biggest opportunities for networks in the future may be – ironically – in enabling the move toward energy self-sufficiency.

Stuart Hartley

EY Power & Utilities Asia-Pacific Advisory & Global Digital Leader

He says that today’s network utilities can also tap into their vast depth of experience in grid planning, construction and service delivery to build the physical and digital infrastructure of the new distributed energy world.  “We anticipate that some of the biggest opportunities for networks in the future may be – ironically – in enabling the move toward energy self-sufficiency.”

Some of Australia’s biggest power consumers, across manufacturing, mining and even agriculture are starting to build their own microgrids to take more control of energy costs and supply. Australian networks are well-positioned to become the developers of these industrial-scale new energy infrastructures by leveraging existing capabilities in construction, engineering and project management. We are also seeing some making plans to connect distributed generation sources and enable virtual power plants.  However, to be successful, players will need to develop the necessary commercial skills needed to manage risks.

The future energy system will also present opportunities for network players to leverage their grid management knowledge to help households, neighborhoods and businesses manage their self-generated energy and electricity demand. The influx of intermittent DER on the grid will also step up the need for more balancing and demand management services to ensure the lights stay on.

Digital reinvention

Are utilities in the region gearing up to take on these new roles? Hartley says that some of Oceania’s most progressive utilities see the energy transformation as the once-in-a-generational opportunity it is to reimagine their businesses. They are reshaping themselves in readiness for this vastly different energy world, with digital capabilities at the core of change.

Leading utilities know that tomorrow’s digital grid - a two way flow of information and energy - will require a true hyper-connected and intelligent network player to capitalize on the data it produces.
Stuart Hartley
EY Asia Pacific Power & Utilities Sector Leader, Advisory

However, true digital progress remains sluggish across most of the region due to short-term reactions to today’s energy challenges. With the clock ticking, now is the time to acquire the new skills and mindsets needed to be ready for 2021. It’s time for Oceania utilities to:

  • Invest with purpose: Utilities need to decide what business they want to be in when their sector changes forever.  Do they want to maintain their role as connector, integrator and manager of electricity supply and demand when the energy market is distributed and the grid is digital? Do they want to play a role in helping industrial consumers go off-grid? With little time to prepare and cost pressures, a clear purpose will be critical to guide the focused investment required to be ready in 2021.
  • Build the right digital capabilities: A clear purpose will also shine light on where skills and capability gaps lie. When time is short, prioritizing which capabilities to adopt or acquire is critical.  These capabilities will need to enable the digitization of connecting the new two-way flow of energy and information.
  • Understand customers: Utilities need a greater knowledge of customer behaviors around energy usage and the ability to harness that data to plan future, differentiated products and services and improve customer experiences at those “moments that matter”.

Can Oceania maintain the lead?

Our modeling predicts Oceania will reach grid parity first – but will the region’s utilities seize this opportunity to lead the way to a new energy system? This may depend on whether government and regulators play their part in creating the right environment for investment and innovation.

  • Government needs to ensure appropriate signals are in place to create market certainty and stability to establish a clearer set of rules for investment decisions – and Australia’s proposed new National Energy Guarantee (NEG) has the potential to deliver this with the right support.
  • Regulators need to carefully consider how to incentivize innovation. Balancing affordability pressures in the short term with longer-term innovation will be difficult yet critical if Oceania is to embrace the opportunities of a new energy world.

Hartley’s message to Oceania utilities is clear – move fast, be decisive. “Change is coming more quickly than anticipated by most in the sector. Mastery of digital grid capabilities will be critical to being ready to hit the ground running,” he says.

 It’s time to move the mindset from cautious to bold and shift investment priorities from physical infrastructure to digital capabilities. Courage will be needed to look beyond Australia’s current affordability crisis but those utilities that can, will build a more sustainable long-term energy market that is truly world-leading.

For updates, sign up here.

Woman charging her electric car
(Chapter breaker)
2

Chapter 2

When electric cars take charge, will they fast track opportunities for utilities?

Europe is on a countdown to a critical tipping point for the energy sector – when self-generation and storage of electricity reaches price parity with grid-delivered energy.

Grid parity will mark a rebirth of Europe’s energy sector – and it will arrive in 2022.

The arrival of grid parity marks when European utilities must face fundamental change: old business models will enter an irreversible decline, and new opportunities will emerge. But Europe’s utilities may be better positioned than those in other regions for the massive changes that lie ahead.

  • Many of the technologies now transforming energy, transportation and other sectors were either first pioneered in Europe or are now being driven forward by companies based there.
  • Regulatory pressure, an increased uptake of renewables, and ambitious carbon-reduction targets mean that many European utilities have already begun to pivot their business models.

For many of the region’s energy companies, the milestone of grid parity marks an opportunity to evolve further. The question is — how will they use that opportunity?

An industry-wide wake-up call

Serge Colle, EY’s Global Power & Utilities Advisory Leader, believes that, in years to come, the European energy industry will look back at 2022 as the birth date of a fundamentally different energy system.

“We are counting down to a tipping point,” he says. “When we reach grid parity, grid defection becomes an economically viable option.”

“While we don’t expect large numbers of consumers to leave the grid, the ability to do so will accelerate the pace of technological and consumer-led changes that will drive the development of the full potential of a digital, decentralized energy system.”

The role of the electricity network won’t change overnight. Utilities will still connect electricity supply and demand, though their role as integrator of multiple, distributed sources will significantly increase, and be complicated by the addition of battery storage.

For Colle, the critical question for European utilities will be about how they prepare for and then move forward from the consequences of grid parity.

“Will networks choose to do only what is needed to ‘cope’ with new technology — for example, by reinforcing the grid?” he asks. “Or will they be bold enough to seize its full potential? For example, battery aggregation, which would allow utilities to manage the intermittency that renewables bring, may be the killer application they need.

“The choices that utilities make now — to be on the defensive or to ‘go on the offense’ — will determine their future role in the new energy world.”

The choices that utilities make now — to be on the defensive or to ‘go on the offense’ — will determine their future role in the new energy world.

Serge Colle 

EY Global Power & Utilities Advisory Leader

Two more tipping points beyond grid price parity

Beyond 2022, two further tipping points that will mark the decline of the utilities' traditional business model (based on generating and selling electricity) are not far away:

  • Tipping point 2 — 2025: When EVs reach price and performance parity with internal combustion engine vehicles
  • Tipping point 3 — 2042: When the cost of transporting electricity exceeds the cost of generating and storing it locally

Colle believes that rapid advances in digital technology may see these tipping points arrive even earlier than predicted. (Note: we’ll track changes and update our models every six months).

When tipping point 2 arrives — with more and more of us driving and charging EVs — the grid will be under increased pressure, and significant new infrastructure, such as charging stations, will be required to enable the much-needed decarbonization of our transport.

This highlights, says Colle, the urgent need for European utilities to prepare now by developing a long-term digital grid investment strategy to:

  • Plan to build or upgrade grid assets to ensure they are digital-ready
  • Adopt or acquire the capabilities to maintain and maximize networks that are digital from end to end

Opportunity to converge with adjacent industries

EY modeling suggests that mainstream adoption of EVs by 2025 could make up as much as 30% of the electricity demand lost through growing grid defection and energy-efficiency measures.

But Colle believes that the opportunities will stretch beyond providing energy for these vehicles.

“Consider the potential: millions of EVs will mean millions of batteries that could be integrated into the system, providing more opportunities to manage and optimize the grid,” he says.

Colle says that smart grid technologies, such as advanced metering infrastructure could allow charging stations to be integrated with time-based rates that encourage off-peak charging. He explains: “This also offers potential for utilities to use data around how and when people charge their EVs to guide future investments or collaborate with adjacent industries on new commercial opportunities.”

In the future energy world, the value of the network will lie in its data, not physical assets. Colle says that utilities must understand the implications of this shift.

“The competition for data among industries will be an important one,” he says. “And whoever has the best brand and the most intelligent applications will win.”

The competition for data among industries will be an important one. And whoever has the best brand and the most intelligent applications will win.
Serge Colle
EY Global Power & Utilities Advisory Leader

Regulators must innovate too

The potential for Europe’s energy sector is exciting. But these tipping points also raise critical questions, including who – government or industry - is responsible for infrastructure such as EV charging stations. Colle says that regulatory issues will need to be resolved early to ensure that consumers and the industry both reap the benefits of the energy transformation.

“With many European utilities still experiencing huge cost pressures, governments may need to contribute to the huge investment needed to upgrade the electricity grid and to build new infrastructure, such as EV charging stations,” Colle says. 

And if Europe is to continue to be an energy pioneer, more incentives will be needed to encourage further innovative investment.

Colle believes that the evolution of the energy sector will also bring to a head the debate around traditional usage-based charging models for electricity.

“As more people leave the grid, utilities will need to collect rising costs of maintaining it from a shrinking customer base. This will further push up costs for remaining grid users. Meanwhile, an influx of distributed energy onto the network will put pressure on the grid, with few arrangements in place to determine how to charge for this type of usage.

“Now is the time for serious discussions about shifting to a purely capacity-based model,” he says. “Arguments that removing the link between consumption and cost will threaten emission-reduction targets will not hold once self-generation via non-carbon-based sources becomes commonplace.”

For updates, sign up here.

Engineer working on a drone
(Chapter breaker)
3

Chapter 3

When competitors have a head start, how can US utilities innovate to overtake?

Compared to counterparts in other markets, US utilities have longer to prepare for disruption from lower cost distributed energy resources (DERs). But how they use their time will determine their fate in the new energy world.

Three critical tipping points mark the energy sector’s transformation

Around the world, energy markets are transforming. And most are changing much faster than previously expected. Together with a global analyst house, we’ve determined three critical tipping points that mark the utility sector’s progression on a journey to fundamental change. The first of these tipping points — when going off-grid becomes as affordable and accessible as staying on it — will hit Oceania in 2021 and Europe in 2022. Two further tipping points will follow shortly afterward. The countdown for utilities in these markets is on.

But our modeling of the US market reveals a very different story. We’ve determined the tipping points for five US markets and found that they will hit much later than in other parts of the world.

Why will disruption hit American markets much later?

The American energy sector is complex and highly regionalized, making it difficult to get one clear picture of what is driving change. But several common factors can help explain why the rise of DERs will impact US utilities at a slower pace than elsewhere:

Low coal, gas generation and utility-scale renewable costs

Wholesale power prices have fallen across all of the major US trading hubs, mostly because of sustained low costs of natural gas — the fuel that often determines the marginal generation cost in most power markets. Natural gas costs in the US are almost half that paid in Europe (US$2.5/MMBtu compared to $4.9/MMBtu), while coal in the US is just US$12 a ton compared to US$64 a ton in Europe. Such low fuel costs combined with the low-marginal cost of utility-scale renewables drive electricity prices lower. At these low prices, consumer pressure for change will come more slowly and grid price parity for distributed generation (DG) plus storage will take much longer to achieve.

Low taxes

One of the biggest factors behind lower energy prices in the US is a much lower rate of taxation compared to other regions.

  • Taxes contribute only 5% of US retail electricity prices — compared to making up one-third of prices in Europe.
  • In the US, generation costs make up 50%-60% of electricity retail prices compared to only 38% in Europe.
Lower transmission and distribution (T&D) costs

Over recent decades, US utilities have generally invested less (as a percentage of total capital spend) in the electricity grid compared to utilities in other developed regions of the world. This, along with a tendency to deploy overground poles and wires rather than the underground infrastructure used in much of Europe, has led to lower costs. But while years of lower T&D investment may have helped keep consumer energy bills lower in the past, this has changed in recent years. Several utilities have announced multibillion-dollar programs to modernize the grid and upgrade aging infrastructure over the next 5–10 years.

Accelerating technology and consumer demands could bring tipping points forward

But while grid parity for DG plus storage is expected to occur more slowly in the US compared to other countries, this first tipping point is only 13 years away for the US Northeast region. For an industry used to investment timelines that span 40 or 50 years, this is a compressed time frame in which to make big changes. And most US regions will experience all three tipping points in quick succession, leaving little room for adaptation once these changes come thick and fast.

Across the country, two factors could also bring tipping points forward:

  • Accelerating technology: Advances in digital technology are increasing exponentially, creating new products and services that may transform energy use in a way we cannot even imagine today. At the same time, technology is continually improving the performance and reducing the cost of existing services and products such as solar PV generation and batteries.
  • Consumer demand: While residential solar PV currently sits at just 1%, changing consumer attitudes toward renewable energy and the technology that supports it could see this figure rise quickly. Meanwhile, corporate consumers, including some of the world’s most influential companies are investing heavily in DG to take charge of energy bills and boost their “clean and green” reputations.

State-based initiatives will make the difference

The highly localized nature of the US energy market means that real change will be driven at a state or regional level. So while the federal government has withdrawn some support for renewables, increased clean energy initiatives at a state level may speed up progress toward tipping points in some areas.

For example, while California sits within the West Coast region — where tipping point 1 is expected in 2034 — we’ve modeled that the state will reach this milestone in just a decade. If other states are inspired to adopt some of California’s world-leading policies and programs around DER and electric vehicles, we may see more US “hotspots” of energy transformation emerge.

  • How the Golden state is leading the way to a new US energy system

    California is highlighting how a different approach to energy can help build a better future for consumers, utilities and government

    California’s energy turnaround is remarkable for both its speed and scope. While natural gas still dominates the energy mix, falling costs are quickly increasing the deployment of solar PV, which is expected to rise from installed capacity of 17GW today to 48GW in just a decade. By 2050, it’s expected that 62% of the state’s energy mix will be made up of renewables and 65% of cars will be electric.

    Our modeling suggests these trends will see California hit tipping point 1 — grid parity — in 2028, three years before the next region — the Northeast — will get there. If the state government succeeds in plans to roll out a target of achieving 100% renewables by 2045, we may see this milestone achieved even earlier.

    A policy of Californian collaboration

    California’s energy transformation has not been hindered by the recent withdrawal of support for renewables at a federal level. Its shifting energy mix highlights how state-based policy and initiatives can drive change within the very localized US energy markets. California’s cap-and-trade program may be one of the world’s strongest, and revenues raised through the sale of permits to large polluters is funding innovative policy and programs. A collaborative approach between state government, utilities, industry and consumers is also a key factor behind rising rates of renewables and electric vehicles (EVs).

    • For example, EV uptake is supported by policy requiring automakers to derive 15% of their sales from zero-emission vehicles by 2025, incentives of up to US$7,000 on purchases of EVs and an ambitious rollout of charging stations by utilities.
    • We also see examples of utilities helping corporate consumers meet clean energy targets. San Francisco’s public electricity utility worked with cloud computing giant Salesforce.com, Inc. to source 100% renewable power for two office buildings.
    • At a community level, local government in West Hollywood, where many people live in apartments or condos, has partnered with utility EnergySage to make it easier for all residents, regardless of their type of dwelling, to access energy generated by rooftop solar panels. And several Los Angeles city councils have joined community choice aggregation programs, which allow them to purchase their own power from several sources, bypassing the local public utility.

    California’s rapid adoption of distributed energy resources and EVs will raise challenges around grid capabilities and infrastructure upgrades. And just as the uptake of these technologies was enabled by state-based initiatives, it will be up to California to manage their successful integration. Meanwhile, many other US states are looking west for inspiration for their own energy transformation.

Time to prepare for a new energy world

It’s clear that DERs will play a critical role in shaping the future US energy market, with generation becoming more diverse, decentralized and enabled by a digital grid powered by automation and data-led intelligence.

To find out about how the generation mix is changing across the US, see the video below:

Those that stand the best chance of success in this new US energy sector are those taking action now to prepare. Now is the time for utilities to:

  • Rethink investment priorities as the energy mix shifts. More renewables and natural gas generation will require appropriate grid upgrades and new capabilities, including digital technologies. Several major US utilities have announced investments in solar, smart meters, grid modernization and batteries.
  • Leverage the potential of EVs: Modeling predicts that there will be 7m EVs in the US by 2025 — and 88m by 2050. With each EV holding up to 30KWh of battery storage, utilities should consider how this can be used to benefit consumers while strengthening and enhancing the grid.
  • Learn lessons from other regions: US utilities could benefit from taking a more outward view to learn from energy companies in other regions that have already had to adapt to much higher market penetration rates of distributed generation, especially rooftop solar.
  • Accelerate diversification to mitigate risk: Diversifying into natural gas, renewable generation and advanced energy storage now will position utilities to take advantage of a changing energy mix.
  • Explore connections with corporate consumers with sustainability agendas: Opportunities to help corporate clients build and manage self-generation and storage facilities could be lucrative. Brokering power purchase agreements of off-site, large-scale wind and solar energy is another strong growth area.
  • Consider collaborations with innovators in other industries: US utilities 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.
  • Get closer to regulators to shape new regulatory frameworks: Energy regulations lag the transformation of the sector. Different models of rewarding sector investment could help incentivize innovative new business models. In addition to New York’s REV, Illinois’s recent energy reforms that reward utilities for investing in distributed generation are expected to help shape new solar-based business models.

US utilities should seize opportunities of change

The US is a patchwork of regional differences in market structures, retail prices and resource availability. Each region is on its own path to transformation and now we’ve modeled the date on which US energy markets will change forever.

As the countdown to increasingly feasible grid defection by customers accelerates and a new distributed model emerges, American utilities can seize the opportunities that extra lead time allows them. Now is the time to rethink investment strategies, innovate new business models, learn lessons from other regions and industries, and take a proactive role in the transformation of the utility sector.

For updates, sign up here.

Summary

Three tipping points mark the start of a new energy ecosystem. Utilities that prepare now can thrive in radically different conditions.

About this article

By

Benoit Laclau

EY Global Energy Leader

Experienced energy leader and advisor.