- Europe set to hit off-grid parity by 2022; some US states could take until 2042
- Electric vehicles to become a mainstream option by 2025 across all markets
- US$67b annually at risk from distributed solar generation in Europe by 2050
It is estimated that it will cost the same to self-generate and store power as it will to buy from an energy provider by 2022 in Europe and as soon as 2021 in Oceania, according to new research conducted by EY and a leading global analyst house. The findings project that US markets will take much longer to reach off-grid parity, and as late as 2042 in the Southeast region, where the energy sector is complex and highly regionalized.
The data also indicates that electric vehicles (EVs) will reach cost and performance parity with traditional combustion engine vehicles across all markets by 2025.
The research examines the expected adoption and interactive impacts on electricity demand and cost of 10 core distributed energy and information technologies1 across Europe, Oceania and the US.2 It calculates for the first time the inception of three critical energy tipping points:
- When self-generation of power becomes affordable for all;
- When EVs become mainstream mobility options; and
- When delivering power via the grid costs more than it does for consumers to produce it themselves.
Benoit Laclau, EY Global Power & Utilities Leader, says:
“Maturing renewable energy technologies, the falling cost of battery storage and more empowered consumer behavior have long pointed toward the emergence of a radical new energy system. While the trends and timelines vary between markets and geographies, the research clearly shows that the countdown to a new energy future is accelerating faster than most expected.”
The findings point to a gap between Europe and Oceania’s journey toward energy transformation, and that of the US. The rise of more economical distributed energy resources (DERs) will impact US utilities and consumer preferences at a slower pace than other markets. This is due to the low cost of generation, as a result of the rise in utility-scale renewable generation, the sustained low cost of natural gas, low levels of taxation in energy bills and less expensive grid maintenance.
The research highlights two factors that could bring the tipping points forward: changing consumer preferences toward renewable generation, and accelerated adoption of technology that enables smooth integration of DERs onto the grid and lowers the cost of wind and solar generation and battery storage. The projected uptake of renewables by 2050 reflects this trend. In Europe and Oceania, renewables will represent 50% and 49% of power demand respectively. Across the US – where renewables policy is evolving and more variable – uptake ranges from 18% in the Northeast and 49% on the Westcoast.
Laclau says: “As the countdown to increasingly feasible grid defection by customers accelerates and a new distributed model emerges, US utilities can seize the opportunities that this extra lead time allows them. Now is the time to rethink investment strategies, learn lessons from other regions and industries and take a proactive role in the transformation of the sector.”
Conversely, the third tipping point – when the cost of delivering electricity exceeds the cost of self-generated and stored electricity – is expected to materialize in the US Northeast region by 2039, ahead of Europe and Oceania (both projected for 2040). This reflects the culmination of falling renewable and energy storage costs, evolving consumer behavior across markets and the emergence of “prosumers” – consumers that take energy generation and supply into their own hands.
Many European countries have already begun to pivot their energy business models in response to regulatory pressure, an increased uptake of renewables and carbon-reduction targets. The findings indicate that US$67b in traditional utilities annual revenues will be at risk by 2050 from distributed solar generation in the region. Across US markets, it is anticipated that annually US$49b will be at risk, buoyed by the Westcoast (US$26b) where state policy is stimulating investment in distributed renewables. And in Oceania, annually US$11b in revenues will be at risk.
Laclau says: “Instead of trying to predict the future of energy innovation, utilities companies should focus on building an agile, collaborative business that is ready to quickly adapt 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.”
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About EY’s Global Power & Utilities Sector
In a world of uncertainty, changing regulatory frameworks and environmental challenges, utility companies need to maintain a secure and reliable supply, while anticipating change and reacting to it quickly. EY’s Global Power & Utilities Sector brings together a worldwide team of professionals to help you succeed — a team with deep technical experience in providing assurance, tax, transaction and advisory services. The Sector team works to anticipate market trends, identify their implications and develop points of view on relevant sector issues. Ultimately, this team enables us to help you meet your goals and compete more effectively.
For more information, please visit ey.com/powerandutilities.
About the research
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.
1 Solar PV; battery storage; electric vehicles; microgrids; home and building energy management systems; P2P electricity exchange; smart meters; artificial intelligence; and grid-edge technology.
2 US data is cut by regional market: Electric Reliability Council of Texas (ERCOT), Midwest, Westcoast, Northeast and Southeast.