6 minute read 18 Mar 2019
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How network transformation will enable decarbonization

Authors

Serge Colle

EY Global Power & Utilities Advisory Leader

Global energy advisor. Connecting clients with EY services, assets and experience.

Paul Micallef

EY Global Digital Grid Leader

Passionate about the future of energy. Outdoors lover. Avid traveller.

6 minute read 18 Mar 2019

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Europe’s power industry pledges total carbon neutrality by 2045. But is the network fit to deliver?

This article is part of the New DSO business models series.

The world is committed to decarbonization. Getting there will take a monumental shift from traditional centralized generation to decentralized renewable generation, greater focus on energy efficiency and strides toward electrification of transport, heat, buildings and industry to make it happen.

In 2015, almost 200 countries signed the Paris Agreement to limit the increase in global average temperatures this century to well below two degrees Celsius above pre-industrial levels. These are the levels at which scientists say climate change becomes dangerous and irreversible.

Meanwhile, the power sector is boldly predicting that decarbonization of electricity is possible in Europe by 2045. This ambitious objective necessitates, however, substantial investment, innovation in smart grid technology and new business models to improve the function of electricity distribution networks.

Transitioning the energy system

Already, thanks to technology innovations, the cost of small-scale, local distributed energy resources (DER) that connect to the network at a distribution level is coming down. And efficiency is going up.

More is expected as wind and solar photovoltaics (PV) become increasingly price competitive with conventional electricity sources, according to the International Energy Agency in its World Energy Outlook 2018 report. Battery costs are falling too, making energy storage solutions more affordable and system flexibility more attainable. InnoEnergy, Europe’s innovation engine for sustainable energy, forecasts that demand for batteries will grow exponentially over the next few years. Meanwhile, total electricity storage capacity could triple in energy terms by 2030.

In fact, from 30% today, renewable generation could meet over 80% of Europe’s future energy needs. The EU’s second Renewable Energy Directive, part of the “Clean Energy for All Europeans” package, has hastened action with a binding renewables target of 32% by 2030.

By 2045, onshore wind capacity is predicted to triple from current levels to over 640 GW, with offshore reaching 470 GW, finds industry body Eurelectric. In the meantime, solar PV capacity is set to increase seven-fold to 950 GW. Fossil electricity supply is being phased out, dropping to around 5% of total supply by 2045. The expectation is that Europe’s coal-fired generation capacity will be almost fully decommissioned.

Source: “Decarbonisation Pathways,” Eurelectric, accessed 8 December 2018.

Achieving carbon neutrality

The predictions for decarbonization bode well environmentally and economically. Eurelectric believes that as energy becomes cleaner and cheaper, electrification of transport and other energy-heavy sectors will likely accelerate. On that basis, electrification will reach 63% of the EU economy by 2045.

However, there is a flip side for the distribution system operators (DSOs) that manage the flow of energy across the network. It means considerable new load on the system and periods of higher local peak demand, which will drain surplus network capacity and create bigger challenges in balancing demand and supply. Just imagine what clusters of electric vehicles (EVs), all charging up at the end of the day, will do to local peak demand.

As energy becomes cleaner and cheaper, electrification of transport and other energy-heavy sectors will accelerate. The flip side for DSOs is considerable new load on the system.

The current remedy is to reinforce the network, which comes at significant cost. In fact, the European Commission estimates that an additional €11 billion is needed per year to 2030 to reinforce Europe’s grid. As decarbonization of transport, buildings and industry is expected to boost year-on-year demand to 2.1% – double current levels in absolute terms – reinforcement cannot be sustained indefinitely.

Source: “Decarbonisation Pathways,” Eurelectric, accessed 8 December 2018.

Vehicles, heat and buildings

Today, the transport sector consumes around 2% of total electricity use, of which rail accounts for two-thirds.

Currently, there are around 1.4 million EVs on Europe’s roads, which represents just 2% of all new cars sold in the EU in 2018. But, with light-duty EVs expected to reach cost parity with petrol and diesel vehicles in Europe before the mid-2020s, this picture is set to change dramatically.

Backed by the rising economic viability of battery technology and greater availability of EV charging points, EV adoption is expected to rise to 33% of new vehicle sales by 2030. By then, Europe’s total EV fleet will be approximately 30 million, calculates Eurelectric.

Backed by the rising economic viability of battery technology and greater availability of EV charging points, EV adoption is expected to rise to 33% of new vehicle sales by 2030.

The outlook for EV take-up is boosted by a combination of political mandates and public policy, such as Europe’s Clean Vehicles Directive. Bans on the future sale of internal combustion engine vehicles are in place in many EU countries. If other economic areas follow their lead, decarbonization and electrification will accelerate.

Electrification will boost energy demand from other sectors of the economy too. Heat pumps and innovations in water heating, for instance, could convert up to 63% of energy consumption in buildings to electric. This will rise once stricter regulations, such as mandatory retrofitting and new-build requirements, come into effect.

Meanwhile, technology breakthroughs, and the relative competitiveness of electricity compared with other carbon-neutral fuels, could see around half of industrial processes electrified directly. Hydrogen, and other carbon-neutral alternatives, will contribute toward indirect electrification.

Ultimately, the changes brought by the pursuit of a low-carbon economy add up to increased demand on electricity networks and new challenges for tomorrow’s DSOs.

Source: “EY DSO survey,” 2018.

“You may delay, but time will not.” – Benjamin Franklin1

2045 is someway off, but the deadlines for action are pressing.

So far, at a local level, DSOs have been able to deal with rising volumes of DER due to the strength of the grid and the manageable levels of new connections. Now, DSOs face a rapidly changing and increasingly complex operational landscape.

Five years from now, the energy system will look and behave differently. Technology-enabled innovation and consumer appetite will see increasing volumes of DER and EVs come on line, threatening the operation and capacity of the grid. Systems, networks and their operators are having to adapt. Inevitably, building and upgrading the grid will be expensive and have long lead times. Investments in smart technologies and innovation should be prioritized and scaled to meet the ongoing needs of the system. In a high-renewables future, this requires a step change in the need for integration and flexibility to ensure security of supply.

The decarbonization agenda is an extension of the energy transformation changes already underway. Electrification of transport, buildings and industry is no quick fix. Though utilities may delay, time, most certainly, will not.

DSOs as the catalysts of change

EY research is based on interviews with leading C-suite energy executives, the experiences of heads of operations, innovation, regulation and network strategy and the surveyed opinions of 117 energy professionals.

Read the full report here

Summary

There’s nothing like an ambitious target to galvanize action. But decarbonization of electricity by 2045 must start with transformation in the roles and responsibilities of the distribution system operators that will enable it. They will connect new load, reinforce the network, maintain visibility over distributed energy flows, establish commercial frameworks for trading energy between participants and roll out customer solutions. Without them and adaptive regulation, the energy transition will be too costly and unsustainable. And the decarbonization target will not be met.

About this article

Authors

Serge Colle

EY Global Power & Utilities Advisory Leader

Global energy advisor. Connecting clients with EY services, assets and experience.

Paul Micallef

EY Global Digital Grid Leader

Passionate about the future of energy. Outdoors lover. Avid traveller.