Powering the future of utilities
Current energy systems were designed more than 100 years ago and have been only incrementally modified since. They worked well in the time of vertically integrated, centrally supplied generation models, but this was when efficiency and resilience were less important.
If the industry does not address current disruptive forces, it risks failing to meet the challenges of the trilemma of a sustainable, affordable and reliable energy system.
The future of energy
Digital grid is the digitization of electricity, gas and water networks using advanced technology. It allows two-way communication between the utility and the network, including its customers, and enables insight, automation and control across the utilities’ operations, empowering utilities to improve reliability, availability and efficiency of the grid.
- Connect decentralized power from renewables, microgrids and virtual power plants, as well as energy storage, alongside traditional bulk generation
- Harness the potential of connected homes and devices and the internet of things
- Improve the reliability of current grids by making them smarter, more able to self-detect and self-heal outages, and to reroute power as needed
The utility of the future will operate in a new value chain, augmented and interconnected by digital technologies, where both power and information flows in both directions.
We believe that the acceleration of renewables, connected devices, competition and other disruptive forces have compelled utilities to act and to prioritize digital grid in their capital programs.
We’ve written this report to shed light on how digital grid is developing, and the questions that need to be addressed to move forward.
To establish the current state of digital grid, EY commissioned research with 50 utilities around the world that have large distribution networks. These 50 were either stand-alone distribution system operators or part of a vertically integrated utility, and came from 22 countries.
As such, respondents provide a representative view of developments across the distribution value chain.
It’s encouraging to see the extent to which utilities are embracing digital grid technologies. When asked to describe their investment plans, almost half (46%) said that digital grid is either one of their top three strategic programs or has been earmarked for investment in the next 12 months. Only 8% said they had no plans to invest in digital grid. Investment in digital grid over the next five to seven years is expected to be in the region of $500b.
The cautious nature of the industry — driven by the need to keep the lights on — is also playing a role, suggests Paul Micallef, Digital Grid Leader at EY. “The P&U industry is not disruptive or innovative by nature; in the past it has had no reason to be, as regulators have dictated the modus operandi.”
This is illustrated by the fact that in 2015, only 9 out of the top 200 utilities by revenue globally had executives in the senior management team or C-suite with a job title including “innovation.”
Utilities have been hesitant about investing in emerging technologies. In our research, the areas attracting the least investment to date were storage, microgrids and VPP and electric vehicle infrastructure.
There is an element of timing here; though storage currently ranks in the bottom three for current investment, it’s the clear leader at 34% for planned investment.
In terms of current investment, however, these newer technologies are outside the comfort zone of many utilities, as they require greater innovation and represent higher levels of risk. We believe utilities will benefit most when they integrate these emerging technologies into their digital grid portfolio.
When we asked utilities what concerns or risks they are currently facing as an organization, regulatory uncertainty came top of the list, followed by financial constraints and reliability and performance issues. In a related question, almost half of the utilities we spoke with (48%) indicated that they do not feel regulators are doing enough to encourage the development of digital grid solutions.
On average, more than half of respondents told us they were confident or very confident that they possessed all the skills needed to develop digital grid. Even on cybersecurity, which is an acknowledged area of risk, 56% of utilities we spoke with said they already possess the skills they need.
In our opinion, this raises a red flag. It is far too early to claim “all systems go” and to say that all the skills needed to deliver a successful digital grid project are in hand. It conflicts with both our experience and reported shortages of digital and cybersecurity skills in the market.
The tide of disruptive forces in the P&U sector is rising at an increasing rate. Utilities recognize that digital grid is a tool that can help them harness the positive force of this tide.
While it does not come with watertight instructions on how to achieve it or a clear common definition across the board, the digital grid can, with the right approach, transform P&U companies into resilient, responsive and innovative businesses.
Utilities that develop sound foundations for their digital grid strategy will be in a much better position to succeed in creating a flexible, resilient grid that meets the needs of future energy systems.
The comforting news is that utilities don’t need to go it alone. In the new landscape that disruption has created, collaboration with innovators, disruptors and cybersecurity specialists can take many forms: partnerships, alliances and joint ventures, and so on. These models offer new ways of working and opportunities to build knowledge and fill skills gaps.
Navigating this terrain will take knowledge and confidence. Utilities need to accept the different role that regulators might play, the active role the customer is now playing in decision-making and that their own role will require more leading and less following.
“Those who can embrace the shift in mindset that disruption is causing are the ones who will be able to unlock the value of digital grid and reap the benefits,” says Serge Colle, Global Advisory Power & Utilities Leader at EY.