The trends towards decarbonisation, digitisation, decentralisation and electrification are gathering momentum. Globally, this means that distribution utilities need to reinvent the way electricity systems operate. They should invest in capabilities to capture new value streams and manage unpredictable two-way power and data flows on their grids.
In a bid to better understand the investments needed for an agile, future-ready and resilient distribution system, EY engaged directly with the key decision-makers who are critical to daily grid operations.
First in Europe, with industry body Eurelectric, and then in the US with Gridwise Alliance, EY interviewed industry leaders and experts from distribution utilities of various sizes and geographies. Their input shaped the development of two EY reports that explore the new and enhanced capabilities that are needed.
THE MORE WE DIFFER, THE MORE WE ARE THE SAME
While European and US distribution operators face unique conditions and challenges, it is clear they are embarking on similar journeys to secure their future roles. So, developing innovative solutions to challenges presented by the energy transition need not be a solo endeavour.
According to Wind Europe, in the EU 95% of all capacity added in 2018 was renewable generation. BP’s review of world energy shows that renewables make up 35% of the region’s power generation compared with a global total of 25%. Solar and wind costs will set to continue to fall, making clean energy prices competitive with energy generated from fossil fuels. Eurelectric estimates that by 2045, electricity generated from renewable sources is expected to represent 80% of Europe’s generation mix.
According to a recent report by EY and Gridwise Alliance, in the US, solar and wind energy will account for one-quarter of the generation mix by 2050, up from 9% today. And attention is also keenly focused on energy efficiency programmes, which IEI data shows saved enough electricity to power 22 million US homes for a year in 2017.
The EY Countdown Clock cites that deep electrification throughout both economies, not least the rollout of electric vehicles (EVs) — expected to become mainstream across all markets by 2025 — and heat pumps will provide a significant boost to electricity demand and utility revenues. By 2050, depending on adoption scenarios, a survey by Eurelectric shows that electricity consumption could double in Europe and increase by up to 41% in the US compared with today.
Though each market has its own nuances and regulatory construct, the trajectory of change has similar consequences for energy infrastructure investment globally. Grid modernisation is essential if the electricity system is to cope with new and variable load. And new opportunities are emerging in EV-charging stations, sustainable cities and other innovative build projects that will depend on the digital grid. They will see utilities step outside their conventional distribution roles.
Europe and the US both cover vast terrains, with climatic variations, but the US is hit hardest by adverse weather events. The disruptive and costly ramifications of hurricanes, tornados, ice storms and wildfires mean a much bigger focus on hardening the network than in Europe. Investment in grid modernisation requires greater focus on building resiliency. It includes enabling distributed energy resources (DERs) for more flexibility and redundancy to increase reliability and security across the network.
Resiliency goes beyond protecting physical assets. Given the expanding digital ecosystem and proliferation of data, resiliency has become a priority for utilities globally. Together, the US and Europe can help build global consensus around a core set of principles for cybersecurity and data privacy and protection.
The US experience with critical infrastructure protection standards and the National Institute of Standards and Technology’s cybersecurity framework provides a valuable blueprint for other countries in developing similar regulatory and cyber risk management frameworks. Similarly, the EU’s General Data Protection Regulation is seen as a foundation upon which data privacy legislation can be built.
Information sharing and collaboration among government and industry stakeholders will be critical for achieving global consensus on each of these fronts.
WIDENING THE COLLABORATIVE NET
The pace of disruption brought about by the energy transition is relentless. Collaborations with industry peers; partnering in investment and research and development; and leveraging the best solutions and rejecting what does not work, can reduce risk and fast-track the industry towards a fit-for-purpose distribution system. Collaborations can extend beyond traditional channels, into adjacent industries and across national boundaries.
For instance, Swedish utility Vattenfall is partnering with auto company Volvo Cars to deliver, install and service EV charging stations. Spanish renewable energy giant, Acciona, has teamed up with Madrid City Government to implement an energy management system across 400 municipal buildings. Meanwhile, to help balance the grid more effectively on hot days, Southern California Edison is collaborating with Alphabet to deploy its Google Nest thermostats as part of a residential demand-response programme.
Further afield, State Grid Corporation of China, the world’s largest utility, is providing inspiration with a digital-first approach to its EV ecosystem. By “sensorising” its network, it has created a visual representation of its EV infrastructure. It can hone-in and monitor any of its 322,000 charging stations (a further one million are to be installed in 2020) in real-time. Further down the line, data visualisation will inform other solutions, such as vehicle-to-grid technology, battery re-use, evaluations of wear-and-tear and the lifecycle of batteries.
Crucially, it operates as an open-source environment, with more than 30 external providers of public and private charging infrastructure coming together to solve a problem and deliver change.
As one US distribution utility director, visiting China as part of an EY delegation, put it: “The lessons to take back are not so much about creating a carbon copy of what State Grid Corporation of China does, but emulating the way it sets about executing its strategy, its unlimited vision and speed of implementation.”
ALL IN IT TOGETHER
Of course, every market is unique and at different evolutionary stages. There is no universal remedy. But working together, embracing a culture of purposeful innovation and guarding against reinvention of the proverbial wheel, will deliver solutions to some of the biggest energy challenges of our times.
With disruption and the increasing urgency to decarbonise, utilities will play a critical role in the transition to a future distribution system. They will need to keep pace with the latest global developments in policies, standards and best practices. By closely collaborating with governments, industry peers and third parties on what works best and what does not, utilities can streamline decision-making and reduce investment risk in the people, technology and processes needed to succeed in the future.
The views reflected in this article are the views of the author and do not necessarily reflect the views of the global EY organisation or its member firms.
EY has identified three critical and concurrent investment phases to enable utilities to manage risks and capture new opportunities in the evolving distribution system landscape. To find out more, read EY’s latest insights about the future of US and European distribution systems.
The views expressed in this opinion are those of the author and do not necessarily reflect the position of FORESIGHT Climate & Energy
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