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An industry facing transformation pressures
Energy transformation isn’t something for the future. It is happening now. PwC can help you make the right moves in an era of new energy sources, distributed generation, smart grids, digital transformation and increasingly empowered customers.
The power and utilities sector is more resilient than most. But the COVID-19 pandemic has created a unique supply-and-demand shock for the industry, resulting in both near- and long-term uncertainty and operational challenges.
Companies also need to rapidly transition to net zero to prevent the worst impacts of climate change. This will require a new energy mix – including green hydrogen and other alternative fuels– that will break down the traditional barriers between energy sectors, and with other industries as well.
All of this will accelerate industry consolidation and drive utilities to explore new business activities.
Thinking about energy in new ways
Adapting to climate change and a new energy mix will require the power sector to think differently about every aspect of operations. This includes embracing new kinds of relationships with consumers, critically examining how it measures and uses performance data, and reevaluating what business success looks like.
Trust in the energy/electricity system is fundamental
Consumer trust in the power & utilities sector has stayed the same or grown in recent years, most notably during the challenges of the COVID-19 pandemic. To navigate the industry’s transformation in the years ahead, the industry needs to maintain or increase those levels of trust. Customers must be confident that their critical utility services will remain reliable even as the industry adopts new business models, moves to a new energy mix and shifts to smart grids, distributed generation and other digitally enabled technologies.
Electricity and heat production accounts for 35% of greenhouse gas emissions globally (source 1) – the power and utilities sector is by far the industry with the largest emissions footprint. So the sector clearly has a major role to play in bringing emissions to net zero.
Source:
1. United Nations, https://www.un.org/en/actnow/facts-and-figures
The industry needs to embrace new ways of working to transform for a more sustainable future. To succeed, companies must help customers to also become value chain partners – that is, to interact with utilities as more than just consumers of services.
This could include allowing customers to sell home-generated solar power back into the grid or to act as small-scale sources of energy storage to help stabilize power supplies across a service region. Utilities already work with industrial customers to support such balancing services, and these will be vital for providing reliable supplies of energy in the future.
The good news is that the industry has already made significant progress in some places. In the US, the power sector brought greenhouse gas emissions 52% below projected levels between 2005 and 2020 (source 2). By achieving net zero globally, the industry would have a major impact on climate change efforts.
Sources:
2. Electricity Markets and Policy, https://www.un.org/en/actnow/facts-and-figures
Future changes must be built on data and analytics
With the multiple challenges it’s facing, the power and utilities sector must ensure that business-critical decisions are grounded in up-to-date, accurate and complete understanding of the issues at hand. This is true whether the challenge is balancing supply and demand across the grid, optimizing operating costs or managing user experiences to keep customers satisfied and prevent churn.
Good decisions come from reliable and timely data across the business and the business ecosystem. But with so much data available from myriad sources – digital communications, sensor readings, supply chain metrics and more – organizations need the help of analytics to understand trends, anticipate problems and manage needs proactively. Used effectively, digital data and advanced analytics will provide the vital insights that utilities need to move into the new energy era.
Hydrogen has potential, but more progress is needed
Using hydrogen as a fuel could help many carbon-intensive sectors of the economy reduce their greenhouse gas emissions. Unlike oil, coal and natural gas, hydrogen produces no carbon dioxide when used to power vehicles or other machinery – it's only byproduct is water vapor.
Today, “green” hydrogen created using renewable energy remains several times more expensive than so-called “grey” hydrogen generated using fossil fuels. Production costs have been steadily decreasing but building a sustainable hydrogen economy will also require a large-scale infrastructure upgrade, including the construction of new hydrogen production plants, pipelines and filling stations. The manufacture of fuel cell vehicles will also need to be ramped up dramatically.
The future is electric
- Electricity becomes the core of the energy system
- Renewable energy technologies are the key to reducing electricity sector emissions
- The energy sector will be dominated by renewables
- Energy efficiency
- Mega blackouts
- Grid companies have a massive role to play
Electricity becomes the core of the energy system
Moving away from carbon-based sources of energy to renewable ones will radically reshape the energy ecosystem. For the power and utilities industry, this transformation brings both risks and opportunities. The leaders will be those that can build an energy infrastructure that’s more diverse, more flexible and more distributed. Those that can’t – or won’t – will fall behind.
The future energy infrastructure will be more complex than today’s. And it will create new paths for generating molecules that deliver energy where it’s needed. Instead of using carbon molecules to power the transport and industry, tomorrow’s energy systems will rely on electricity produced through renewable sources. Electricity has the potential to become the dominant form of power delivery for everything from industrial processes to home heating to transport.
Renewable energy technologies are the key to reducing electricity sector emissions
Decarbonizing the power and utilities sector requires a large-scale shift to renewable sources of energy. This will mean significant investments in new energy infrastructure. That includes not only wind and solar energy development but much wider deployment of battery-based or thermal energy storage to smooth out volatility in supply and demand.
This is feasible, and many of these needed changes are already seeing considerable momentum. For example, the generation of electricity from renewables continues to accelerate around the world (Source 3). The International Energy Agency (IEA) expects that, by 2040, renewables will account for 47% of the global electricity market, up from 29% today.
Source:
3. IEA, Press Release, https://www.iea.org/news/renewable-electricity-growth-is-accelerating-faster-than-ever-worldwide-supporting-the-emergence-of-the-new-global-energy-economy
The energy sector will be dominated by renewables
The energy sector’s path to net zero, the IEA notes, is “narrow but still achievable.” (Source 4)Transforming an industry that’s currently responsible for about three-fourths of all greenhouse gas emissions will mean a push to deploy clean and efficient energy technologies on a massive, global scale.
Governments will need to invest heavily in energy research and development. Support will also be needed from both businesses and individuals, as this energy transition will demand behavioral and societal changes as well as technological ones.
Source:
4. IEA, Net Zero by 2050, https://iea.blob.core.windows.net/assets/deebef5d-0c34-4539-9d0c-10b13d840027/NetZeroby2050-ARoadmapfortheGlobalEnergySector_CORR.pdf
Energy efficiency
Efficiency improvements are critical to temper the growing demand for energy. Without more efficient technologies and significant change in energy policies, global energy consumption is projected to increase by 50% by 2050. (Source 5)
The power and utilities industry will also benefit from ongoing efficiency increases on the supply side. Even with recent increases in commodity costs, the cost efficiency of renewables such as wind and solar has risen dramatically over the past couple of decades.
Sources:
5. eia, https://iea.blob.core.windows.net/assets/deebef5d-0c34-4539-9d0c-10b13d840027/NetZeroby2050-ARoadmapfortheGlobalEnergySector_CORR.pdf
Mega blackouts
Around the world, many regions need to make large investments to bring their grid and power infrastructure up to date. Even more upgrades will be required to defend it against climate change risks that include extreme weather, droughts and wildfires. Without resilient energy systems and up-to-date digital technologies to help balance supply and demand, utilities face the growing potential for rolling blackouts that could affect large areas for days, weeks or even months.
Utilities must also have IT defenses that can protect the grid against ever-evolving cybersecurity threats. In addition, modernizing systems will be critical to meet rising energy demands.
Grid companies have a massive role to play
The electricity grid will provide the backbone for a transformed, net zero energy system that will include more renewable energy sources, wider adoption of electric vehicles, home-based solar generation, storage and more. So grid companies must take the lead. They have a critical role to play in bringing about a cleaner, more distributed energy system – from educating consumers about required behavioral changes to integrating innovative energy storage technologies to supporting net zero industry and government policies.
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Global Energy, Utilities and Resources Leader, Partner, PwC Netherlands
Tel: +31-88-7921328