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PwC
The utility of the future must act now
Australia Energy Week
21 June 2016
PwC
The utility of the future must act now!
The 3 things…
1. Factors driving the emergence of the utility of the future?
2. Its all about the customer
3. Surely we can wait?
2
PwC
The utility of the future must act now!
What factors are driving the creation of the utility of the future?
3
PwC
• Carbon management a core focus
We are seeing the impact of megatrends on all sectors across the globe
4
• Impact of digital natives
• West to East
• Capital market shifts
• 2/3 of global population will live in cities by 2050.
• Plummeting unit costs and take-up speed rising.
• How long to ubiquity?
Demographic and social change
Shift in global economic power
Rapid urbanisation
Climate change and resource scarcity
Technological breakthroughs
Most impactful on energy markets
Four broad interconnected themes that will have a significant impact on the industry over the next decade
• Decline of the core fossil fuel generation market
• More players and broader service offerings change nature of competition
• New profit pools emerge
• Maturing solar PV, electric vehicles, battery storage, energy efficiency, demand-side management and smart grid technologies
• Policy-makers and regulators can’t ignore what customers want
• Market models are changing and new markets being built
• Customers more mobile, social, interconnected -expect engagement
• Customers demand greater control
Disruptions to energy value chain
Influence of technologies on the energy value chain
Impact of the new energy customer
Changing tasks and roles of regulators
5
PwC
A range of business models expected to deliver success in the new and evolving market environment
• One size won’t fit all
• Only a quarter of viewthat current businessmodels will remaindurable.
• The view that ‘change isbecoming urgent’ isshared by 66 per cent.
6
PwC
The utility of the future must act now!
Its all about the customer
7
Strategy& | PwC
Price
Reliability
Services
The telecom sector provides insight into how technology evolution and customer buying attributes can reshape markets
Buying Attributes
Control
Attribute
Importance
Time1984 1992
ILLUSTRATIVE
The energy value chain is evolving - value and control shifting downstream, away from centralised generation
Centralised
generation
Transmission Distribution Metering/
Data Distributed generation Demand
response
EV
Storage
Behind-the-connection
• Falling demand
• Significant overcapacity
• Growth in higher-priority renewables and distributed generation
• Plug and play• Increasingly
complex and volatile energy flows
• Emerging role of the complex system operator
• Creating value?
• Growth in smart tools to optimise demand patterns
• New data-driven services eg. energy advisory
Retail
• High churn• Price-based
competition• Expanding
into energy services
• New competitors
• More power to consumer
• Maturing DG, storage and EV technologies
Dri
vers
of
valu
e
sh
ift
Value is broadly shifting to behind-the-connection services and offerings
Home
Automation
Energy
mgmt
services
• ‘Make my life easy’• Demand for usage
insights and control solutions
• Is home automation and the IoT nirvana?
Valu
e g
row
th
/ d
eclin
e
9
The future consumer has a choice of becoming smart and
sustainable while having their own business model
Traditional Utility Model Value-added Model Energy Enabler Model
• Electricity as a commodity
• Supply-driven system
• Competition: Price-fighters, pure-play green energy retailers
• Value-add services – solar PV installation, EV charging, visualization
• HVAC & EV-based flexibility
• Competition: Innovative service offerings
• Platform-based balancing and demand response services
• Behind-the-meter data becomes a key asset
• Competition: Innovative contracts, real time pricing, platform offerings, cross-bundling
Traditional customer Connected consumer Prosumer
• Commodity market
• Intense competition
• Low barriers for switching
Customer focused on cost and reliability – commodity centricity
• Customers sensitive to technology adoption
• Significant investment in new services
Customer alignment required to maximize RoIand lock-in
• Customer in control - negotiating power increases significantly
• Disruptors entering the market
• Customer trust become a competitive factor
Customer centricity and agility are key to stay relevant
Business Model Characteristics
Why customer centricity is key
Business Model
Customer typology
Today Intermediate Term Longer Term
PwC
The utility of the future must act now!
Surely we can wait?
11
Strategy& | PwC
The network is rapidly evolving to a distributed and digital micro-network that more directly engages customers …
ILLUSTRATIVE
Sources: IEA; Strategy& analysis
Electrical infrastructure
CommunicationsGas infrastructure
Future
Industrialcustomer
Commercialcustomer
Residentialcustomer
Energystorage
High-temperaturesuperconductor
Storage
Sub-station
Sub-station
Electricvehicles
Products & services
Distributioncontrol center
Transmission control center
Products & Services
Distributioncontrol center
Transmission control center
CNGvehicles
72
Strategy& | PwC
Confluence of ‘triggers’ provides the right conditions for a market reflecting both ‘technology push’ and ‘customer pull’
Technology Dimensions Customer Dimensions
Regulatory policy – particularly in pricing and cost recovery –
lags technology introduction
New Entrants
Improved Functionality
Increasing Parity
Expanding Production
Accelerating R&D
Increasing Awareness
Emerging Choices
Changing Behaviors
Financing Availability
Broadening Offerings
Industry
Disruption
Strategy& | PwC
Several innovative technologies, each with unique growth drivers, have the potential to disrupt the utility value chain
14
NOT EXHAUSTIVE
High efficiency gas turbines• Low fuel prices
• Steady retirement of coal plants
• Environmental policy pressures
Small modular reactors• Reduced capital needs compared to ‘big-box’
nuclear
• More flexible production profile to match load
• Potential path to decarbonization
Distributed generation• Falling component, soft, and financing
costs
• Cost savings vs. retail electricity rates in
more markets
Microgrids and networks• Mitigation of outage risks on large concentrated load
or critical infrastructure
• Initial uptake in university, military, and corporate
campuses
Behind the meter energy services• Integration requirements of solar, EV, and
storage
• Improved automation to achieve energy
efficiency savings
• New entrants looking to partner with utilities
and consolidate offerings
Energy storage• Rapid reduction in cost – continued innovation in
chemistry and applications
• Evolving rate structures, gov’t mandates, and
incentives supporting market
Electric vehicles• Increased number / variety of electric
vehicles with improved range and
performance
• Cost declines, gov’t mandates /
incentives, and charging station
penetration
72
Strategy& | PwC
Possibly over $0.5 tn global market size for new tech by 2020
15
High Efficiency Gas Turbines• Consider retrofits and further integration into long term
resource planning, including as low-cost option for
renewables integration
Small Modular Reactors• Start considering SMR as data from SMR
pilots become available and costs become
more predictable
Distributed Generation• Monitor technology cost trajectories and
policy dynamics to assess threat and
identify new business model
opportunities
Micro-grids and Networks• Monitor service territory for potential micro-grid
expansion threats
• Consider role as micro-grid developer in de-
regulated business
• Evaluate potential use to manage peak demand
Behind the Meter Energy Services• Develop new ways to engage customers and
meet efficiency mandates / demand
• Consider partnerships and new offerings to
avoid customer disintermediation
Energy Storage• Collaborate with regulators on new rate
mechanisms, tariffs, and policies
• Evaluate different storage applications and funding
mechanisms
• Leverage to defer T&D investments
Electric Vehicles• Develop economical, sustainable, and
convenient ways to charge EVs
• Equip real-time awareness of energy
supply and demand to enable vehicle-
2-grid
72
$50-100B
$10-50B
$1-5B
$150-200B$5-10B $50-100B
$50-100B
Estimated 2020
Global Market
Sizes
Strategy& | PwC
Five divergent potential futures exist for the utilities industry
16
Losing Touch
Utilities
72
Smart Hub
Players
Customers
Off Grid Mobile & Virtual Data Rich Scaled Down
Smart Analytics
Companies
Strategy& | PwC
… which are likely to arise under different timescales with variations by geography
17
Primary Adoption Timeframe
2016 2020 2025G
en
era
tio
nG
rid
Be
yo
nd
-
the
-Me
ter
‘Scaled Down’
‘Data Rich’
‘Mobile and Virtual’
‘Off-Grid’
‘Losing Touch’
ILLUSTRATIVE
The utility of the future must act now!
www.pwc.com/utilities
Australian Energy Week
June 2016
Mark Coughlin
Energy Utilities and Mining Leader
https://au.linkedin.com/in/coughlinmark