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Global Clean Energy Transition: Frontiers of New Energy Paradigm
The global energy landscape is poised for disruption across the value chain driven by decarbonization, decentralization anddigitization. Technology innovation and falling costs are creating opportunities around renewables, energy efficiency, storage,distributed energy resources (DERs), EVs and digital products/services. The industry transformation would require utilities toact fast in order to manage risks and create a number of new value streams. Policy and regulatory innovation can furtherstimulate utility investment in disruptive technologies and new business models.
Global energy transition is happening at a fast pace, with focus on renewable and electrification
The global energy mix is witnessing an unprecedented churn, driven by environmental concerns and technological improvements. Most forecasts expect renewables and gas to gain share in the energy mix at the expense of coal and, to a lesser degree, oil. Renewables are expected to be the world’s fastest-growing energy source, accounting for more than half of growth in energy supplies.
However, most scenarios expect the decarbonisation of energy mix to be gradual and not as quick as it should be from a global warming mitigation point of view. Fossil fuels are largely expected to remain dominant sources of energy for the next 20-25 years, providing 70%-80% of total energy supplies. Large spread of projections for nuclear energy reflect the current uncertainty surrounding this ‘clean’ yet seemingly unsafe source of energy
Power
Transport
Building
Industry
Other
Evolving share of energy demand, by sector (2014/15 –2035/50)
Power 37%
Transport19%
Building14%
Industry14%
Other15%
Primary energy demand, by sector (2014)*
Structural shift away from industry and towards services sectorRising electrification in developing countries Slow growth due
to improved efficiency measures
Weighed down by efficiency gains and shift from energy intensive sectors, particularly in China
Easing growth due to improving fuel economyPotential for mobility revolution heralded by electric vehicles, autonomous driving and car sharing
Energy needs to support growing population and
economic growth
Policy push and technological advancement driving down
energy intensity
Increased demand for fuel as feedstock in petrochemicals
Urbanization in developing countries
Total demand+25%-30%
13,684 Mtoe
An increasing slice of the roughly $1.8 trillion of investment each year in the energy sector is being attracted to clean power generation, at a time when investment in upstream oil and gas is falling.
A large share of new electricity will be decentralized / self-generated renewables. As a consequence, utilities are predicted to lose around one quarter of their revenue.
CO2 emissions are likely to increase despite efficiency gains and clean power push, indicating the need for further policy action to meet the 2oC climate change target. The timing and form of that action will have an important bearing on the nature of the energy transition.
Oil and gas companies typically make investments on a 20 to 30-year horizon, but as the world goes headlong into an electric future, they will have to become more nimble, faster and responsive to change
Source:
Note (*): All electricity demand by Industry, Building and Transport sectors (including) EVs is included under Power sector.
Government policies are playing a central role in reshaping the electricity supply mix towards renewablesWith more than 70% of the projected US$2 trillion required in the world’s energy supply investment each year, either comes from state-directed entities or driven by revenue guarantees, having clear policy guidelines, and market design is critical. Frameworks put in place by the regulators shape the pace of energy transition and technology innovation in any country. Below is a snapshot of recent policy announcements and their likely impact on the fuel mix technology.
The mass adoption of solar, however, surprised the market – as the levelized cost
reduced, technology became increasingly cost competitive
4.42
2.93
2.42 2.73
2.26 1.89
4.35
2.03 1.75
4.00
2.51 2.05
-
1.00
2.00
3.00
4.00
5.00
2011 2014 2017 2020North America Europe Asia Pacific Global Blended
Average Solar PV Installed Price(US$/W)
Global capacity of residential solar and battery storage (MW)
42%decline in global average PV installation cost since 2011
14% Expected decline in European average PV installation cost over next 5 years
Source: Navigant Research
Key developments in electricity supply policies
Country
China
India
European Union
United States
South Korea
Saudi Arabia
Canada
Japan
Policy action
13th five year plan targets to install at least 700 GW of renewables, with plans to delay commissioning of coal plants
Strengthened measures such as competitive bidding to achieve renewable target of 175 GW* by 2022
Increasing share of RE consumption to 32% in gross final consumption by 2030
Proposed Affordable Clean Energy Rule, and extension of tax credits for renewables
Renewables capacity to increase to 58.5 GW by 2030, with significant share of wind and solar power
Implementing policies to increase the share of renewable energy to 9.5GW by 2023
Accelerated phase out of traditional coal-fired plants by 2030
Increasing share of RES to 22-24% in generation mix by 2030
Gas Coal
Impact on
RE Nuclear
Positive impact Neutral impact Negative impact
0
5
10
15
20
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Residential solar installed capacity Cumulative residential batery storage capacity
14.4 GW Expected global installed residential solar capacity by 2025
Solar PV
Solar systems, both utility-scale and smaller on-site, producing energy that can be consumed
Battery storage
Electric vehicles
Microgrids
Home and building energy systems
On-site batteries used to store electrical energy, including both stationary as well as EV batteries
Plug-in passenger EVs, including battery electrical vehicles (BEVs) and plug-in hybrid electric vehicles (PHEVs)
A group of distributed energy resources (DER) and electrical loads with clear network boundaries. Can operate in island-mode. Controllable as a single entity.
Energy management systems that enable the most efficient and cost effective measurement, monitor, control, and optimization of energy consumption
Deliv
ery
tech
no
log
ies
Peer-2-peer energy exchange
Smart meters
Artificial intelligence
Grid edge technologies
Cloud
Technology which helps prosumers to exchange excess electricity with other consumers
Records consumption of electric energy in intervals of an hour or less and communicates the information back to the utility for monitoring and billing every day
AI/cognitive systems that formulate possible answers and automatically adapt based on available evidence and training
Includes devices, such as syncrophasers/smart grids, which helps record, monitor, control and optimize energy distribution
Defined by public cloud sharing of electric utility spending on software, server and storage.
En
ab
lin
g t
ech
no
log
ies
A number of core technologies are fundamentally set to change the electricity market
Edge computing
Smart security
Decentralized load balancing
Electricity production
yield improvement
Customer behavior
prediction
Operational efficiency
Rapidscalability
Renewable generation forecasting
Autonomous smart
systems
Power trading platforms
Predictive maintenance
Demand management
Grid intelligence
Remote fault diagnosis
Power wastage and theft
prevention
Dynamic tariffing
Automated datacenter
environment controls
P&U applications of emerging technologies
The new energy system will be facilitated by the application of new technologies. The combination of digital, emtech and innovations is creating a unique field of play for the utilities addressing decarbonization, digitalization and decentralization. Close to US$1.2 trillion investment is expected to digitalise the grid in next 7 years, and around 70+ utility blockchain pilots are already deployed primarily around peer to peer energy trading.
New entrants are already exploiting opportunities around changing customer behavior and driving sector convergence. This necessitates energy companies to rethink their investment plans and set-up innovation hubs to accelerate the transition.
Util
ities
hav
e be
en sl
ow to
reac
t Supply demand imbalance
A
B
C
Renewable penetration
New technologies gaining speed
€143bn write offs in the past 6 years
400 GW of Europe’s around 900 GW installed capacity is at a loss or barely making profits
Market cap of top 20 utilities has beenhalved from US$1.3 trillion
3 key facts
This transition is causing a significant disruption and is driving transformational changes for the companies
Assuming a continued massive expansion in renewable power generation, beyond power demands alone, a number of significant consequences for the power system result, in addition to the well documented challenges of intermittency:• Even in the event of a massive increase in renewables capacity, there will be times when power demand exceeds supply, so renewables need a form of firm generation
to supplement.• There will be extended periods when renewable generation exceeds demand, and without a productive load this energy will be wasted.• Significant expansion of the power transmission and distribution systems will be needed to accommodate the decentralised renewable capacity and overall increase in
peak capacity, with a risk of low utilisation.
This is the age of decarbonization, digitalization and decentralization
0.9
2.5
6.1
9.0
10.9
2015 2020 2030 2040 2050
Grid defection is expected to ramp
up during 2015-20, at a CAGR of 23%
2% 23%6% 13%19
%
Spotlight: Oceania Power and Utilities sector disruptionAustralia has one of the highest penetration of rooftop solar in the world at 19%, with 2 million households having installed rooftop solar PV. High electricity prices across Australia and recent incidents of power outages is making self generation electricity prices competitive. Consumers are less reliant on the grid during the day, leveraging rooftop solar panels, however, a sudden spike for grid electricity occurs during the night. This is resulting in grid defection, and putting annual revenues of utilities is at risk.
Revenue erosion (utilities’ annual revenue loss in US$ billion) due to distributed solar PV generation in Oceania
26
While technology and customer trends are key drivers of change, policy and regulatory developments can accelerate or impede transformation. Governments across the globe are opening up markets to competition, driving energy reforms, and significant changes to traditional regulatory rate-setting frameworks are being made. Countries such as the Australia, Germany, UK and the US are currently engaged with all stakeholders to come up with policies conducive for investments in the emerging technology. Below is a summary of some of those regulatory initiatives and discussions across the globe.
Distributed generationRegulators are working with grid operators to ensure smooth integration of distributed energy resources.
Generous subsidies and incentives for rooftop solar have stimulated growth but are now being reconsidered.
Electric vehicles and charging pointsGrants and rebates for purchasing plug-in vehicles and charging points have been introduced.
Most governments are committed to funding the deployment and expansion of public EV charging stations
Energy storageNetwork access rules and procedures for energy storage are being developed
Governments are supporting demonstration projects and tenders for renewables with advanced storage backup systems.
Smart meters / smart gridMost countries have ambitious targets and mandates for smart meter rollouts.
Governments are supporting smart grid pilot projects through guaranteed returns on investments and tariff incentives.
01
04
02
03
Energy efficiency and demand responseEffective policies include low interest loans for improvements to homes and buildings that reduce energy consumption, rebates on energy efficient appliances
Some countries (e.g. France, Italy) have introduced obligations on energy suppliers to help customers reduce energy consumption through energy efficiency/demand response solutions.
05
Policy and regulatory innovation is needed to stimulate utility investment in disruptive technologies and new business models
Time is running out for current utility business modelsThe utility value chain is rapidly changing and will become more digital and
decentralised than ever
The power and utilities sector faces radical transformation. Distributed renewable generation, new digital technologies and changing consumer expectations are creating a new energy world that is more complex, competitive and challenging. And it’s coming faster than we think. Survival for utilities will depend on their ability to develop new capabilities, different business models and a mindset centred around agility and collaboration.
While the promise of an all-electric future presents new opportunities, it
poses several key challenges, particularly in relation to uncertainty in
policies, technology disruption, and evolving customer behaviour.
Investors are responding to the risk that over-investment could lead to
heavy losses if utilization falls short of expectations – or if the market
changes direction, leaving investments stranded. Those players who
take steps to mitigate the risks and test the value hypothesis of new
business models, will gain a competitive edge
Electric
vehicles
Industry
Offices
Home
Virtual power
plant
Distributed
generation
Power
plant
Dispatch
Balancing
Settlement
Wind
generation
Solar
generation
T&D
automation
► Government policies will play
a key role in reshaping the
electricity supply mix, with
focus aligned towards
increasing the share of
renewables and limiting the
use of fossil fuels
► Globally, solar PV and wind
energy are the primary focus
of policy support
Federal
policies
► Reduction in technology costs
along with gradual
improvement in equipment
efficiency are expected to
drive down the RE costs
► The cost reductions will put
RE technologies on equal
pedestal with conventional
sources of generation
Declining
RE cost
► With change in the demand
profile and increase in the
share of distributed energy
resources, the electricity
system will need more
flexibility
► Available sources of flexibility
are expected to double by
2040, with conventional power
plants providing bulk of
flexibility services
Increased need
for flexibility
The new age energy system will be characterized by transition in the energy mix
towards cleaner sources, falling renewable energy (RE) costs, and growing need of
flexibility for electrical systems, and will be facilitated by conducive renewable energy
policies
Birth of a new energy system – more distributed and digitally-enabled
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