Mackinnon Lawrence also contributed to this post.
In the initial blog in this series, I discussed seven megatrends that are fundamentally changing how we produce and use power. Here, I discuss my last megatrend, the emerging Energy Cloud and its role in changing our industry.
What Is Happening?
Since coming back from Chicago, where I attended the EEI Annual Convention, I am even more convinced that the electric power industry is transforming. In the closing session of the convention, several utility CEOs spoke about the current state of this transformation and shared success stories. Although utilities will continue to focus on safe, reliable, and affordable power, they will also have to embrace clean, distributed, and intelligent energy. It was interesting to hear CEOs’ perspectives on customer engagement (“we now actually listen to our customers”), innovation (“we are all in”), and distributed energy resources, or DER (“we want to play”).
While that’s great, we are faced with an enormous dilemma. It is hard to comprehend the complexity of what we are dealing with here. The Energy Cloud will be the product of accelerating innovation, the bulk of which lies beyond our immediate purview. Although we cannot predict or anticipate all the disruptions that will be triggered by emerging technologies, there is an inevitability to this transformation that cannot be ignored. These changes will penetrate all corners of the industry: customers, regulation and policy, technology, business models, and grid operations.
Meanwhile, there is limited or negative demand growth throughout the United States. And because of more efficient ways to use power and more prosumers taking the plunge to generate their own, less and less electrons will flow through the central power system (indefinitely). At the same time, in order to provide safe, reliable power, as well as support a tsunami of DER, exploding Internet of Things (IoT) capabilities at the edge of the grid, and rapid digitalization, significant grid investments are needed. The number one question is: Who will pay for this evolution? The search for new value and pricing models (and there will be many) has begun.
We are at the beginning of the transformation, and I don’t think we have seen anything yet. I predict we will enter a 20-year period of uncertainty, trial-and-error, and both successes and many failures. Along the way, we will figure out ways to transform our power generation, delivery, and consumption system into an orchestrated, flexible, open, and efficient Energy Cloud platform.
The Emerging Energy Cloud
In my blog, “The Impacts of the Evolving Energy Cloud,” I discussed how we are moving away from a centralized hub-and-spoke grid architecture based on large centralized generation assets toward a more decentralized grid with an increased role for renewables, DER, grid-edge IoT, and digitalization. The Energy Cloud is an emerging platform of two-way power flows and intelligent grid architecture. While this shift poses significant risks to incumbent power utilities, it also offers major opportunities in a market that is becoming more open, competitive, and innovative. Fueled by steady increases in DER, this shift will affect customer relationships, shape policy and regulation, change business models, propel continuous technology innovation, and overhaul grid operations in every single region of the world.
The Energy Cloud
North American utilities are at various stages of integrating distributed generation, demand response, energy efficiency, electric vehicles, and electric storage. Navigant expects this integration trend to accelerate. According to our analysis, DER is projected to grow almost 3 times faster than new central station generation in the next 5 years. That makes DER one of the most disruptive factors affecting the grid today and in the future. From a recent Public Utilities Fortnightly-Navigant survey among 400 utility stakeholders, 90% of survey respondents believe that the growth of DER will force a major shift in utility business models. We believe it is critical that utilities have an integrated DER (iDER) strategy and approach.
Path Forward: The Energy Cloud Playbook
The paths that utilities will follow to transition toward the Energy Cloud will be different. More importantly, the pace by which they move through iDER maturity levels will differ greatly. But understanding the North Star and taking the right steps at the right time are vital to making the transition successful.
At an advanced iDER maturity level, utilities have addressed issues arising from high DER penetration such as intermittency, reverse flows, and power quality issues. Utilities are using both information and operations technology (i.e., IT/OT) and have aligned their business processes, operations, and organizations appropriately. DER management systems (DERMSs) and advanced distribution management systems (ADMSs) are managing DER output at the feeder and substation levels. At this advanced iDER maturity level, the utility has augmented its role as a supplier of electricity and has become a platform provider and network orchestrator that enables prosumers to market their DER assets on an open market. This role is critical to fully maximizing the benefits of DER—and it will be key to providing future value to customers and shareholders.
While the Energy Cloud is in its infancy today, its evolution will be both pervasive and highly disruptive to stable electric industry revenue streams for the next 30 years or more. Navigant projects that the Energy Cloud’s evolution could result in nearly $1 trillion worth of global investment shifting downstream to the retail segment of the value chain. What’s more, it could add an additional $1 trillion to 1.5 trillion in new value from investments in digital infrastructure and associated services by 2030.
As a follow-up to Navigant’s white paper, The Energy Cloud, we will publish our Energy Cloud 2.0 white paper in the next couple of months. This new white paper will move beyond the “what” to identify the “how.” At the same time, it will provide an Energy Cloud Playbook for the different utility, regulatory, investor, manufacturer, and government stakeholders positioning to build, manage, and protect their future in this emerging ecosystem.
Final Advice: Take Control of Your Future
This post is the eighth and final in a series in which I discussed power industry megatrends and the impacts (“so what”) in more detail. Navigant is at the forefront of what is happening in our industry. We continue to collaborate with our clients to help them navigate the rapidly changing energy landscape.
I have received positive feedback and insightful reactions on this blog series from many. Some readers wanted to understand more about the energy technology trends we see. So Navigant is preparing a new series in which we will cover the specific technology trends that we see disrupting our energy industry. Others have requested a megatrends series focused on oil & gas, which we are working on as well.
The megatrends discussed in this series cannot be underestimated. They are accelerating transformation in the energy industry, enabling the entry of new players, putting pressure on incumbent players, and altering traditional strategies and business models. Organizations will need to adapt, and there will be winners and losers as this transformation takes shape. My advice to senior leadership of energy companies is to take an integrated, holistic view of the opportunities and challenges that are flowing from these megatrends. Only then will you be able understand the full impacts and path forward. And that is the only way you can really take control of your future.
I hope you enjoyed this blog series. Stay tuned for future series.
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