Navigant Research Blog

Take Control of Your Future, Part I: Megatrends in the Utilities Industry

— April 29, 2016

Energy CloudThe pace and impact of change in the utilities industry is unrelenting. Each of the following megatrends is changing the way we produce and use power globally. Together, these megatrends are revolutionizing the industry.

  1. The power of customer choice and changing demands: More customers want to control their electricity usage and spend, as well as when and what type of power they buy. Customers want the ability to self-generate and sell that power back to the grid. Amazon, Apple, Cisco, Google, Honda, Walmart, and many other large energy buyers have increased their focus on sustainable energy solutions. This trend, in turn, is forcing new power purchase agreements with the incumbent utilities in order to minimize their risk of losing significant load. For example, a second (Google was the first) major technology company, Cisco, has confirmed that it is using Duke Energy’s Green Source Rider to provide clean energy for its North Carolina operations.
  2. Rising number of carbon emissions reduction policies and regulations: The impact of COP21 will be significant. Navigant believes that the “hold” on the U.S. Environmental Protection Agency (EPA) is temporary, and state governments and utilities are not waiting. They are taking actions now to be compliant. In fact, sustainability objectives between government, policymakers, utilities, and their customers are much more closely aligned than ever before.
  3. Shifting power-generating sources: U.S. electric-generating facilities expect to add more than 26 GW of utility-scale generating capacity to the power grid during 2016. Most of these additions will come from three resources: solar (9.5 GW), natural gas (8.0 GW), and wind (6.8 GW), which together make up 93% of the expected total additions. Existing assets (coal, but also nuclear) are devaluing and are at risk of becoming stranded as source shifting continues and newer natural gas and renewable generation sources come online.
  4. Delivering shareholder value through mergers and acquisitions (M&A): New industry ventures and M&A are happening at a rapid pace. Exelon’s acquisition of Pepco, Southern Company acquiring SoCoGas, Duke acquiring Piedmont Gas, Emera acquiring TECO, etc. In search for shareholder value through scale and increased synergies, this is a path that utilities will continue to explore.
  5. Regionalizing of energy resources (interstate, north-south, global): In order to provide reliable and affordable power, more energy resources are being regionalized. For example, PacifiCorp and Puget Sound Energy (PSE) and, later this year, NV Energy is joining California ISO. One of the main drivers is to achieve the benefits to manage local differences with regard to renewables, wind, and solar. Another example is Florida Power & Light’s (FPL’s) investment in natural gas exploration and production companies in Oklahoma and gas transmission pipelines to secure fuels for its natural gas combined cycle plants in Florida. Meanwhile, the global availability and movement of natural gas has created an abundance of natural gas. Some of the world’s biggest entrants into the growing global gas market have considered investing in power plants and other big projects now that their multibillion-dollar exporter terminals are about to open, executives said at the Columbia Global Energy Summit on April 27.
  6. Merging industries and new entrants: Several industries, including utilities, oil and gas (O&G), technology, manufacturers, OEMs, etc., are merging around areas like renewables, distributed energy resources (DER), energy management, smarter cities, and transportation. Navigant sees many cross-industry movements, and one of them is increased crossover investments between the electric utility and O&G industries. We see utilities investing in natural gas assets. And we see oil companies making investments in utilities. We also see both making investments in new areas of opportunity, like renewables, DER (distributed generation, energy efficiency, demand response, energy efficiency, etc.), transportation, smart infrastructure and cities, and energy management. That’s why the announcement in April by French supermajor Total is not a surprise to me. Total announced the creation of a Gas, Renewables and Power division, which it said will help drive its ambition to become a top renewables and electricity trading player within 20 years. According to a statement by the supermajor, “Gas, Renewables and Power will spearhead Total’s ambitions in the electricity value chain by expanding in gas midstream and downstream, renewable energies and energy efficiency.”
  7. The emerging Energy Cloud: Old infrastructure is being replaced and geared toward an increasingly decentralized and smarter power grid architecture known as the Energy Cloud. The Energy Cloud is an emerging platform of two-way power flows and intelligent grid architecture expected to ultimately deliver higher quality power. 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 policy and regulation, business models, and the way the grid is operated in every single region of the world.

These megatrends 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.

This post is the first in a series in which I will discuss each of the megatrends and the impacts (“so what?”) in more detail. Stay tuned.

Learn more about our clients, projects, solution offerings, and team at Navigant Energy Practice Overview.

 

Why Africa, and Why Now?

— December 31, 2015

As I noted in a previous blog on the Paris Climate Summit, it is estimated that over one-fifth of humankind lacks modern energy services. According to the United Nations (UN), 78% of people residing in rural areas are often served by primitive energy systems that spew carbon into the atmosphere.

I would argue that Africa is uniquely positioned to determine the success of the COP21 goals. The proximity of Africa to Europe, which has historically funded a variety of programs for former colonies, is one major reason for the continent’s pivotal role in limiting climate change. Others factors include nomadic populations not concentrated in dense pockets (as is the case in India) that support more centralized infrastructure solutions. For example, even microgrids are a challenging value proposition here for the majority of indigenous peoples in Sub-Saharan Africa. As a result, nanogrids seem to be favored by funders for bottom of the pyramid (BOP) deployments since they are seen as less risky and can reach potential consumers quicker.

A variety of both binding and aspirational goals is expected to affect the remote power supply market opportunity, with activity likely to increase over time for both microgrids and nanogrids. The following sampling of programs and projects are expected to help drive this overall market forward:

  • The UN’s Sustainable Energy for All initiative (SE4ALL), launched in 2011, set goals for ensuring universal access to modern energy services; doubling the share of renewable energy; and doubling the global rate of improvement in energy efficiency in buildings, industry, agriculture, and transport by 2030. More than 70 governments worldwide have been engaged in this effort with over $50 billion pledged to realize these goals.
  • Energy Africa consists of 14 African countries that have pledged to bring solar energy to the 620 million people living in the African continent that currently lack access to electricity.
  • The African Development Bank aims to mobilize $55 billion in private funding under its New Deal for Energy in Africa program designed to eliminate Africa’s energy deficit by 2025.
  • Powering Africa, launched by the U.S. Agency of International Development, has pledged $7 billion to help bring power to Sub-Saharan Africa.

The recent Paris Climate Summit is building on this momentum and accelerating funding. The African Renewable Energy Initiative increased a previous target of 10 GW of renewables by 2020 to 300 GW by 2030. Among the funders of this new venture are The World Bank ($16 billion) and the Green Climate Fund ($100 billion).

This long list of programs implies adequate support for energy access in Africa via cleaner power sources that produce less carbon. Of course, one could turn this assumption on its head. The plethora of programs speaks to the need for subsidies to make such ventures economic. According to a recent report from Navigant Research, the Middle East & Africa region is expected to be the global market leader in remote power. Project implementation revenue is forecast to exceed $4.7 billion in 2015 and increase to more than $11.0 billion by 2024, edging out the Asia Pacific region both at the start and the conclusion of the forecast horizon.

Annual Remote Market Capacity and Revenue by Region, World Markets: 2015-2024

Peter Blog Dec 30

 

(Source: Navigant Research)

So why Africa? Because it is the most difficult market for energy access. Why now? Because the Paris Climate Summit put a spotlight on Europe’s leadership role in combating carbon, both at home as well as on its neighboring continent.

 

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