Navigant Research Blog

Wind Energy Surpasses Coal Generation in Europe

— February 15, 2017

TurbineEurope is widely considered to be the birthplace of the modern wind energy industry and its corporate and technology home base. Installation rates announced by WindEurope for 2016 show continued and stable momentum, with 12.5 GW installed across 28 EU member states (10,923 MW onshore and 1,567 MW offshore). This was 3% less than the new installations in 2015, which is less a downturn than a reflection that 2015 was a record installation year as German projects raced to get installed before wind incentives became less generous. Activity in 2016 otherwise shows stable installation rates expected for the continent.

Growing Role of Wind and Renewables

Total wind capacity in Europe now stands at 153.7 GW, and wind energy covered 10.4% of Europe’s electricity needs in 2016. Germany installed the most new wind power capacity last year with 44% of the EU total. Five member states—France, the Netherlands, Finland, Ireland, and Lithuania—had record years. France’s record was due to previously stalled wind incentives back in place for 2016 commissioning; Ireland saw a rush to connect projects before incentives are rolled back; and the Netherlands, Finland, and Lithuania all hit records with modest capacity additions outweighing previous small installation rates.

Renewables altogether accounted for 86% of new EU power plant installations in 2016, representing 21.1 GW of a 24.5 GW total. Investment in new onshore and offshore wind farms reached a record €27.5 billion (~$29.2 billion). Offshore wind investments rose 39% year over year to €18.2 billion (~$19.3 billion), while onshore investments were down 29% at €9.3 billion (~$9.9 billion).

Offshore wind represented 13% of the annual EU wind energy market installed capacity with 1,567 MW of new gross capacity connected to the grid in 2016. This is a 48.4% decrease compared with 2015, which was an exceptional year for offshore wind installation and grid connection due to delays in Germany getting resolved and 3.7 GW being installed. See Navigant’s Offshore Wind Market Update for detailed analysis of the market and supportive policies by country.

Offshore wind is a key growth area for wind in Europe, while onshore wind remains largely flat and is decreasing in some markets. This is the case in the United Kingdom, where onshore incentives were scrapped in early 2016 but retained for offshore. Similarly, incentives in Germany were reduced for onshore wind while being maintained for offshore wind.

Coal No Longer King

Also notable is that the installed wind capacity of 153.7 GW now has wind overtaking coal (152 GW) as the second largest form of power generation in Europe. In 2016, wind accounted for 51% of all new power installations in the region, and renewable energy accounted for 86% of all new EU power installations (21.1 GW of a total 24.5 GW of new power capacity). Solar had a strong showing with 6,700 MW, or 27.4% of 2016 installed capacity.

Conventional power sources such as fuel oil and coal continue to decommission more capacity than they install. Despite having decommissioned more than 2 GW this year, net gas-fired generation capacity continues to remain positive. Natural gas power plants saw 3,115 MW installed, representing 12.7% of all 2016 power generation capacity.

Since 2000, the net growth of wind power (142.6 GW), solar PV (101.2 GW), and natural gas (98.5 GW) capacity has coincided with the net reduction in fuel oil (down 37.6 GW), coal (down 37.3 GW), and nuclear (down 15.5 GW). The share of wind power in total installed power capacity has increased from 6% in 2005 to 16.7% in 2016, overtaking coal as the second largest form of power generation capacity in the EU and remaining first among renewables. Over the same period, renewables increased their share from 24% of total power capacity to 46%.

 

Unraveling Germany’s Smart Meter Strategy

— November 4, 2016

Power Line Test EquipmentWith smart meters quickly becoming the norm for grid operators and utilities, Germany presents an interesting case study given the country’s hesitance to adopt this smart grid technology. Western Europe has distinguished itself as one of the global leaders in smart meter deployments. Buoyed by nationwide deployments from countries like France, Italy, Sweden, Spain, and the United Kingdom, the region is quickly advancing the business case for smart meter technologies. While many of the most affluent nations within Western Europe have initiated large volume deployments already, Germany has been largely hesitant to jump on the bandwagon.

This changed in July 2016, as legislation was passed that will kick-start smart meter activity within the country, though careful attention must be paid to the details, as this rollout deviates significantly from traditional deployment strategies seen elsewhere in the region. According to the recently enacted Digitisation of the Energy Turnaround Act, Germany’s smart meter rollout is finally set to commence. Years in the making, the country’s approach is unique given its selective deployment and tiered installation schedule.

Starting in 2017, large consumers with average annual consumption in excess of 10,000 kWh will be required to install smart meters. This threshold will be lowered to 6,000 in kWh in 2020, which applies to approximately 15% of electricity consumers. The majority of German households will remain unaffected given that average consumption hovers around 3,500 kWh. For households where smart meters are not required, utilities will still maintain the option to supply this technology to its customers, though the meters are subject to a cost price cap of 40 euros per year. While the overall program is set to last until 2032, some types of consumers and operators will be required to have rollouts finished before the end of 2024.

A Considered Approach

This resolution is long-awaited as Germany has struggled to justify the need for smart meters. In the summer of 2013, Germany’s Federal Ministry for Economics and Technology contracted with Ernst & Young to perform a cost-benefit analysis relating to a nationwide deployment of smart meters by 2020, in line with European Commission target deadlines. The study concluded that such a mandate was not economically beneficial and instead recommended a selective rollout similar to the country’s aforementioned strategy. While industry advocates may view Germany as dragging its feet on the issue, the country is taking its time to carefully study the implications of installing smart meters in a country with over 50 million households and businesses.

One of the benefits to this approach is the availability of more technologically advanced smart meters on the market today relative to the more primitive smart meters installed in Italy and some of the Nordic countries during earlier rollouts. Given the typically shorter lifespan of smart meters relative to traditional electromechanical meters, some of these European countries are already expected to be looking at upgrades or replacement units in the coming decade. While many in the industry have long touted the benefits of smart meters, Germany is taking a responsible approach in studying the overall implications and has a clear and rational basis for delaying nationwide implementation.

 

Scotland Exemplifies European Energy Transition with Tidal Generation

— September 26, 2016

Energy CloudImagine a landscape dotted with wind turbines and homes supporting rooftop solar—that’s what  I noticed during a recent trip to Scotland. What I couldn’t see was power being exported to the grid through offshore tidal stations. Nova Innovation has succeeded in deploying the world’s first fully operational array of tidal power turbines in the Bluemull Sound, which are now successfully feeding electricity to local Shetland homes. The project began in March 2016, when the first in a series of three turbines was deployed. When the second turbine was deployed and activated in late August 2016, the project became the first offshore tidal array in the world to actually deliver electricity to the grid.

Scotland has had its fair share of failed attempts in the marine power industry, including the collapse of two wave power companies, Pelarmis and Aquamarine. However, the country has some of the most powerful tides in Europe, and Nova Innovation’s achievement shows promise for further development of tidal power as a renewable generation source.

Energy Transformation

Scotland’s recent success in tidal generation also highlights the region’s dedication to distributed energy resources (DER), renewables, and adapting to a transforming energy industry. A recent series of blogs highlights Europe as a region helping to lead the way in a changing energy environment, and arguably transitioning faster than anywhere else in the world. The megatrends that are revolutionizing the way power is produced and used in Europe include shifting power-generating resources to renewables, new market entrants focused on investing in renewables, DER, and energy management, and the power of consumer choice as demands change among customers who want to control their electricity usage and decide what power to purchase.

Navigant expects DER to grow more than 5 times faster than new central station generation in the next 10 years in Europe; its uptake is anticipated to be widespread and one of the most disruptive factors affecting the grid. Additionally, utility-scale and distributed renewables are expected to account for 50%-100% of generation, with net new capacity currently reaching virtually 100% renewables.

Europe is a vibrant and fertile market for DER and renewables, from small generation pilots in Scotland, to cities like Copenhagen and Munich committing to 100% clean energy, to growing carbon emissions reductions policies and regulations that affect the entire European Union. This is a region dedicated to transitioning in a changing energy environment, and it’s worth following along as its energy future develops.

 

Europe’s Energy Transition Megatrends and Tipping Points, Part VIII: Building a Competitive Advantage in the Emerging Energy Cloud

— September 12, 2016

AnalyticsIn our initial blog in this series, Take Control of Your Future – Megatrends Part I, we discussed seven megatrends that are fundamentally changing how we produce and use power. In this blog (Part VIII), we will discuss the emerging Energy Cloud, how this is driving the energy transition in Europe, and how utilities can build competitive advantage.

What’s Happening?

There is widespread consensus that a historic transformation of the utility industry is now well underway, and Europe is leading the way. From the move to cleaner generation resources to the prolific rise of distributed energy resources (DER) to customer empowerment to digitisation efforts across the value chain, disruptive changes are transforming the way power is produced and consumed. The result is an increasingly intelligent grid that is cleaner, more distributed, flexible, and efficient. We call this the Energy Cloud.

In the Energy Cloud, as described in Navigant’s Navigating the Energy Transformation white paper, changing customer needs, evolving policy and regulation, and accelerating technology innovation and integration will drive the creation of more distributed transactions and dynamic business models, a more sophisticated two-way grid platform, and a rapidly evolving ecosystem. Sitting on the cusp of major market evolution, innovation is accelerating beyond one-off, standalone technologies (e.g., renewables) and the pairing of these technologies (e.g., solar plus storage) toward the orchestration of complex ecosystems of technologies working in concert to deliver more flexible, responsive, and customer-centric services. Moving beyond siloed technologies, for example, ongoing digitisation efforts are laying the foundation for dynamic platforms that combine technologies and services like integrated DER (iDER), smart cities, Internet of Things (IoT), and transactive energy. These platforms provide fertile testing grounds for industry incumbents as well as disruptors and are expected to result in €400 billion (~$446 billion) in new annual industry revenue by 2030 in Europe. This future state is no longer a question of if, but rather, when—and more importantly, how.

The Energy Cloud

EnergyCloud

(Source: Navigant)

A 2030 Energy Cloud Scenario

European utilities are at various stages of integrating distributed generation (DG), demand response, energy efficiency, EVs, and electric storage. Navigant expects this trend to accelerate. Based on our forecasts, DER is expected to grow more than 5 times faster than new central station generation in the next 10 years in Europe. That makes DER one of the most disruptive factors affecting the grid today and into the future. Under an aggressive scenario, we describe a transformative Energy Cloud ecosystem in 2030 as follows:

  • Utility-scale and distributed renewables account for 50%-100% of generation; DER uptake is widespread, accounting for a vast majority of new build capacity.
  • Annual industry revenue reaches more than $1 trillion in Europe in 2030, resulting in more than $8.7 trillion in cumulative revenue generated between 2016 and 2030 across the region. Digital innovations (i.e., information and operations technology, data analytics, and connectivity) account for more than one-fifth of total revenue generation.
  • Revenue across the electric value chain shifts significantly downstream toward the edge of the grid and beyond (customer side of the meter). Revenue and cost allocation of generation and supply and new energy services effectively swap. Cost and revenue of distribution and customer energy management represent more than half of revenue allocation across the value chain.
  • Grid boundaries are expanded, integrating the existing infrastructure with behind-the-meter building energy networks and community-scale nanogrid and microgrid infrastructure, as well as supergrids linking power networks that extend across geographic regions well beyond traditional state-nation boundaries.
  • The distributed, intelligent grid gives way to a neural grid that is nearly autonomous, self-healing, and leverages innovations in artificial intelligence and cyber-physical systems (i.e., IoT, self-driving EVs, and the smart grid). The application of blockchain technology gives rise to peer-to-peer power exchanges and transactive energy.

How to Build Competitive Advantage

The most critical part of the Energy Cloud transition is balancing ongoing investments in the core grid and additional dynamic platforms that support new technologies, products, and services. Over time, the total volume (and with that, revenue) that flows through the core centralised assets will decrease. These assets will increasingly become at risk of being stranded, and they may become obsolete or financially unsustainable. Asset owners must plan now to mitigate this risk to minimise the cost to incumbent utilities, customers, and society.

Utilities play a key role in this transition. They must integrate new platforms, technologies, products, and services with the existing infrastructure, transforming their organisations into network orchestrators so that the full value of distributed energy is captured while the impact of stranded assets is understood and managed. Existing planning mechanisms, like strategic plans (with typically a 5-year horizon) and integrated resource plans (typically 30 years), are insufficient. A medium-term strategic identity and growth plan (10-15 years) and an agile Energy Cloud Playbook (6-12 months) are needed to pinpoint the trends, opportunities, and threats and introduce new technologies and business models that address merging markets and client needs.

To help navigate our clients in this changing landscape, Navigant has developed an Energy Cloud Playbook. The first step in the Energy Cloud Playbook is an assessment of your current status and level of preparedness. Navigant’s multifaceted iDER Maturity Model provides an assessment of a utility’s progress in DER integration capability. We start with a blueprint for what a fully integrated DER system looks like, and then define five levels of iDER maturity based on that blueprint. We will assess your strategy, organisation, and operations against these maturity levels.

iDER Maturity Model

iDERModel

(Source: Navigant)

Final Advice: Take Control of Your Future

No two markets are alike, and the Energy Cloud transformation will play out differently across European countries, reflecting unique on-the-ground realities. While not all strategic pathways to navigate this transformation will be appropriate (or even successful) for all players across all markets, those that already acknowledge the complexity of the challenge ahead have an advantage. Facing more uncertainty, industry stakeholders—and utilities in particular—will need to adopt a more agile mindset to maneuver their organisations and position for long-term success.

After assessing your iDER maturity, current and future state, and benchmarking it against your peers, an integrated DER strategy, architecture, and roadmap needs to be developed. Through pilot and demonstration projects, your strategy, go-to-market approach, and business case assumptions will be tested, after which viable and market-ready products and services will be implemented. Stakeholder engagement and change management are key to get the right level of buy-in and develop the organization. Measuring and verifying the actual value of the new products and services will be the basis for adjustment of the strategy and fine-tuning of your Energy Cloud Playbook.

Energy Cloud Playbook

EnergyCloudPlaybook

 (Source: Navigant) 

In Closing

The tipping points are clear and the megatrends discussed cannot be underestimated. We are only at the beginning. These trends 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. We will likely enter into a 20-year period of uncertainty, trial and error, successes, and many failures as we figure out ways to transform our power generation, delivery, and consumption systems to an orchestrated, agile, open, and efficient Energy Cloud platform. Organisations will need to adapt, and there will be winners and losers as this transformation takes shape.

Navigant’s 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. To help you, Navigant has developed the Energy Cloud Playbook, which describes the steps you should take. 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.

Navigant is at the forefront of what is happening in our industry. We collaborate with our clients to help them navigate the rapidly changing energy landscape. Learn more about our clients, projects, solution offerings, team, and the Energy Cloud Playbook at www.navigant.com/industries/energy.

 

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