Electricity utility sector: Break the mould RSS Feed

Electricity utility sector: Break the mould

In addition to decarbonising the electricity generation, the industry also needs to rethink how electricity is efficiently transported and distributed.

The electric utility, traditionally, is one of the most conservative and defensive sectors, with mostly government-controlled entities. After the opening of the sector, there is substantially private sector investment in both regulated and unregulated services. A few years back, independent power producers (IPPs)/independent power transmission companies mushroomed in India. However, for the last two to three years, they have been under severe pressure, and many of the IPPs have been liquidated, while others, including the large and reputed ones, are languishing. Similarly, in the distribution sector, UDAY scheme was launched with a big bang about two and a half years back, but it has again gone to the back burner and the expected improvement in the operational front is yet to be visible. One must be wondering what is behind such huge performance discrepancies in a short time? The electric utility sector is facing transformation on multiple fronts. The sector is under pressure from policy makers, regulators, investors, consumers and public at large to convert electricity generation into low-carbon technologies to reduce co2 emissions and climate risk. The entire power grid is also transforming from fossil-fuelled centralised structure, where the bulk power was generated by large power plants, to a more complex decentralised system with bi-directional power flow from non-dispatchable energy sources, and information technology and new regulatory frameworks are fundamentally changing the way the market operates commercially. Many of the economists are characterising the sector as “A world turned upside down”.

Such changes are already leading to the development of new business models, creating both new threats and opportunities along the value chain. This suggests that the 20th century utility that failed to adopt, face threat of break-up or even extinction. Those that evolved into fitter utilities (survival of the fittest) are more likely to thrive — in the dramatically changing environment of the 21st century. By becoming an integral part of a more suitable future global economy, pioneering utilities might even provide a blueprint for sustainable innovations that offer the benefits of attractive return, a low carbon footprint, and a high social value of local communities.

Revolutions in energy landscape
In the past few years, we have already witnessed dramatic changes in the electricity generation, as it has shifted away from fossil fuel-based sources to renewable energy. Extraordinary growth of over 60 GW is visible in the last few years, i.e. about eight times in the last 10 years. This trend is expected to accelerate, which could be observed from the NITI Aayog’s Draft Energy policy that envisages 709 GW renewable energy resources (including 443 GW from solar, 210 GW from wind) out of total installed capacity of 1,261 GW by 2040. With this changed scenario, new players started emerging in the sector such as Renew Power, ACME, SoftBank Energy & Greenko, etc. This trend has several implications for electric utilities. The system must integrate a growing share of intermittent energy sources, which, in turn, requires smart energy management and ultimately cost-efficient energy storage technology. Traditional utilities must transform their business models from the one that merely generates and distributes centrally generated electricity to the one that is based on smart management and co-ordination of decentralised electricity generation.

Smart distribution system and storage
In addition to decarbonising the electricity generation, utilities also need to rethink how electricity is efficiently transported and distributed. Not only does the power grid need to be upgraded to accommodate increased two-way traffic, it also needs to become smarter. Smart grid technology is increasingly needed in the distribution grid, where more detailed and granular information on power flow is available. As an indicator, the utilities that are leading the way in modernising their grid technology infrastructure is through installation of smart meter penetration. Huge disparities are being observed in utilities. A few utilities in countries like Italy, the US, the UK and China have substantially installed smart meters, whereas most of the other countries are still in pilot or nascent stage.

In India, we are still in the conceptual/planning or pilot stage. Smart meters, smart grids and other forms of ‘intelligence’ need to be extended to residential and commercial buildings, as more consumers become ‘prosumer’ who not only consume electricity but also produce it. Over all, this means that economics of the grid will change dramatically as more electricity is produced locally and the share of fixed infrastructure cost will increase in relation to variable cost of electricity generation. This has already been felt in some distribution companies. Moreover, given the intermittent nature of wind and solar energy, demand for energy storage will increase, as the market share for these renewable energies grows.

Internet of things
Utility needs to attract a new kind of customer, the prosumer, with attractive energy and intelligent home services beyond simply delivering electricity. With the gaining attraction of electric vehicle, the boundaries between various energy uses are increasingly blurred.

Read full article at Financial Express