Six Forces Disrupting the Power Sector
Multiple disparate trends could forcefully reshape power systems around the world. As electricity markets transform, technologies advance, industries converge, consumption patterns change, environmental concerns increase, and “prosumers” emerge, power companies must innovate and evolve to deal with the disruptions.
In a recent lecture at Rice University in Houston, distinguished macroeconomist and economic historian at Northwestern University Robert J. Gordon presented an interesting scenario: If a person fell asleep in 1870 and awoke in 1939, he or she would barely recognize a world revolutionized by five great inventions—electricity, urban sanitation, chemicals and pharmaceuticals, the internal combustion engine, and modern communication. Gordon, who lays out his argument in a book, The Rise and Fall of American Growth, posited that this pivotal period was followed by another lengthy set of decades in which those inventions were refined and exploited.
But since the 1970s, only a faint wave of change has saturated culture, he said. Our modern world—characterized by technological stagnation, rising inequality, and plateauing education levels—will never again see as great a transformation. Not even by computers and digitalization, which have so far only affected a small section of the economy, he argued, mostly in entertainment, information, and communication.
As powerful as they are, Gordon’s economically weighted theories—which rely on total-factor productivity, an economic measure based on gross domestic product of efficiency due to innovation—are short-sighted, some industry heavyweights have contended. Among them is Microsoft founder Bill Gates, who opined in a blog post that the “digital revolution affects the very mechanism of the marketplace.” Many others point out that it’s a change flipping many of the world’s industries on their heads, the power sector prominent among them.
he Case for Electric Vehicles
While inconsistent demand for electric vehicles (EVs) poses uncertainties about how quickly they will impact the grid, EV manufacturers are pushing for rapid charging, with goals to charge a 100-kV battery within five minutes—creating 1.2 MW of demand. Simultaneous charging of 60,000 EVs on a system—only 0.25% of 24 million vehicles the Texas Department of Motor Vehicles registers each year, for example—could boost power demand to greater than 70 GW, which is greater than the Electric Reliability Council of Texas’ current peak demand, Wood Mackenzie said in a December report (Figure 1). Conversely, the efficiency uplift offered by EVs could lead to a drop in oil demand, a Wood Mackenzie expert said.
1. The electric vehicle driver. Wood Mackenzie projects that 125 million electric vehicles (EVs) will be adopted by 2035, which could displace 1.8 million barrels per day of oil demand and adds 350 TWh to power demand. In a carbon-constrained scenario, which reflects trajectories consistent with the Paris agreement, adopted EVs could soar to 350 million units. ROW stands for “rest of the world.” Courtesy: Wood Mackenzie
Electricity Markets: A Disruptive Vehicle
The power sector’s transformation over the last 10 years has been profound and unmistakable, even if uneven across power’s diverse landscape. But digitization isn’t the only factor disrupting it.
According to Prajit Ghosh, the global content and commercial strategy head of Wood Mackenzie’s Power and Renewable’s division, underlying this transformation are electricity markets, which he argues have been as immense a “catalyst” of change as smartphones have been to modern living.
Since selected regions around the world began restructuring their traditional, vertically integrated utilities in the early 1990s by introducing competition among large-scale generators, power markets have absorbed—albeit at varying rates and scopes—new drivers of change. Among them are technological drivers such as utility-scale wind and solar, distributed generation, smart grids, energy storage, and energy efficiency. Incentives, business models, and institutional approaches have further vastly leveraged changes, posing challenges to traditional grid planning and operational practices as well as business models both for utilities and other power companies.
“Arguably, electricity markets will serve the same purpose as smartphones did,” Ghosh said in October. “And the simple reason is that electricity markets are not a primary commodity—not a combustible fuel like coal or natural gas. They are really a clearinghouse for multiple commodities, whether for coal, or natural gas, or renewables, or nuclear, or biomass.” Power markets are also creating links between unrelated energy markets. For example, while most countries don’t use a significant amount of oil for power generation anymore, transport electrification and electric cars (see sidebar, “The Case for Electric Vehicles”) have enabled that link, Ghosh said.
Rapid Technological Advances
Another key marker of disruption, according to Ghosh, is the rapid—“rapid being the code word here”—advancement of technology. Since 2007, the cost of wind and solar power has fallen dramatically as capacity factors have soared, contributing to their quick uptake across all markets, including as offshore and distributed sources, he said.
According to the International Energy Agency (IEA), variable renewable energy penetration is approaching a 20% to 30% share in many markets, and the wider industry is already seeing repercussions. In Germany, for example, conventional thermal plants—and particularly coal plants—have adopted equipment, software, and operational modifications to be more flexible in order to achieve higher ramp rates, more starts and stops, and much lower minimum generation (Figure 2).
2. Generation of hard coal in Germany. The increased share of variable generation in Germany has posed technical and economical issues for thermal generators, but they appear to have adapted. This graph, showing the generation pattern of the country’s hard coal power plants over a seven-day period in 2016, demonstrates their ability to cycle. Courtesy: ENTSO-E (2017a), Actual Generation per Production Type
Energy storage, too, has made major gains. Considered for years as a “holy grail” that could transform intermittent forms of energy production into firm, baseload capacity, energy storage developments garnered serious notice by the power sector sometime between 2011 and 2014, a period during which a number of demonstration projects showed various technologies could optimize energy delivery. (For more, see “Battery Storage Goes Mainstream” in POWER’s May 2017 issue.) According to market research firm IHS Markit, the global energy storage market installed 6 GW in 2017—an exponential increase from the 0.34 GW installed in 2012 and 2013. Experts widely project that this growth will continue, owing to tumbling battery storage costs (Figure 3). IHS’s forecasts show that annual installations could surge to 40 GW by 2022.
3. Falling battery pack cost projections. According to Wood Mackenzie, costs predicted in 2012 for 2030 have already been achieved. Falling costs will have long-term implications for renewables and transport electrification, it says. Courtesy: Wood Mackenzie
Another reason for this soaring growth is that energy storage is now being incorporated broadly into utility planning and power system planning across the world, said John Zahurancik, who served as president for AES Energy Storage between 2015 and 2017, and is now chief operating officer of Fluence Energy, a partnership between AES Corp. and Siemens that provides a technology and service package to the power sector. Zahurancik told POWER in January: “If you look at the resource planning guides that are coming out of major utilities, and if you look at the independent system operator areas and the ways that they’ve incorporated rules changes, they’ve incorporated energy storage.”