How can US utilities be ready when everything changes? RSS Feed

How can US utilities be ready when everything changes?

EY has modeled three critical tipping points for utilities on the way to a new energy system. In Europe and Oceania they’re staggered, but in the U.S., they’ll arrive in much quicker succession.

EY, together with a leading global analyst house, has modeled three critical tipping points that mark utilities’ potential journey toward a new energy system. In most regions analyzed, these tipping points are staggered over a number of years, allowing utilities time to learn lessons from adapting to one to prepare for the next. But the U.S. is different.

This complex and highly regionalized sector — which includes five distinct energy markets — will have longer to prepare for change. Unlike other regions though, U.S. tipping points will arrive almost on top of each other. How can utilities prepare for such radical and comprehensive transformation?

Transformative change ahead
Everyone knows the energy sector is changing. The maturing of renewable energy technologies, proliferation of distributed energy resources (DER), falling cost of battery storage and more empowered consumers are shifting how the world uses, values and trades electricity.

As more homes are built or retrofitted with solar panels, energy storage home energy management systems and garages equipped with electric vehicles (EVs), the emergence of the prosumer will change the utility business model. This democratization of energy can seem like a daunting future for utilities used to managing centralized power. But how quickly will this change materialize? To answer this question, EY and a leading global analyst house modeled when these changes may converge to mark the potential end of the traditional utility business. We’ve identified three critical tipping points on a journey to a new energy system.

The first of these points marks when it is as cost-effective to generate and store your own power as it is to buy it from a provider. Grid parity is almost upon utilities in Oceania — 2021 — and Europe — 2022.

But in the U.S., a number of factors, most notably the abundance of shale gas, lower commodity prices and lower taxes, mean grid parity for distributed solar generation and battery storage is still a ways off for most energy markets. The first U.S. region expected to reach tipping point 1 is the Northeast, which will achieve grid parity in 2031, about a decade later than Europe and Oceania.

Our modeling also shows something else that differentiates the U.S. energy transformation. In other regions, the three tipping points arrive along a staggered timeframe. For example, after grid parity is reached in Oceania in 2021, tipping point 2 — when EVs reach price and performance parity with traditional cars — arrives in 2025 and tipping point 3 — when the cost of delivering electricity exceeds the cost of generating it locally — will be reached in 2040. This rolling schedule of change allows utilities to adapt and evolve.

In the U.S., while change comes later, we predict it will hit hard and fast. In most U.S. regions, tipping points 1, 2 and 3 arrive almost at the same time. Across all regions, tipping point 2 arrives ahead of tipping point 1.

This compressed timeline for such radical and wide-reaching change will present challenges to U.S. utilities unlike any they’ve ever faced.

Preparing for sudden, radical transformation
The countdown to these tipping points will force U.S. utilities to review enterprise and investment strategies, develop greater digital capabilities and consider collaborations outside the industry. Utilities will need to take an active role in working with regulators to reshape regulatory models to reward sector investment in innovative new energy solutions.

However, it’s the near-simultaneous arrival of the tipping points that may be the biggest challenge. Navigating such radical change will require utilities to swap out their traditionally risk-averse mindset for one that’s more agile and open. Lessons could be learned from utilities in Oceania and Europe that will confront change much earlier. U.S. utilities have traditionally looked at their peers in the U.S. — the transformation of the energy sector at a global level may signal a time to broaden horizons.

Consumer power may be the game changer
There’s an important caveat to our modeling around the tipping points: certain factors may accelerate progress toward them. One of these factors is the exponential advance of technology. The other is the consumer.

Read full article at Utility Dive