Clean energy goals, DER strategies, EV growth to shape 2020 utilities industry outlook: Deloitte
Electric utilities will seize the opportunity to expand their role in leading the clean energy transition while improving the customer experience in 2020, Deloitte forecasts in its 2020 Power and Utilities Industry Outlook.
According to the report, many utilities will continue working toward meeting their own clean energy goals, while at the same time managing growing cybersecurity risks and preparing to respond to natural disasters. Deloitte expects utility capital expenses to continue to increase year-over-year because of the need to upgrade infrastructure that is aging, as well as strengthening and securing the grid against both natural and man-made threats.
In 2020, Deloitte predicts five different major shifts and opportunities for utilities and power companies: focusing on carbon reduction, exploring new business models to be better prepared for the clean energy transition, taking advantage of new opportunities for utilities to find value in distributed energy resources (DER), preparing for EV growth, and building smart cities.
Carbon Reduction
Deloitte expects both power and utility companies to “raise the bar on climate change goals in 2020.” While many utilities have set their own standards, a large motivation for the change is outside factors, including investors and shareholders who are increasingly asking companies to focus on their environmental footprint; the idea that “climate risk” may soon be incorporated into credit ratings and assessments; and insurers in the United States who are no longer underwriting new coal-fired power plants, as well as phasing out existing coverage.
“I believe it is a combination of many factors which are driving this and certainly it is the influence of customers, regulators, policymakers and other stakeholders — but also the declining costs of renewable energy, and more recently, storage,” said Scott Smith, vice chairman, U.S. Power & Utilities leader for Deloitte and author of the report. “We have, for a number of years, witnessed the declining cost of renewable energy, a growing investor base, and corporations with 100 percent renewable and decarbonization targets supporting the development of renewable energy projects.”
Smith also said that gas-fired power has become increasingly attractive because of the dramatic decreases in the price of natural gas.
Distributed Energy Resources
Deloitte also expects utilities to create value from distributed energy resource (DER) strategies in 2020. The report found that energy customers in residential, commercial, and industrial segments are looking to save money, use cleaner energy sources, ensure resiliency, and gain more control over the energy they use, “and utilities, especially those facing rising state renewable portfolio standards (RPS) and corporate carbon reduction goals, seek more flexible resources to help balance the growing supply of variable resources such as wind and solar.”
To do this, Deloitte believes utilities will begin the process by figuring out the specifics in 2020. This will include how to manage DER while also maintaining system reliability, ownership, how to compensate those owners, and how to secure the grid with an influx of DERs. In the coming year, utilities may find out if they will be allowed to own and rate-base DERs, and “they should also consider selling, installing, and maintaining DER as a potential revenue source.”
“DER will continue to expand with homeowners playing a larger part and it will be an increasing part of the energy mix,” Smith said. “The expansion of DER will only pick up speed as residential battery storage and vehicle-to-grid capabilities enable even greater integration and monetization of rooftop solar.”
New Technologies
Deloitte also expects power companies to explore new business models due to new technologies and changing customer preferences.
Deloitte expects utilities to work on programs that would enable or compensate customers to install rooftop solar, storage, and electric vehicle (EV) charging. The report found that these markets can increase customer participation (and therefore flexibility of the grid), but regulatory and market structures will need to be further developed to take advantage of the participation.
“Customers of utilities — be they residential, commercial or industrial — want more involvement in their power usage,” Smith said. “Homeowners want more real-time usage and other personalized information, often greater amounts of renewable energy and to be able to react in how and when they use energy. Utilities’ business models will need to continue to adapt to meet the expectations of all their customers recognizing customers’ expectations are formed in all other aspects of their technology-enabled world, such as banking, social media, and the like.”
Smart Cities & EVs
In 2020, Deloitte also expects to see utilities become a pivotal driver behind the creation and implementation of smart cities, as well as promoting the growth of EVs across the country.
Utilities are a natural resource for smart cities because they are connected to every home and business, they have databases of energy customer data that they can use to understand decisions made in a smart city, they can help municipalities incorporate clean energy goals into their smart city infrastructure, and they can help cities mitigate risk of natural and man-made disasters.
With 1.1 million EVs on the road today, and with an expected 21 million by 2030, utilities will be at the center of the electrification transition. Utilities have been exploring how to use the needed charging infrastructure to benefit the grid.
The plans for new EV infrastructure will be based on regulatory structure, according to Deloitte, but it will be a topic of conversation in 2020.
EVs will not be the only technology to make a major impact in 2020, and Smith said many different technologies will begin to play a larger and larger role in every aspect of utilities “as we move towards a more modern and digital electrical grid, customer-focused operations, and greater reliability.”
“A digital grid is an enabler to more renewables, enhanced reliability and improved operations. With this comes massive amounts of data, which utilities are only beginning to use across their operations,” he added. “An example would be wireless meters, that are not just reading customer usage but also understanding customer usage patterns, undertaking preventive maintenance, and having better information to plan generation. The customer-side equivalent is smart home technologies that can optimize energy use and demand response.”
None of the Deloitte predictions will be possible without initiative by governments and other regulatory bodies who will need to “change to keep up with the pace of change in the utility industry.”
“The focus should be on bringing forth innovative policies which enable a variety of objectives from the decarbonization of power, including a more technology-driven and reliable electric grid,” Smith explained, “as well as unlocking more value streams and grid benefits from DER.”
