The future of electricity: New technologies transforming the grid edge

March 22nd, 2017, Published in Articles: EE Publishers, Articles: Energize

 

The electricity system is in the midst of a transformation, as technology and innovation disrupt traditional models from generation to beyond the meter.

Three trends in particular are converging to produce game-changing disruptions:

  • The electrification of large sectors of the economy such as transport and heating
  • Decentralisation, spurred by the sharp decrease in costs of distributed energy resources (DERs) such as distributed storage, distributed generation demand flexibility and energy efficiency
  • Digitalisation of both the grid, with smart metering, smart sensors, automation and other digital network technologies, and beyond the meter, with the advent of the Internet of Things (IoT) and a surge of power-consuming connected devices

This is an executive summary of the report

Click here to read the full report

These three trends act in a virtuous cycle, enabling, amplifying and reinforcing developments beyond their individual contributions (see Fig. 1). Electrification is critical for long-term carbon reduction goals and will represent an increasingly relevant share of renewable energy.

 

Fig. 1: Three trends of the grid-edge transformation.

 

Decentralisation makes customers active elements of the system and requires significant coordination. Digitalisation supports both the other trends by enabling more control, including automatic, real-time optimisation of consumption and production and interaction with customers.

Three factors fuel the potential for disruption by these grid-edge technologies:

  • Their exponentially decreasing costs and continuous technical enhancements
  • Their enabling role for innovative business models, built around empowered customers
  • The sizeable improvement to the asset utilisation rate of the electricity system, which is typically below 60% in the US; electric vehicles alone could add several percentage points to system asset utilisation.

Together, these grid-edge trends pave the way towards a system where traditional boundaries between producers, distributors and customers are blurred, increasing the complexity of system governance. Customer preferences and expectations are shifting towards fewer carbon emissions, greater choice, real-time interaction and sharing, always-on connection, higher transparency, experiences and learning opportunities through services more than products, better reliability and security.

Drawing parallels to the media industry and the internet revolution, it is possible to expect that customers will participate differently than before. The role of the grid is evolving beyond supplying electricity and becoming a platform which also maximises the value of distributed energy resources.

Revenue models will see a smaller share of income derived from centrally-generated electrons, but could be compensated by revenue from new distribution and retail services. Individual customers will be able to select the technologies of their choice, connect them to the grid and eventually transact with other distributed and centralised resources.

This smarter, more decentralised, yet more connected electricity system could increase reliability, security, environmental sustainability, asset utilisation and open new opportunities for services and business (see Fig. 2).

 

Fig. 2: The future energy system will provide additional roles for the grid and incorporate many customer technologies.

 

By increasing the efficiency of the overall system, optimising capital allocation and creating new services for customers, grid-edge technologies can unlock significant economic value for the industry, customers and society. Previous analysis by the World Economic Forum has pointed to more than $2,4-trillion of value from the transformation of electricity over the next ten years.

Society will benefit from a cleaner generation mix, net creation of new jobs related to the deployment of these technologies and a larger choice for consumers. Grid-edge technologies can also improve social equity by creating value for low-income segments of population. Under the right regulatory model and targeted innovative business models, low-income households could participate and benefit from the value created by grid-edge technologies.

Worldwide, several grid-edge regulatory innovations showcase the change taking place, including New York’s Reforming Energy Vision initiative, Jeju Island’s Carbon Free Island initiative, the UK’s RIIO regulation and the European Commission’s Energy Winter Package.

There is also change in the private sector, with new cross-sectoral partnerships to deliver the enabling infrastructure and company reorganisations to develop new business models.

The adoption rate of these grid-edge technologies is likely to follow the typical S-curve seen with previous technologies such as TVs, domestic appliances and the internet (see Fig. 3). It has always been difficult to accurately forecast when technologies reach their tipping point and spread at an exponential pace. However, in the past few decades the time to reach the point of mass adoption has decreased to about 15 to 20 years.

 

Fig. 3: Time for technologies to reach 80% penetration.

 

It is worth noting that the system faces a great risk of value destruction if it fails to capture the benefits of distributed energy resources, which could result in stranded network assets and eventually customer defection from the grid. This risk represents one more reason to identify and take the most effective action to accelerate the transition and make it cost-effective. The Forum believes this transformation is inevitable and that status quo is not an option. The key issues are, therefore, how the public and private sectors can successfully deal with it and shape it.

An efficient transition towards this new electricity system faces four main challenges:

  • Electricity is still largely perceived only as a commodity, making customer engagement in new technologies a costly and difficult endeavour.
  • The current regulatory paradigm hinders distributed resources from providing their full value to the system.
  • Uncertainty around rules prevents key stakeholders from deploying enabling infrastructure that could complement the grid as the backbone of the future electricity system.
  • Some segments resist a cultural change towards a different allocation of roles and new business models.

The Forum’s recommendations, formed after assessing practical examples and best practices in mature markets, fall into four categories:

  • Redesign the regulatory paradigm: Change the rules of the game, advancing and reforming regulation to enable new roles for distribution network operators, innovation and full integration of distributed energy resources.
  • Deploy enabling infrastructure: Ensure timely deployment of the infrastructure to enable new business models and the future energy system.
  • Redefine customer experience: Incorporate the new reality of a digital, customer-empowered, interactive electricity system.
  • Embrace new business models: Pursue new revenue sources from innovative distribution and retail services, and develop business models to adapt to the fourth industrial revolution.

Grid-edge technologies offer the potential for an exciting transformation of the electricity industry, one that creates more choice for customers, greater efficiency, more efficient decarbonisation, and better economics for stakeholders across the value chain.

By following the recommendations in this report, policy-makers, regulators and private enterprise can work together to secure the positive changes they offer to electricity markets worldwide.

Acknowledgement

The executive summary of this report is republished here with permission.

Click here to read the full report

Send your comments to energize@ee.co.za

 

 

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