What is the most significant challenge facing the utility industry over the next five years?
Editor’s note: This executive summary comes from a report authored by DNV GL titled “Utility of the Future 2015 Report.” For the full report, click here.
The electricity sector today is characterized by significant potential for disruption and growth. Regulatory, technological, and consumer-driven changes are opening the market for innovative products and services. Revised regulations are facilitating greater physical and commercial access to the grid. Product cost reductions and performance improvements are prompting broader adoption of disruptive technologies — those that can open up new channels to market and enhance energy management. To take a snapshot of perceptions of and reactions to these changes, DNV GL conducted a second annual survey of electricity industry insiders. The results give unique and timely insights into the priorities, concerns, and expectations of utilities, system operators, equipment suppliers, policy makers, renewable providers and other stakeholders in the electricity industry.
The need for new business models is prompted in part by growth in distributed generation (DG) and adaptation to emissions regulations. Policymakers, utilities and independent power producers alike are looking to renewable DG, centralized renewable production and energy efficiency to support emissions reduction approaches in addition to other emissions control strategies. This places a new priority on clean energy technologies for the industry to develop products and services around. Furthermore, the success of photovoltaic solar (PV) in the industry illustrates the potential for novel DG-based business models in the electricity sector. Just under a third of respondents believe that net metering and DG interconnection will have the greatest impact in shaping the industry by 2020, followed by greenhouse gas (GHG) and emissions controls. Nearly a quarter of respondents believe that lack of clarity in national energy and environmental policies will be a significant challenge. Policies such as net metering, DG interconnection and emissions regulations will influence who and how clean energy products grow within the marketplace.
Last year’s survey saw the industry taking a proactive approach towards DG and evolving policy around energy and the environment. This optimism persists — over forty percent of this year’s respondents plan to take a proactive strategy towards new entrants in the DG space and over half plan to adopt new technology to improve operations or grow earnings more broadly. Many respondents expect to increase their product or service offerings. Energy storage and home automation systems are projected to see the greatest percentage increase between now and 2020, and DG and demand response (DR) management systems are projected to make up the greatest share overall.
However, in the midst of proactive adaptation, we see the potential for significant competition to come. Industry stakeholders have begun to position themselves to take on new business for growth opportunities or to hedge oncoming risks to their current business models. This year stakeholders indicated a slight increase in defensive strategies towards new entrants across the value chain. Furthermore, business models are now a priority. In the market we are beginning to see companies forge new partnerships and stake out new offerings. Industry regulars, like JustEnergy and Duke Energy, have formed partnerships to support distributed PV offerings for their customers. New players such as Tesla and ADT have launched energy products into the market.
Ultimately, customer demand for added value and willingness to pay for new offerings will determine whether innovative energy offerings will succeed. Industry stakeholders believe energy cost savings, increase reliability, and integration of renewables are the key services customers value. The question is whether and how providers can add value to customers and reduce cost of delivery, finding the margins to allow new business in an evolving landscape.
Filed Under: News
