Much like the gameshow format, the 100 year model of utilities producing electricity and selling it to customers is beginning to look obsolete. Historically, when it came to energy, size was everything; think big energy, big networks and mega-mega-watts. But technology is allowing customers to break away from these traditional models and technology companies themselves are encroaching on the utility-customer relationship.
The future is 4D. Decarbonised, Decentralised, Digitised, Democratised. Or 5D, if you add demand destruction (6D?!). Let’s quickly look at these in turn.
Decarbonisation – Happening right now and policy, economics and consumer attitudes are increasingly supportive. Solar generation continues to set new records (check out Project Sunroof if the idea of a rooftop solar array appeals) and we have written about the UK’s strength in offshore wind
Decentralisation – Driven by decarbonisation. Across multiple geographies the expectation is for smaller scale generation to increase significantly, providing capacity which is not connected directly to the grid. Data exchange (see digitalisation) also enables this. One development on this front will be that increasingly, our cars will also be electricity network storage tools.
Digitalisation – Diversification makes integration critical. Fortunately, big data, analytics, sensors and the ‘Internet of Things’ are making managing the supply and demand balance easier. In other parts of the electricity value chain, digitalisation offers opportunities to improve asset productivity (e.g. predictive maintenance and drones for line maintenance), through to better service and insights into customer behaviour (e.g. e-billing and chatbots). Did you know that the UK has a ‘virtual’ power station? It does; and it comprises solar panels on customers’ homes with domestic storage batteries, remotely controlled by the utility (UK Power Networks in this instance).
Democratisation – Consumers are no longer mere users of electricity, they are more informed and can be electricity producers. Want a mobile app that will reward you for switching off your appliances during times of peak demand? No problem. And when you use it, points literally mean (actual cash) prizes. During a trial of its GenGame (!) with 2,000 customers, Northern PowerGrid found that the average household reduced its electricity consumption by 11% or 305 watts, during peak times. Some saved as much as 4.9kW by turning off hot tubs and tropical fish tanks.
Our energy landscape is being transformed; as investors we need to be careful we don’t underestimate the pace of change in this world of new energy.