It should come as no surprise that the energy sector is undergoing a period of massive transformation. Over the course of the next 20 years, the power sector will experience a tremendous revolution, with a number of trends shaping the way in which consumers power their homes.
Coal Power Continues to Decline
Perhaps the single most noticeable trend within the energy sector is the steady decline of coal power as more and more coal-fired power plants enter retirement. Many such retired plans have faded away as historically low natural gas prices have made them unprofitable. Environmental activism has also played a strong role in nudging coal-fired power plants into retirement, as green groups have partnered with other interests to push for clean resources and renewables rather than coal.
Natural Gas Continues to Grow Rapidly
The loss of coal could prove to be a gain for natural gas in the very near future. As regulations and market conditions force the retirement of coal generators, utility companies are beginning to turn to gas plans for reliable capacity. Solar and wind are growing at a rapid pace. However, at the moment, they still represent only a small percentage of the power mix, as they are only able to generate electricity in limited weather conditions. Utilities interested in facilitating the integration of such resources will find that a combined plant offers a relatively inexpensive and quick way to do so.
Renewables Achieve Grid Parity
For quite some time, critics argued that renewable energy simply wasn’t feasible as it was not cost effective. Today, that line of reasoning no longer holds true. In fact, in many regions of the world, solar and wind have begun to achieve grid parity. In fact, such renewable forms of energy are often able to out price more traditional generation resources. The financial firm Lazard released a study analyzing global energy costs and found that both solar and wind are actually quite competitive in terms of cost with traditional generation technologies without the assistance of subsidies. Furthermore, the study concluded that such renewable resources face fewer market uncertainties and regulatory challenges than do clean coal plants.
In many regional markets, wind energy is also experiencing growth. This is often attributed to inexpensive wind, combined with natural gas, which has pushed many older coal and nuclear plants into retirement as they become increasingly unprofitable. As a result, many utility companies, including AEP and Exelon, are asking ratepayers to support older nuclear and coal plants. Analysts believe that the price for wind will continue to decline, particularly as the blades on wind turbines become longer. This trend could open up areas that have been previously undeveloped to wind growth.
Utilities Enter the Solar Sector
Due to increasing consumer demand for clean energy combined with a trend toward more load defection, more utilities are now making the decision to transition into the solar industry. Among the most common strategies for making this transition is forming an unregulated renewables development. More and more utilities are also now seeking out ways they can enter the rooftop market.
More Utilities Look toward Storage
With more utilities looking for ways to integrate renewables and optimize distribution grids, energy storage is emerging as a promising technology. For many years, analysts have predicted that massive, grid-scale batteries held the potential to provide a host of grid services. When combined with solar and wind, such batteries could help smooth out the challenges of variable generation while storing power to be used later. Battery fleets could provide a reliable resource for demand response while simultaneously offering backup power and even helping with many other grid functions, such as voltage control and frequency regulation. This is precisely why Utility Dive named storage a top emerging technology.
Some utilities are already making progress in grid-scale storage. PG&E has successfully integrated the first customer-sited storage systems in California, while the Kauai Island Utility Cooperative in Hawaii has announced the formation of a deal with SolarCity for the purchase of dispatchable power from a storage facility. That agreement will make it possible for solar to be used to charge a 52MWh battery. The resulting power will be discharged during the evening peak demand period.
An increasing number of utilities are now utilizing a pay-per-need approach. In this approach, a specific amount of power or capacity is purchased from an independent energy storage provider. This approach generally works best for those companies that are willing to form arrangements based on the amount of storage that is most likely to be used or that have predictable needs. The first company to announce this type of pay-per-need agreement was Southern California Edison, which formed a partnership with Advanced Microgrid Solutions and Stem to use BTM lithium-ion batteries in a number of sites. This arrangement would allow both grid and local distribution to be adjusted during peak as well as off-peak periods.
Co-Buying Becomes a New Standard
An increasing number of utilities are also now beginning to venture into co-buying. Among them is Eneas, one of the leading players in the Scandinavian energy services and brokerage industry. By taking advantage of professional leverage, Eneas has been able to obtain a number of energy agreements for its small to medium-sized corporate customers that are typically reserved for much larger organizations. Such agreements benefit from electricity market knowledge as Eneas appoints the best possible partners for physical deliveries and hedging. Eneas’ model combines predictability through maximum price guarantees and performance through hedging strategies that are adapted as market conditions change. This is accomplished by evaluating when to commit to prices, including for how large a share of volume as well as for how long by assessing market developments, as well as the price situation in relation to both the short and long term. When market prices drop, savings are passed on directly to customers. As a result, customers are able to benefit from the best energy management environments in the market, effective energy cost control, competitive terms for energy supply, and predictable budgeting. Read more on Eneas’ blog.