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Disruptive technology reshaping utilities sector

London, 26 Sep 2016

Disruptive technologies are changing the way power is both generated and consumed in Europe.

Within a decade, a smarter, more flexible system underpinned by renewable energy and connected home technology is expected to emerge.

Decarbonisation, affordability and the need for a secure energy supply are all contributing to the way power needs are met across the globe.

The trend is being driven by three types of technology: distributed generation, big data and electricity storage.

"The utilities sector hasn’t really seen any major technology shifts for 50 years," says Macquarie Securities utilities sector analyst Dominic Nash.

"This is the first time we are going to see the consumer wanting to change how they operate. It will reshape the utilities sector."

It is not one single technology, explains Nash, but rather the combined impact of localised renewable energy generation, smart home devices and the arrival of battery storage via electric vehicles that will drive change.

The impact is likely to include a reduction in energy bills for consumers across Europe.

Utilities providers, meanwhile, are likely to face challenges because the traditional supply-driven business model of the centralised grid will be replaced by a new supply and demand driven network with millions of generation points.

Nash says it is hard to predict the extent to which this transformation will impact existing power stations. High voltage networks will undoubtedly be affected because the amount of electricity that flows through the high voltage grid will be reduced when a decentralised, local model comes into existence.

In the UK, the shift towards distributed generation and renewable energy has already begun with two thirds of coal, nuclear and gas-fired power stations set to close by 2030. The government has set binding targets to reduce carbon emissions by 80 per cent by 2050, meaning new and cleaner forms of energy are needed to meet domestic power demand.

This is the first time we are going to see the consumer wanting to change how they operate. It will reshape the utilities sector.

Governments continue to incentivise the rollout of low carbon power, which is disruptive to major utilities as it is increasingly generated at the point of consumption, rather than through a central grid.

The expansion of renewable energy sources such as rooftop solar has seen the percentage of installed power capacity outside of the high voltage transmission grid grow to 25 per cent in the UK. Macquarie forecasts this will rise to close to 30 per cent in the UK by 2020 and 37 per cent Europe-wide.

At the same time, consumers are being encouraged to take up connected home technologies that improve monitoring of energy usage to both conserve energy and drive down bills. By 2020, all UK businesses and homes are expected to have a smart meter installed.

Smart meters and the data they provide give a better understanding of demand patterns, allow utilities to better plan networks, and will see prices evolve into a supply and demand model where consumers take greater control of their power consumption.

Battery storage is also helping to manage the intermittent nature of some renewable energy sources.

Within five years battery technology is forecast to be commercially viable with electric vehicles becoming increasingly economical for consumers. In addition to the green and money saving benefits of owning an electric vehicle, consumers can store electricity in the vehicle battery and in turn use this to power their households.

Macquarie estimates that within 10 years eight per cent of the UK vehicle market will be electrified, which will be enough to see battery storage contributing 25 per cent of the UK's installed power capacity. This is expected to have a downward effect on power prices and could cause high generation assets to become obsolete as households will no longer rely on them for their power supply at peak times of the day.

Nash says growth of these disruptive technologies is a global trend that extends to utilities markets in countries including Japan and Australia. Within Europe, the UK and Italy are leading the way.

In five to 10 years time he estimates the UK could have up to 10 million power stations, all with small, localised distributed generation and complex demand and control networks.

"It is looking like it could evolve to a much more dynamic system," Nash says.

Find out more about Macquarie’s Research capabilities

For more information on the report "Fast forward to the 21st Century" (5 May 2016) contact Macquarie Research.