Promising new smart technologies are enabling Power & Utilities companies to increase operational efficiency, defer investment in new power generation, improve customer service and employ the unprecedented amounts of big data they collect to improve business performance. Meanwhile, smart grid technology should further relieve capacity pressures by better balancing supply and demand. But there are significant barriers preventing smart grid implementation such as licensing, regulation and financing — and some companies are much better positioned than others to overcome these problems.
Impact of shale gas
Advances in exploration and production technologies over the past few years have increased access to unprecedented new supplies of shale natural gas in many parts of the world — resulting in a significant pressure on natural gas prices. And lower prices and increased demand for cleaner burning fuel have led, in turn, to a substantial increase in investment in natural gas-fired power generation projects.
Resiliency of power grids
As a result of a number of highly publicized natural disasters (i.e. Hurricane Sandy) and the ongoing threats to critical assets (i.e. cyber attacks) there is an increasing focus on efforts to enhance the resiliency of power grids. In addition, there is increasing pressure from customers for greener and more diversified power supplies. These trends are being addressed in a number of ways including:
- An increased focus on disaster recovery plans and cyber security systems.
- An increased focus on new transmission projects to extend access to additional power sources and improve redundancy in the grid.
- The emergence of the concept of ‘Microgrids’. A Microgrid is essentially a localized self-sufficient power supply (local generation, transmission and distribution) at the neighborhood level.
There are a multitude of issues arising from these trends including:
- How do regulatory policies need to change to accelerate and incentivize the build out of needed transmission?
- How do rate structures accommodate the build out of microgrids?
- Who pays for potentially stranded investment in infrastructure needed to service the legacy utility customer base?
- How do Utilities allocate capital among important competing projects?
- What new operating model approaches are needed to deal with the ever-increasing ‘black swan’ and cyber security threats?
Amid an environment of slow demand growth in developed markets and much needed infrastructure investment to upgrade or replace aging plants and build new capacity, Power & Utilities companies are facing regulations that could add significant costs to doing business. Major environmental statutes and emissions regulations — along with renewable portfolio standards — could all require increased investment in renewable energy.
New and evolving air quality regulations are forcing some providers to find financing for the decommissioning and replacement of their aging generation fleet — and to face difficult choices about the future generation mix. Certain countries need to replace aging power generation facilities and build new transmission and distribution infrastructure to enhance reliability and connect alternative energy sources. However, recovering the costs and managing the risks of these major projects remains a major challenge for many.
opportunities — and risks With a growing global interest in clean energy, some firms appear well placed to capitalize on their deep expertise in wind, solar, energy efficiency, smart grid and bio-energy.