https://deloitte.wsj.com/cio/2020/02/06/2020-power-utilities-industry-outlook/
2020 Power & Utilities Industry Outlook
The power and utilities industry may see significant opportunities to take a leadership role in the clean energy movement. Companies embracing the trend can position themselves for growth in the new decade.
Power and utility companies are not only increasing their commitment to decarbonization but they are also assuming a leadership position in facilitating a transition to new power sources, according to Deloitte's 2020 Power and Utilities Industry Outlook. Those efforts are expected to intensify in 2020, bringing new opportunities for customer engagement and growth.
This year is expected to bring increasing opportunity for power companies to create value as a catalyst in the clean energy transformation, whether that means building grid-scale wind farms and solar plants or providing distributed solar, storage, and electric vehicle (EV) charging infrastructure.
In 2019, renewable sources of energy surpassed coal-fired generation as a means of U.S. electricity production for the first time, according to the Federal Energy Regulatory Commission. Driven by growing corporate commitment, declining prices, and supportive policies, wind and solar capacity continue to rise.
Despite the transition to renewables, the industry still faces ongoing challenges with record-breaking capital expenditures amid flat load growth, an ongoing pattern expected to continue into 2020. The industry continues to upgrade aging infrastructure, digitize operations, and secure the grid against natural disasters and cyberattacks. While electric power pricing has experienced upward pressure, retail electricity customers are seeing only modest increases because of low natural gas prices and declining prices for renewables.
Sustainability Evolves
Last year, several power companies announced significant commitments to reduce carbon, and that trend is expected to continue in 2020. Technological improvements have made the transition more feasible, and customers and investors are demanding it.
In fact, investors appear to be mobilizing around climate change issues, and that may affect a growing number of power companies this year. Investors are asking companies to analyze how pursuing policies that limit the global average temperature rise would affect their businesses, according to a report by Ceres.
Investors give more credence to climate change in deciding what shares to buy, says the London School of Economics, while the warming of global temperatures is regarded as one of the most significant environmental, social, and governance issues for shareholders, according to Pensions & Investments.
"Utilities have vast data on customers and their energy use, and that information can help cities incorporate clean energy goals into smart city plans."
The Deloitte Resources 2019 Survey indicates electricity customers—whether residential, commercial, or industrial—share common goals to reduce cost, use cleaner energy sources, ensure resiliency, and gain greater control over their energy usage. Similarly, utilities want to shave peak demand, avoid the cost of new generation and transmission construction, and further engage customers.
Distributed energy resources (DER) achieve many of these objectives. Utility planners are actively exploring how to manage DERs while maintaining reliability. They are also investigating who is likely to run these plants, how the facilities can be used in emergencies, and how the plants can be aggregated and secured.
Pursuing New Path to Growth
Evolving technologies, customer preferences, and the competitive landscape are prompting business-model changes for some power companies. New models often further enable a transition to clean energy; in some cases, power companies may also find new sources of revenue.
Community choice aggregation (CCA) programs, for example, allow communities to choose their electricity and natural gas sources and aggregate procurement. A handful of states had approved CCA programs by late 2019, and several more are considering them. The focus for CCAs so far is reducing electricity cost for customers while also reducing greenhouse gas emissions and creating local jobs.
Blockchain applications are being explored as a means of enabling customers to create value through rooftop solar and energy storage. EV charging and eventually vehicle-to-grid transactions may be possible. Such markets are seen by some observers as a way to incentivize customer participation while also increasing grid flexibility.
The further development of smart cities in 2020 is also set to drive growth and transformation for power companies. Utilities are expected to increase their involvement with smart city initiatives because they are a foundational player with connections to every home and business. Their equipment and devices can be harnessed for other purposes, such as detecting leaks or hosting sensors or cameras.
Utilities have vast data on customers and their energy use, and that information can help cities incorporate clean energy goals into smart city plans. Utilities also can help increase resiliency to natural and manmade disasters through digitization and automation of backup power sources, such as battery storage and microgrids.
Not all utilities are actively involved with smart city initiatives. Some are assuming only support roles or no role at all. That raises questions about whether they may be missing or losing opportunities to nontraditional suppliers.
Electrification of Transportation
EVs are expected to drive significant change in the power industry. More than 1 million EVs are on U.S. roads currently, and that number is projected to rise to 20 million by 2030, according to research by Navigant. The growth is not just in passenger cars but also in delivery trucks, transit buses, and school buses.
With the surge in EVs, load growth is a given. Utilities are expected to continue to invest in charging infrastructure and to manage EV load growth in high-adoption areas. The imperative is to shift EV charging away from peak electricity demand periods to avoid adding costly new capacity.
Moving forward, the power industry will face some of its most significant challenges not only in transitioning to clean energy while keeping costs in check, but doing so while managing growing cyber risk, justifying new investments to regulators, improving grid resiliency, and raising the bar on customer experience.
—by Scott Smith, vice chairman, U.S. power and utilities leader, Deloitte LLP
PUBLISHED ON: Feb. 6, 2020 3:00 pm ET
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