For many electric power companies, leading the economy-wide transition to lower carbon, cleaner energy sources starts close to home. As capital markets and other stakeholders organize around climate change issues, many power companies are raising the bar on their own environmental, social, and governance (ESG) goals. In 2019, approximately 50 US electric power companies committed to significant carbon reduction goals. And the list continues to grow.
Why? In many cases, technological improvements, customer demand for cleaner energy sources, efforts to keep customer bills low and to respond to climate science are driving action. Pressure from capital markets, including investors, credit rating agencies, shareholders, and insurers is also driving ESG goals. The same pressures are impacting companies across other industries as well and causing them to focus more closely on ESG goals too, as discussed below.
Another trend we see in the power sector is the growing opportunity to create value through distributed energy resource (DER) strategies. DER can engage and benefit customers while providing flexibility to the grid. Resources such as distributed solar, electric vehicles, energy storage, and demand response can help utilities balance the variability of increasing wind and solar output on the grid. They can also help utilities meet renewable mandates, achieve decarbonization goals, shave growing peak demand, avoid costs of building new generation and transmission, and engage customers.
For electricity customers, DER can help them save money, reduce carbon emissions, become more resilient, and better control their energy use. Utility planners are exploring how to manage DER while enhancing reliability, as well as who will own these resources, how to value them, and more.
The power industry continues to explore new business models that could provide fresh revenue opportunities against a backdrop of rising costs, sluggish demand growth, new technologies, and an increasingly competitive landscape. For example, SMUD is offering program design and implementation services for Community Choice Aggregation programs to help customers save money and reduce carbon emissions.Other utilities are exploring transactive energy models using technologies such as blockchain to enable customers to reap value from rooftop solar, storage, managed EV charging, and eventually vehicle-to-grid transactions.
Electric power companies are also seizing opportunities to help build cleaner, smarter cities.
In many US cities, utilities have already installed smart grid infrastructure such as connected and automated devices and technologies for meter reading, system monitoring, and predictive and preventive maintenance. The logical next step is to use their expertise, experience, and technology investments to advance their community’s smart city initiatives. Whether it’s smart, connected EV charging stations, solar parking canopies, smart street lighting, or sophisticated security monitoring—utilities can help create value for their customers, communities, and shareholders by participating in smart city programs.
And finally, the electric power industry sees significant potential in the transportation sector, which accounted for 28 percent of US energy use in 2018, while it was less than 3 percent electrified. The 1.1 million electric vehicles on US roads today is expected to rise to 20 million by 2030, and 63 percent of organizations recently surveyed by Deloitte have transportation fleet electrification plans. And it’s not just cars. Orders for electric delivery trucks, transit buses, and school buses are mounting fast too. These growing fleets of cars, trucks, and buses could deliver both load growth and additional flexible resources to provide demand response and grid services.
Utilities see opportunities for growth in building, maintaining, and operating charging depots with distributed generation and on-site storage to provide resiliency—which could require billions of dollars of investment throughout the 2020s.
Other industries’ clean energy goals increasingly fuel opportunities for the power sector
As the power industry pursues the above opportunities – they’re further reinforced by requirements of electricity customers striving to meet their own ESG, and particularly clean energy, goals. A recent Deloitte survey of over 300 US-based organizations across the private and public sector captured insights from respondents in eight industry groups: Industrials, Manufacturing, Health care/medical, Banking and financial services, Technology and Telecommunications, Consumer Products and Services, Education and Government, and Other Services. The vast majority of respondents has clean energy and/or climate change-related goals and the group identified “coordination with our electric utility” as the top external enabler for their progress toward these goals.
More than two-thirds of survey respondents reported having concrete goals to boost the renewable (44.8%) or clean (24%) energy share of their electricity use. In addition, more than a quarter reported goals to reduce their carbon footprint (28.2%) or cut greenhouse gas emissions (25.3%), goals that often involve using more renewable energy. In all, nearly 60 percent of those surveyed without specific renewable or clean energy goals said their other energy-related goals could cause them to boost renewable energy use.
Organizations typically follow three steps in the renewable energy transition – and electric power companies can help with all three:
- Reducing electricity demand
- Increasing renewable share in the energy mix
- Electrifying new end uses (e.g. transportation, heating and cooling, and industrial processes) and powering them with renewable energy
Power companies can also play multiple roles to help organizations reach their clean energy goals. These include “resource provider” by boosting clean energy supplies, “influencer” by advocating clean energy policies, “ally” by partnering with others in the ecosystem to expand the renewable energy transition, “mediator” by acting as middleman in renewable energy deals, “performance enabler” by helping to improve renewable project economics for other investors, “value-add enabler” by enabling customers to use DER to provide new grid services, and “integrator” by coordinating and controlling customer-owned DER to maintain system reliability. As we move into the new decade, we expect to see electric power companies continue to expand into these areas, with some moving toward the energy-as-a service (EaaS) model by providing solutions to customers based on their energy and sustainability goals.
For more on these trends, see Deloitte 2020 power & utilities industry outlook.