Charles Darwin is attributed as having said, “It is not the strongest or the most intelligent who will survive, but those who can best manage change.” Electricity systems around the world are rapidly changing. Renewable energy sources (primarily, wind, water, and solar) and storage systems (in the forms of batteries and hydrogen) are disrupting the traditional utility model that has operated for over 100 years.
By 2040, renewable energy sources will account for 30% of world electrical supply, according to BP Energy Outlook 2019. Economically disruptive, new energy sources include flexible demand, distributed energy generation, energy storage, and smart-grid, digital-control technologies. These factors collectively create new options for the provision and consumption of electricity services, regardless of jurisdiction. They cause utilities and distribution companies, large and small, in Canada and internationally, to reconsider their entire business model, which is historically predicated on economies of scale rather than on economies of scope and wider competition.
The right strategy to pursue depends on multiple factors relevant to jurisdiction. For example, those with primarily fossil-fuel-based generation could be facing a devaluation of assets―coal-fired, especially. Those with aging and "past-due-date" transmission and distribution infrastructure face the conundrum of choosing between lower cost "like-for-like" replacement and higher capital cost, lower operating cost smart technology. These are game-changing decisions that could transform those with minimal generation capacity into distributed energy producers.
Germany, one of the leading economies to embrace renewable power generation, illustrates this challenge best. Two of the country's largest integrated utilities completely changed their structures in 2016, due to the rapid deployment of renewable energy to mitigate the impact of Germany's increasingly stranded fossil-fuel and nuclear-generation assets.
Similar effects, both positive and negative, are seen in North America, with utilities like NextEra Energy embracing renewables and NRG Energy retreating from them. In jurisdictions, such as Ontario, where local-distribution companies (LDCs) are mostly downstream of producers, they can now become producers―along with their customers with distributed-energy resources (DERs), such as rooftop solar systems. Whether such DERs are grid-tied or paired with battery storage, behind the customer's meter, this challenges the traditional role of the LDC―both with its main supplier and its customer.
Utilities that do not embrace these changes run the risk of being seen as laggards or, worse, increasingly obsolete to their customers. However, those that do transform can achieve growth with innovation―new business models and strategies that adapt to rapidly changing customer and market needs.
As power increasingly shifts to consumers, utilities will need to face key challenges head-on.