By - Jim Vess

Four trends will reshape the global power sector, says GTM analysis

Energize Weekly, September 6, 2017

The global power sector is being transformed by four potent trends—decarbonization, electric vehicles, decentralization and extending energy access—according to an analysis by the cleantech marketing and consulting group, GTM Research.

“The power sector is constantly evolving, but rarely in modern history has it seen such rapid change as it faces today,” Shayle Kann, who leads GTM’s research group, wrote in an analyst’s note. “The interaction between technological, economic and political forces is catalyzing what could become the most dramatic transformation of electricity in the past century.”

The four trends driving change in the sector are:

  • Decarbonization—The electricity sector’s drive to reduce greenhouse gas (GHG) emissions as a response to climate change. This includes the rapid expansion of variable renewable energy, coal-to-gas fuel switching, solutions for intermittency and the evolution of new power market designs.
  • Decentralization—The conversion of the electricity grid from one built on centralized generation and a one-direction flow of electricity to a more localized and dynamic network incorporating distributed generation. It will also include technology and market developments for electricity customers and utility companies, new distribution grid hardware and software, and a new regulatory model for the power sector.
  • Vehicle Electrification—The global spread of electric vehicles (EVs) will impact fuel demand, electricity loads and power markets. The growth in EVs will also require new electricity rate designs and business models, as well as distribution grid planning.
  • Energy Access—The push to bring solutions to the 1.2 billion people globally who remain without electricity and ensuring reliable power to the many more areas where power blackouts are frequent.

“Driven by falling costs, increasing investor confidence, and policy support, renewable energy is beginning to transform the global electricity mix,” Kann wrote. “Wind and solar power now consistently account for more than 40% of new generating capacity additions, up from less than 10% through 2005. When hydro power is included, more than half of all new capacity worldwide today comes from renewables.”

The result of this trend will be a steady decarbonization of the sector as solar and wind rise to 30 percent of the global electricity generation by 2035, up from 5 percent in 2015, according to a carbon-constrained modeling scenario by consulting firm Wood Mackenzie. During the same time, coal’s share will decline by more than 50 percent, and natural gas generation’s share will peak in the early 2030s.

“This scenario portends a future in which power markets will need to adapt to increasing penetration of intermittent generation while maintaining reliability and low costs,” according to Kann. “It presents a growing need for flexibility on the grid, major roles for grid integration and high-voltage transmission, and strategic questions for incumbent generators.”

While the existing grid was developed as a centralized system to send electricity from generators to consumers, the emergence of more distributed energy resources (DER) scattered around the grid, along with an increase in detailed, real-time data, and the addition of communications and computer control, will change the way electricity networks operate.

“If successful, tomorrow’s grid could be a platform interconnecting millions of devices—power plants, DERs, consumers, aggregators and more—in a transactive, resilient, efficient network,” Kann said.

While electric vehicles represented less than 1 percent of new automotive sales in 2016, sales are growing and battery prices are declining so that EVs will come closer to the price of traditional internal-combustion cars in the 2020s.

If EVs to go mainstream they will create a “ripple effect,” Kann said. EVs will become the largest new source of electricity demand. Their presence on the grid will offer the ability to use their batteries as a grid resource, and require new tariff designs. The widespread adoption of EVs would also impact worldwide oil demand.

“But vehicle electrification remains a nascent trend, and the transition may not be smooth,” Kann cautioned.

The energy access issue is one that primarily focuses on the developing world where 1.2 billion people, with more than half living in sub-Saharan Africa, do not have access to electricity.

“Providing affordable, reliable energy to this population is widely recognized to be among the most formidable, and most important, development challenges today,” the GTM analysis said. “And the pace and manner in which energy access is provided to more of the population will have a dramatic impact on power demand, generation sources and GHG emissions.”

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