How the Sharing Economy will transform the Electricity Industry?
A new report released by the World Economic Forum, The Future of Electricity: New Technologies Transforming the Grid Edge, finds that adoption of new ‘grid-edge’ technologies in OECD countries could bring more than $2.4 trillion of value creation for society and the industry over the next 10 years.
The report outlines the major transformations facing the electricity industry, as technology and innovation disrupt traditional models from power generation to beyond-the-metre energy management. Its findings point to three trends in particular that are converging to produce game-changing disruptions: electrification, decentralisation and digitalisation. These trends are presently at the ‘grid edge’ – smart and connected technologies at the end of the electric power grid. They encompass all of the major technologies – such as distributed storage, distributed generation, smart metres, smart appliances and electric vehicles – that are impacting the electricity system.
The $2.4 trillion of value would come from new jobs and reduction of carbon emissions derived from increasing the efficiency of the overall system, optimising capital allocation and creating new services for customers.
Rapidly falling costs of smart metres, connected devices and grid sensors will increase the efficiency of network management and, more importantly, allow customers to have real-time information about energy supply and demand across the system. The expected surge in adoption of electric vehicles could provide great flexibility to the grid in the shape of storage, but could also pose site congestion challenges, for example if a large number of electric vehicles wanted to recharge in a given geography at the same time.
In the same way that Uber or Airbnb have disrupted the transport and hospitality industries, respectively, grid-edge technologies could improve the utilisation rate of electricity infrastructure. The electricity system was built to meet peak demand, meaning that a significant portion of the infrastructure sits idle for most of the time. In the US, the average utilisation rate of the majority of generation infrastructure was below 55% in 2015. A decrease of 10% in peak demand could create up to $80 billion of value by increasing the overall utilisation rate of infrastructure.
For consumers, the rollout of grid-edge technologies will enable customers to take the centre stage of the electricity system. Under the right price signals and market design, customers will be able to produce their own electricity, store it and then consume it at a cheaper time or sell it back to the grid. Such a system will even allow peer-to-peer decentralised transactions.
Grid-edge technologies are at the tipping point of the adoption curve, and both industry and regulators need to prepare for digitally connected, distributed resources. California, New York, South Korea or the UK are already leading these changes.
Produced in collaboration with Bain & Company, the World Economic Forum gathered and analysed practical examples and best practices from mature electricity markets that can be replicated in other geographies. The principles of the actionable framework – required for action by both public and private sectors – and their corresponding recommendations are described below.
Redesign the regulatory paradigm
· Evolve the revenue model
· Integrate distributed energy resources (DERs) into markets and monetise their services
· Modernise system planning
· Use price signals by redesigning rate structures
Deploy enabling infrastructure
· Define the model to deploy enabling infrastructure that is flexible, open and interoperable
· Ensure customers and third parties can benefit from data generated by DERs and the digital grid
Redefine the customer experience
· Create a seamless customer experience by overcoming the complexity
· Shift the customer experience by combining multiple services
· Recognise sophisticated customer segmentations and tailor offers accordingly
Embrace new business models
· Shift business models towards alternative and complementary services
· Equip organisations with the new capabilities required in the grid-edge world
· Develop innovative financing schemes
“In this latest report, we focused on how countries could accelerate the deployment of new technologies and realise the economic and social benefits they deliver, including sustainability, security, reliability and customer choice,” said Roberto Bocca, Head of the Energy and Basic Industries, and Member of the Executive Committee at the World Economic Forum.
“The speed of adoption and the success in shaping the transformation depends on actions across regulation, infrastructure, business models and customer engagement. Those energy systems that fail to act will fall short of capturing the value of distributed energy sources, which increases the risk of leaving generation or network assets stranded and customer defection from the grid,” added Joseph Scalise, who leads the Americas Utilities and Alternative Energy Sector at Bain & Company.