Energy Industry Trends from 2018

The following report in available from TransForm here.

2018 is set to be a milestone year in the evolution of the electricity industry. Here are five energy industry trends that merit special attention.

Most of the tectonic forces reshaping the electricity sector fall into one of three categories—the "three Ds"—driving the global energy transition: decarbonization, decentralization, and digitalization.

Looking back at 2017 and the signposts ahead reveals disruptors that merit special attention. Here are five energy industry trends that are already having a significant impact this year.

1. Infrastructure Resilience Grows in Importance

Resilience of electricity production and delivery infrastructure has long been a concern. It became more pressing in 2017, as hurricanes devastated Florida, Texas, Puerto Rico, and much of the Caribbean.

In the US, the Federal Energy Regulatory Commission (FERC) initiated a new proceeding to explore resiliency issues in the regions covered by regional transmission organizations (RTOs) and independent system operators (ISOs).

In Puerto Rico, where pretty much the entire power system was destroyed by Hurricane Maria last September, it has taken months to restore supplies. On March 23, 2018, the USACE Task Force Power Restoration reached 93.63 percent power restored, according to the Eurasia Review.

Severe weather remains the cause of almost all major electricity disturbances. As such, rebuilding more resilient grids in areas affected by the 2017 hurricanes will be a top priority this year.

2. Cybersecurity Threats Continue to Mount

Cyberattacks have added to resiliency concerns. In February, the US Department of Energy (DOE) announced it was setting up an Office of Cybersecurity, Energy Security, and Emergency Response (CESER). In March, the FBI and the Department of Homeland Security issued an alert that Russian government hackers had been targeting multiple critical infrastructure sectors in the US, including energy and nuclear facilities, for at least two years.

A recent Utility Dive survey on the State of the Electric Utility reports that: "For the second year running, cybersecurity concerns topped the list of the sector's most-pressing issues . . . As utilities upgrade their systems to provide better grid intelligence and communicate more with customer devices, there are more ways than ever to launch a cyber attack against a utility."

3. The CPP Repeal Muddles the US Electricity Mix

There are a number of regulatory uncertainties in the US that may be keeping utility executives awake at night. One, the repeal of the Clean Power Plan (CPP), gets special mention in the Annual Energy Outlook (AEO), published by the US Energy Information Administration (EIA) in February.

The Environmental Protection Agency (EPA) is working on a replacement that would apply only to existing power plants. The details of that have yet to be announced, so its implications are unclear.

Despite the disappearance of the CPP, the EIA has changed its mind about the shares of coal, gas, and renewables in the fuel mix over the next two years. In the fall of 2017, the organization projected that, in 2018, coal would edge ahead of gas in the electricity fuel mix. It now projects that the share of gas in 2018 and 2019 will be 34 percent, with coal falling to 29 percent—underscoring the assertion that decarbonization is proving to be robust against policy reversals.

Even without the CPP, the AEO projects that coal-fired electricity generation will flatline in the long term, while gas-fired and renewable generation will climb rapidly. Renewables are helped by the unexpectedly steep decline in their costs. Meanwhile, utility-scale battery storage is expected to grow quickly, helping to manage the inherent intermittency of wind and solar power.

4. Solar Panels Could Hit Speed Bumps

The current US administration has sprung some policy surprises—such as import tariffs on solar panels—that risk unintended consequences. For example, the Solar Energy Industries Association(SEIA) has warned that the solar panel tariffs "will cause the loss of roughly 23,000 American jobs this year . . . and result in the delay or cancellation of billions of dollars in solar investments."

There are, however, some who feel that the SEIA is being pessimistic. The EIA began publishing estimates for small-scale solar photovoltaic generation capacity in 2016, and the latest data and forecasts project phenomenal growth, albeit slower than previously forecast. The EIA expects small-scale solar capacity to rise from 16,223 MW in Q4 of 2017 to 23,244 MW by Q4 of 2019. The organization also expects utility-scale solar to grow from 26,311 MW in Q4 of 2017 to 42,173 MW by Q4 of 2019. Again, economic factors are outweighing policy-related factors.

5. DERs and DSR Grow in Dominance

As the EIA projections underscore, the rise of distributed energy resources (DERs) and the increasing sophistication of demand-side response (DSR) technologies will continue. This is largely due to how they broaden consumers' options for sourcing and managing energy.

Two-way power grids are giving more and more consumers the opportunity to sell electricity they've generated themselves—from rooftop solar, for example—back to the grid. These energy producer-consumers are increasingly able to participate in wholesale energy markets through technologies like virtual power plants.

Electric utilities and system operators face major challenges in integrating all this new capacity into existing grids. Interestingly, Utility Dive's survey reports: "Utilities are keen to adapt their business models to take advantage of new technologies and market opportunities." Resistance, it seems, is giving way to acceptance.

6. The Digital Transformation Continues

There are signs that the energy industry is on the cusp of growth in the development of technologies such as big data, the Industrial Internet of Things, and even artificial intelligence. One technology causing a lot of excitement—not just in the electricity generation industry, but also in upstream oil and gas exploration and production—is the digital twin. These virtual copies of power plants and other industrial assets have already proven useful for predictive maintenance and training simulations.

In a recent report, the International Energy Agency (IEA) says that digitalization can increase flexibility and break down barriers between energy sectors, enabling four interrelated opportunities: smart demand response, the integration of variable renewable energy sources, the rollout of smart charging technologies for electric vehicles, and the facilitation of the development of DERs. But the IEA also cautions that digital resilience "needs to be included in technology research and development efforts as well as built into policy and market frameworks."

The energy industry is poised for transformation in 2018 and beyond. As a manager, the most important way to prepare for this change is to identify opportunities that these energy industry trends present—before they disrupt your business.