Daily Times

Some new and disruptive business forces are rendering the traditional electric utility business model obsolete and it may not serve adequatelyto accomplish our government’s strategic goals in the power sector. It is, therefore, imperative that the electricity supply and delivery business in the country be recast along a more dynamic, flexible, and innovative lines to embrace the emerging new realities. The risks of not acting timely and effectively could be serious as well as expensive, and may also be very difficult to correct later.

Four major developments in the world’s energy market have fundamentally altered the electric utility business,and are raising serious questions about the continued viability of the traditional way of doing this business.

First, the recent technological strides and cost reductions in the renewable electricity generating technologies, particularly photovoltaic (PV) modules and wind turbine generators (WTGs), have brought the power generation costs from these systems to a competitive level with those fromconventional power generating technologies.

According to a press release from International Renewable Energy Agency (IRENA), in the power sector alone, 94 GW of new photovoltaic (PV) capacity was added during 2018 bringing the total worldwide installed PV capacity to 480 GW. Similarly, 49 GW of new wind capacity was added during 2018 bringing it to a total of 564 GW.

Cost of electricity production from solar PV systems has fallen by 80 percent and that from wind systems by 50 percent since 2010. IRENA estimates that, for projects due to be commissioned in 2020, 77 percent of the onshore wind and 83 percent of the utility-scale solar PV project capacity will have electricity prices lower than the cheapest fossil fuel-fired power generation options for new generation.

According to New Energy Outlook 2018 from the international research firm Bloomberg New Energy Finance (BNEF), overUSD 11.5 trillion will be invested worldwide in renewables between 2018 and 2050, largely on solar and wind systems. BNEF estimates that two-thirds of this investmentwill go to the power sector alone, raising the contribution of these systems to 40 percent of the total electricity generation in the world by 2040.

Four major developments in the world’s energymarket havefundamentally altered the electric utility business,and are raising serious questions about the continued viability of the traditional way of doing this business.

Second, similar developments in the electricity storage technologies have made it possible for residential and other small consumers to opt for photovoltaic systems for meeting their electricity demands, either bypassing the local electric utility’s gridentirely or using it only as a backup to cover times when power from their own facilities is either unavailable or uneconomic.

Prices of smaller battery packs (used mainly for electric vehicles, EVs,and stand-alone applications) have fallen from USD 1,000 in 2010 to below USD 200 per kWh last year. The costs for utility-scale storage batteries (lithium-ion) have also followed a similar trendand have dropped by 76 percent since 2012. A number of R&D efforts are currently underway around the world aiming to reduce the costs and enhance the capability of electricity storage technologies even further.

According to BNEF’s Energy Storage Outlook 2019, energy storage installations worldwide are expected to grow exponentially from 9 GW in 2018 to over 1,000 GW by 2040, a 122-fold growth requiring USD 662 billion of investment. This will be made possible by sharp declines in the cost of battery storage systems which already have seen an 85 percent reduction in the past decade.

Third, the rapid inroads being made by electric vehicles (EVs), and in particular plug-in hybrid electric vehicles (PHEVs),in the transport sector, especially in developed countries, are significantly impacting electricity demand. It is only a matter of time when these electrically-driven vehicles start penetrating the developing countries’ markets, including that of Pakistan.

In the past 5 years or so, EVs have made spectacular inroads in the transport sectors of many developed countries and even some developing countries, notably China and India. By December 2018, EVs’ total stock in the world stood around 5 million from what was just below 0.5 million in 2013, a growth of 58 percent annually.

Global EV sales crossed two millions last year, a rise of 67 percent from 2017, with China alone seeing over one million electric car sales. In terms of EVs’ share in total car sales in 2018, Norway topped at 49 percent, followed by Iceland (19 percent), Sweden (8.2 percent), Netherland (6.5 percent), Finland (4.7 percent), and China (4.2 percent). The global ratio between EVs and PHEVs that was 56:44 in 2012 rose to 69:31 in 2018.

Electric Vehicle Outlook 2018 from BNEF predicts that EVs will represent 55 percent of the world’s new light-duty vehicles sales in 2040, some 41 million cars. International Energy Agency (IEA), under its Electric Vehicle 30@30 Initiative assumptions, estimates total light-duty electric cars stock to exceed 220 million by 2030. The stock of 2- and 3-wheelers and commercial EVs will be extra.

Fourth,the advent and deployment of intelligent and smart-grid technologies-abroad mix of information and communication technologies (ICTs) being used to modernize the electricity system-are making it possible for both consumers and utilities to exercise greater flexibility and control over the demand as well as supply.

EVs have made spectacular inroads in the transport sectors of many developed countries and even some developing countries, notably China and India

Customers now can use smart sensors and control equipment to manage their own demand to minimize their electricity bills as well as offering some this demand response capability back to their electric utility to cut their own electricity bills, and in some cases, even to earn extra money.

Intelligent and smart-grid technologies are also enabling the utilities to monitor their systems in real time to avoid malfunctions, operate these systems much closer to their physical limits, and derive the most value from their existing assets.Smart-grid technologies are also enabling utilities to respond more efficiently and effectively to deal with systems disturbances and deliver service to their customers more reliably, with better quality, and in innovative ways.

Collectively, the above trendsare being termed “disruptive forces”by industry analysts because these are challenging the fundamental principles of the traditional electric utility business.Some have been quick to even predictthat these forces may be drifting the traditional electric utilities into a “death spiral”. This is because, to recover their capital investments in supply facilities, electric utilities need to raise rates; what they are finding to their dismay is that it actually leads to shrinking of their revenues as more and more customers start seeking alternative to the electricity grid.

While the above forces are altering the electricity business landscape in unprecedented ways, posing numerous risks and challenges, these are also unlocking numerous opportunities for electric utilities. Governments and utilities are discovering that by aligning their legal and regulatory frameworks and business approaches with the emerging new trends and by deploying some new enabling technologies(ICTs) in the transmission and distribution grids, they can actually convert these risks and challenges into gainful opportunities for them.

The writer is a freelance consultant, specializing in sustainable energy and power system planning and development. He can be reached via email at msrahim@hotmail.com