SANDER VAN GINKEL

JAMES M. MAZUREK

SIMON VARDY

The energy landscape is shifting fast, placing new demands on grid operators. Utilities must adapt to the new, but they are hamstrung by an outdated transport and distribution model of centralized generation and energy delivery that was intended to maximize economies of scale.

Every year, utilities invest billions in infrastructure that has a long life, but it also has consequences that linger. Utilities will be locked into a regulatory asset base that requires consumers to pay for the infrastructure for decades to come. This will become a misallocation of public funds and could require policy makers to step in and require forced write-downs.

2 SURVIVING SHOCKS TO THE SYSTEM

Today, proliferation of distributed energy resources (DERs) and other tools—e.g. smart thermostats, smart devices and appliances, lithium-ion batteries and rooftop solar—is creating cascading effects on future peak load. Change is happening quickly at scale. For instance, modeling shows that nearly 50 percent of all power generation in Australia will be local, on site in homes, business and communities by 2050.1

As the transition to more non-synchronous and intermittent energy generation occurs, the physical inertia of the power system reduces. This requires more stringent oversight and control, such as emergency frequency control schemes. This can only occur if grid operators know a great deal more about the adoption and characteristics of these DERs.

Managing, operating and maintaining grid and production assets will become increasingly difficult, as current investments do not factor in the volatility that is a hallmark of this new era of energy.

Conventional asset planning must align with what will happen in the grid. What will customers adopt—rooftop solar, electric vehicles, wind? At what pace will they adopt these energy sources—and at which specific locations in the grid?

Continuing to invest in redundant grid assets will drain value and deflect potential savings opportunities. For example, Accenture found that adoption of technologies capable of disrupting demand could drive down utility revenues by up to $48 billion a year in the United States, and up to $61 billion a year in Europe by 2025.2

3 SURVIVING SHOCKS TO THE SYSTEM

Distribution system operators and transmission system operators must shift to a business model that positions their organizations to pivot from a utility-oriented model to a customer- oriented model that puts energy consumers at the center of investment decisions.

Three trends are sending shockwaves through the energy system:

DECENTRALIZATION is shifting the ability to generate, conserve and distribute power toward individual actors and communities.

DECARBONIZATION is moving the focus to energy efficiency and low-carbon energy sources and technologies, with changing patterns of energy production and usage influencing the change in use and development of the networks.

DEMOCRATIZATION devolves power-over-power to a local level, often implying open-source governance and participatory regulation, with new technologies and business models expanding the democratic potential of energy.

4 SURVIVING SHOCKS TO THE SYSTEM

Although the future of energy production and consumption is uncertain, it is certain that current grid investment planning does not accommodate the future of energy.

Utilities are not keeping pace with effective integration of aggressive DER adoption and other energy technologies, and it’s hurting them in a variety of ways. For instance, 61 percent of utility executives report they expect significant or moderate revenue reductions as a result of distributed generation, compared to 43 percent last year.3 And 56 percent of utility executives expect a moderate to significant increase in grid faults by 2020.4 These faults can quickly lead to erosion of customer satisfaction and confidence in the utility.

It is clear: utilities must make smart investments fast—but how? It is nearly impossible to invest strategically because utilities lack a clear, localized view of adoption of solar panels, heat pumps, wind adoption, electric vehicles and other renewable energy sources. Understanding the location, type, controller settings, brand and model, and real-time energy statistics of DERs is only a starting point. Utilities must also know how these DERs can be managed, controlled and orchestrated to affect an outcome that materially reduces the need for network augmentation.

To plan the right investments, utilities must know—at a street level— the impact of adoption. Communities in the same city can have drastically different adoption patterns. In the case of one major European city, two neighborhoods with different customer segments have adoption rates that differ significantly from the national average (See Figure 1).

Bottom-up insights will reveal where investments should take place. For instance, are the homes on certain streets better suited for solar panels? Are some customers engaged in activity that suggests they are good candidates for solar panels? Consumer adoption is very localized and specific. Therefore, without a detailed view of various adoption patterns of renewable energy sources, utilities are placing bets in the dark.

5 SURVIVING SHOCKS TO THE SYSTEM

THE IMPACT OF NEW ENERGY TECHNOLOGY ADOPTION ON THE GRID IS A MAJOR UNKNOWN

FIGURE 1 COMPARISON OF EV USE IN TWO NEIGHBORHOODSDemographic drivers determine customer demand.

EV ADOPTION RATETherefore EV adoption differs significantly since willingness to pay differs per customer segment.

Neighborhood A Charging stations 49 Electric vehicles 54 Total vehicles 3,249

Neighborhood B Charging stations 2 Electric vehicles 3 Total vehicles 3,260

+400.0%

+273.3%0.42%adoptionNL

1.68%

0.09%

K B

Neighborhood ACharging stations 49Electric vehicles 54Total vehicles 3,249

Neighborhood BCharging stations 2Electric vehicles 3Total vehicles 3,260

1.67%

0.09%

0.42%

A COUNTRY B

Utilities that are unprepared are at risk for either overinvesting or underinvesting in their network infrastructure.

A recent proposal noted that a California utility could avoid $353 million in traditional infrastructure investment through deployment of alternative DER technology.5 In Europe, active system management in distribution networks can reduce the costs of integrating renewable energy by €5 to €15 billion between now and 2030.6

Investing in the wrong areas not only leads to potentially lost revenue, but it also puts the grid at risk for overload and failure. Bottom-up analytics and economic modeling reveal a clearer picture of energy impact from neighborhood to neighborhood, giving grid operators the insights they need to prevent disinvestments and optimize system-wide investments. The problem is, few have the capabilities needed to do so.

6 SURVIVING SHOCKS TO THE SYSTEM

HIGH RISK OF MISALLOCATING INVESTMENTS

POWER PLAYS To adapt to energy market disruption and prepare for the future, Innogy (formerly RWE), Germany's second- largest power generator, decided to separate its fossil fuel assets from its clean energy business.

The split is intended to allow the company to be more customer-centric and focus on "decentralization and digitization."7

At minimum, utilities must get the right data. Data can be analyzed to reveal patterns of adoption. In addition, more predictive analytics can be used to show the five, 10 and even 15-year horizon for energy adoption.

Utilities must develop or acquire the capabilities needed to conduct bottom-up analysis. Then, the analysis should follow these steps:

TECHNOLOGICAL TRENDS should be modeled and monitored using the key business drivers impacting speed and end-state of adoption.

SCENARIO ANALYSIS uses demographic and consumer behavior data as indicators for the pace and impact of local technology adoption. Scenarios can show the intersection of macro trends with local adoption analysis.

GRID IMPACT plots those scenarios on the grid to show long-term impact. Impact should be modeled based on grid age, asset type, capacity and overall grid infrastructure (See Figure 2).

ECONOMIC MODELING will help to optimize risk-based asset planning.

Bottom-up analysis allows utilities to make more data-driven decisions that enable both local and system-wide optimization, which is pivotal for future grid operators to remain competitive.

7 SURVIVING SHOCKS TO THE SYSTEM

PLANNING FROM THE BOTTOM UP

OPTIMIZING INVESTMENTS THROUGH BOTTOM- UP GRID PLANNING A major energy network company in Europe used a bottom-up strategy to manage the increasing complexity and uncertainty of the energy transition.

The company determined different scenarios by modeling and monitoring technological trends using the key business drivers and customer segmentation. They were able to translate macro adoption to micro adoption using predictive analytics and dispersion modeling. Then, based on expected adoption, they used load flow calculation to determine load profiles for each asset in the network—and understand if and when overloading might occur. With a view of the expected asset overloads per year, the business could conduct financial impact analysis, which provides insight for asset investment strategy and planning.

8 SURVIVING SHOCKS TO THE SYSTEM

FIGURE 2 IMPACT OF EV ON LOCAL GRID Local electric vehicle grid impact modeled by total adoption, charge profile and charge location

How many EVs?

With what charge profile?

=

+

+

+Are charged where?

With what local grid capacity?

Local grid capacity

Projected (EV driven) additional asset riskBaseload projected asset risk

Once utilities gain insights to help them know where to optimize, investments should not be standalone. All players in the energy system should step out of their silos, put their personal interests aside and work across the value chain to optimize the energy system as a whole— but current market frameworks are not set up for collaboration.

Retail energy providers and network operators suffer from split incentives and lack of coordination for the control of DERs. This is especially a problem in geographies where regulation requires strict unbundling between grid and commercial activities.

These barriers prevent progress. Accenture analysis shows that the European power sector could generate net savings of €27 to €81 billion per year if it supported Europe’s sustainability agenda with an optimized approach and integrated set of levers.8

Working together benefits customers. For instance, startups and new entrants are adding value to the grid by offering capacity services, ancillary services such as frequency and voltage control, and consumer services that allow customers to capitalize on grid connectivity. Reposit Energy in Australia allows customers to trade energy on the wholesale market—even selling power back to the grid when prices are highest—and also provides capacity services to grid operators.9

The challenge for grid operators is determining which new entrants ‘co-create’ value and which are real threats and could result in either grid defection or a move to change revenue models, resulting in reduced revenues for grid operators.

9 SURVIVING SHOCKS TO THE SYSTEM

ENERGY SYSTEM STAKEHOLDERS HAVE DIFFERENT—AND SOMETIMES COUNTERPRODUCTIVE—INCENTIVES

High investments in the wrong grid assets puts the utility at risk of some assets eventually becoming stranded, and it sends a message to customers that the utility does not have their best interests in mind.

To maintain relationships with customers and grow your business in the future, it is time to shift your strategy to better optimize investments to remain relevant and capture new value in the changing energy landscape. Next steps should be:

GET GRANULAR, BOTTOM-UP INSIGHTS on customer energy adoption. There is a dramatic shift in load pattern because of energy devices, apps, sensors, batteries, solar and adoption of all things that either consume power, produce power or store power. Capture the details on customer demand for factors such as renewable energy sources, charge/discharge cycles of electric vehicles and energy management. Map these insights onto the local energy infrastructure topology to gain a bottom-up, street-level view of the impact on the energy system.

DEVELOP CUSTOMER-LED SCENARIO PLANNING CAPABILITIES. Data-driven and predictive analytics capabilities will help you develop customer adoption scenarios, determine the relevant local investment options and optimize investment decisions across various levels in the energy system. A capability maturity assessment will reveal the gap between the current and required capabilities, which can be obtained by building, borrowing, buying or partnering.

MANAGE DERs. Determine how to value and orchestrate DERs through techniques such as location pricing, expanded capacity and ancillary services markets, and various demand response mechanisms.

10 SURVIVING SHOCKS TO THE SYSTEM

PIVOTING TO THE NEW ENERGY ERA

REIMAGINE NETWORK PLANNING. Network planning must be re-engineered to work on a more granular level that considers the bottom-up insights you have unearthed in step 1, and the scenarios you have developed in step 2. In lieu of traditional asset infrastructure options, seize the freedom to design your own—e.g. utilizing customer-owned DERs, offering customer incentives and using third-party aggregators.

CREATE AN INNOVATION ECOSYSTEM to exploit new value opportu-nities. Once you have the right insights, it is time to join forces with key stakeholders, including prosumers, cities and aggregators. Actively build an innovation ecosystem with participants from across the ener-gy value chain to optimize investments by exploring and capturing the value opportunities that the energy transition provides.

ADAPT YOUR OPERATING MODEL. New collaborations—whether with new entrants, regulators or customers—require new ways of working. Apply the learnings from the bottom-up insights and customer-led scenarios to shape the framework for establishing a new market model. Dismantling or re-establishing functions to enable scenario planning and other operational moves will influence a broader shift in the business model over time.

11 SURVIVING SHOCKS TO THE SYSTEM

Today’s shockwaves are forcing energy distributors to rethink how to move from being managers of the grid to becoming distribution platform optimizers that actively pursue asset and grid optimization, satisfying customers while taking advantage of new value opportunities. Will you be among them?

Sander van Ginkel sander.van.ginkel@accenture.com Amsterdam, The Netherlands

James M. Mazurek james.m.mazurek@accenture.com Chicago, Illinois, USA

Simon Vardy simon.vardy@accenture.com Melbourne, Australia

CONTRIBUTORS

Gregory N. Bolino gregory.n.bolino@accenture.com Detroit, Michigan, USA

Michiel Frenaij michiel.frenaij@accenture.com Amsterdam, The Netherlands

Jorn van Wijnen jorn.van.wijnen@accenture.com Amsterdam, The Netherlands

Ivo Wenzler ivo.wenzler@accenture.com Amsterdam, The Netherlands

@AccentureStrat

@Accenture_Util

www.linkedin.com/company/accenture-strategy

MEET THE AUTHORS

JOIN THE CONVERSATION

12 SURVIVING SHOCKS TO THE SYSTEM

NOTES1. Energy Networks Association; “Electricity Network Transfor- mation Roadmap;” published 2015

2. Accenture Consulting 2014 Digitally Enabled Grid Research

3. Accenture Consulting 2015 Digitally Enabled Grid Research

4. Ibid

5. Accenture Strategy client experience

6. Eurelectric and Accenture; “Forging a joint commitment tosustainable and cost-efficient energy transition in Europe”

7. Greentech Media, "Utility Spinoffs Continue: RWE FollowsE.ON and NRG in Separating Renewables from ConventionalPower," posted December 2, 2015

8. Eurelectric and Accenture; “Forging a joint commitment tosustainable and cost-efficient energy transition in Europe”

9. http://www.repositpower.com/

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