Is the utility business model dying? Global environmental movement a bottom-line threat
The shift to an efficient and low-carbon energy system could generate between $275 billion and $420 billion in new annual value for the global electricity utilities industry by 2030.
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Credit: Mario Ragma |
That is according to a recently released study by Accenture and CDP, which examines the sector's opportunities to grow and improve competitiveness while meeting environmental targets. The opportunities in revenue and efficiency outlined in the study are based on six areas that could drive business value for utilities.
According to the report, utilities can cut waste in power generation, develop low-carbon electricity sources, and install carbon capture and reuse technology. Further, the report points to opportunities in new energy-efficiency services, distributed generation, and the flexible management of electricity supply and demand through advances in storage and other technologies.
However, capitalizing on the opportunity would require the sector to transform its business models.
In particular, Accenture says utilities should consider decoupling electricity generation revenues from sales volumes, divest non-core assets and businesses, and form more cross-industry partnerships.
The report examines five business model pathways toward a low-carbon energy system and analyzes their environmental and economic value, as well as the capabilities utilities need to realize them, assuming a future scenario of limiting the long-term increase in the average global temperature to 2°C.
"The global response to unmitigated greenhouse gas emissions and water scarcity will put the existing electricity generation and supply model at risk and threaten the bottom line of utilities," said Peter Lacy, managing director, Accenture Strategy. "To sustain growth, improve competitiveness and drive business value, the industry must be ready to transform and take advantage of the business opportunities that arise from a low-carbon energy system."
The report identifies six emerging value pockets that are potentially worth $150 billion to $250 billion in saved and avoided costs, and $125 billion to $170 billion in new revenue per year worldwide in 2030. In total, this brings the potential value available to between $275 billion to $420 billion per year in 2030:
Broken down, energy-efficiency in power generation could create $40 billion to $60 billion a year from savings in operational and CO2 emissions costs.
Demand for energy-efficiency could generate $75 billion to $90 billion a year through providing energy-as-a-service. Electric utilities could offset losses from reduced demand by capturing a share of the growing market for energy-management products and services. This could be supplemented with rising demand for electric vehicles, which could generate an additional $40 billion to $60 billion a year.
Low-carbon power generation can create the largest opportunity of $110 billion to $180 billion a year. Revenues from renewable electricity would offset the losses from displaced fossil fuel generation.
Local distribution of low-carbon energy generation could drive $10 billion to $20 billion a year. Utilities could support local low-carbon generation by individuals, businesses or communities through products and services supporting solar PV, microgrids, or peer-to-peer renewable energy exchange.
More flexible management of the energy system, including the use of electricity storage to balance supply and demand, would reduce grid operating and balancing costs, potentially creating $40 billion to $60 billion of value a year. While this makes a modest direct contribution to emissions reduction, it can save more emissions throughout the energy system.
Carbon capture and reuse technology could create value through avoided emissions costs and drive the reuse of carbon-based products in industrial applications like cement production or agriculture. It will be worth up to $10 billion a year by 2030 -- increasing thereafter.
"The growing relevance of sustainability concerns in our daily life is opening up new opportunities for electricity utilities," said Jean-Marc Ollagnier, group chief executive of Accenture's Resources industry group and co-chair of the United Nations' Sustainable Energy for All committee on energy efficiency. "Clean energy sources present significant potential, especially considering the strong downward trend in costs, while energy-efficiency related services can be a game-changer in reducing emissions and generating new revenue streams. However, while utilities are well-positioned to take advantage of these opportunities, they need to make strategic choices now and shape the business model they will adopt."
Besides continued efforts by utilities to improve energy efficiency in power generation, the report contends the remaining value pockets can be achieved through commitments to five emerging business models: energy as-a-service provider; large-scale low-carbon energy generator; local clean-energy access provider; flexibility manager; and carbon capture and reuse operator.
"While utilities' strategies and timelines will vary depending on their current asset base, the local market and their regulatory environment, the transformation in the industry will be very significant," said Paul Dickinson, executive chairman and co-founder of CDP. "The opportunities are great, however. For example, utilities in China, Brazil and India can introduce clean generation capacity at enormous scale to support increasing demand and economic growth, while utilities in Africa could leapfrog, as they did with telephony, and skip the fossil fuel era by implementing a low-carbon energy system directly."
For more:
- see the
report
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