The power sector is undergoing a fundamental transformation, from a centralized hub-and-spoke grid architecture, based on large centralized generation assets like coal-fired power plants, toward an increasingly decentralized electrical grid that makes use of renewable, distributed energy resources (DER). This shift away from traditional power plants encompasses a diverse suite of technologies that go beyond DER. Energy storage, energy efficiency, demand response, and the advanced software and enabling hardware that enable greater interoperability across heterogeneous grid elements are all key components of the emerging energy cloud.
Organized to help manage supply and demand across the grid, the energy cloud shares many characteristics with cloud computing. As with the IT cloud, these dynamic networks can enhance the efficient allocation of distributed energy resources (DER) – including solar, wind, and energy storage systems – across a broad customer base. This can assist these relatively expensive technologies in gain market share in the electrical grid and take advantage of economies of scale, while also making more efficient use of the electrons flowing across the system. At its most basic level, the energy cloud allows consumers to actively participate in the generation and utilization of electricity. This shift represents a powerful disruptive force for utilities, but opportunities abound for proactive utilities to capitalize on the emerging energy cloud.
Quantifying the Energy Cloud Disruption
While it’s difficult to measure the impact of the energy cloud precisely, the impact is significant. Theoretical estimates suggest that as much as one-third of the U.S. utility market could be impacted directly by DER by 2017, assuming current tax and regulatory policies. In a recent white paper, “The Rise of Distributed Power,” GE predicts that by 2020, distributed power will capture 42% of global power capacity additions.
Navigant Research has analyzed individual technologies and applications that represent key pieces to the energy cloud landscape in recent reports, including: Energy Storage for Microgrids, Stationary Fuel Cells, and Advanced Batteries for Utility-Scale Energy Storage. Each of these markets is forecast to grow rapidly, as the emerging technologies and platforms that compose this emerging paradigm are beginning to gain market traction from a relatively small base. Projected revenue from three fast-growing components, for example – non-solar renewable distributed energy generation (non-solar RDEG) such as fuel cells and small wind power, residential energy storage (RES), and virtual power plants (VPPs) – show at least $73 billion in combined new investment globally between 2014 and 2020.
New Annual Investment in Non-solar RDEG, RES, and VPP, World Markets: 2014-2020
(Source: Navigant Research)
Energy storage, in particular, is emerging as a linchpin technology in the energy cloud market, helping to shift electrons across time and allowing for more flexibility in balancing demand and supply loads. Although utilities have pulled back on early community energy storage (CES) pilot projects, approximately 26,000 residential energy storage (RES) systems were sold globally in 2013. By 2020, annual installations of RES are expected to increase 25 times over the 2014 totals.
Whether the energy cloud will eventually envelop incumbent grids around the world will depend on a number of forces – technological maturity and availability, investment, government policies, etc. – but the impact of maturing technologies like wind and solar, which have seen a sharp increase in adoption over the past decade, demonstrate how swiftly change can occur.
Utility Strategies in the Cloud
The utility industry is the latest major sector to be forced to adapt to technology disruption. Many examples – from telecom to IT to media – have shown that a willingness to pursue new technologies and transform business models is a requirement for companies to successfully weather disruptive threats to their core businesses.
While it entails a significant shift away from the “poles and wires” model of the traditional utility, embracing the energy cloud enables greater flexibility in offering tailored services to an increasingly engaged consumer. Virtual power plants (VPPs), for example, allow businesses to offload management and control of their DER assets while realizing the greatest possible profit from ownership. For utilities, the benefits include managing transmission and distribution (T&D) assets with greater precision and flexibility, which can defray investments in new power plants and upgrading grid infrastructure.
While the utility industry’s response to DER penetration and the evolving energy cloud has been varied, a recent survey of utility professionals from Utility Dive shows that 67% believe utilities should take a direct role in supplying distributed generation to their customers. At a high level, forward-thinking utilities going on the offensive are incorporating a more integrated set of services that can be tailored to specific customer groups. NRG, for example, is positioning for long-term growth as it expands its core business – IPP business, retail operations, and renewable assets – to include business self-generation, like combined heat-and power, home energy services and off-grid resources, which it views as moderate to high growth opportunities. Unregulated business units have been particularly active in expanding service offerings for large utility holding companies. Duke Energy, NRG, and RWE have all capitalized on opportunities outside their regulated territories. Whether helping customers generate their own power through net metering programs, managing end-user demand for energy through programs like demand response (DR), and leveraging data analytics to control the distribution and consumption of energy, the potential new business opportunities are many.
For a more detailed examination of the emerging energy cloud, please sign up for Navigant Research’s upcoming free webinar: The Energy Cloud, on June 3 at 2:00 p.m. EDT. Click here to register.