The energy transition is accelerating, with major impacts across the utilities value chain. Distribution businesses are being propelled toward a future driven by several external factors including increased distributed generation, growing demand, the electrification of transport and heat, and more active, environmentally concerned customers.
Such a dramatic change in focus redefines the roles of distribution businesses and the regulatory framework under which they operate. Unsurprisingly, these issues—alongside increasing cybersecurity threats—are the primary challenges facing distribution businesses.
The energy transition presents tremendous opportunities for distribution, not only to reconfigure their businesses and provide the basis for sustainable grow, but also to take on new roles that help lead the charge in the journey toward a net-zero future for all.
Powering distribution businesses for the energy transition
The energy transition is already here, with tipping points that will be activated in the coming decade. In fact, all of our survey respondents report already experiencing some level of disruption, with three-quarters noting that disruption is significant. Among the top triggers: percentage of supply from grid-connected distributed generation and local density of prosumer PV generation.
of distribution executives expect the energy transition to trigger a tipping point that will disrupt operations and require capital investment.
of distribution executives think their business will reach the tipping point of disruption within the next decade.
of distribution executives report already experiencing some form of energy transition-related disruption in their operations.
of distribution executives believe the tipping point will be caused by the growth in total supply provided by grid-connected distributed generation.
Preparation for the imminent arrival of these tipping points is critical. The many unique deployment characteristics for low-carbon technologies mean that, even within as little as a year, localized distributed generation deployments could trigger a tipping point in parts of a distribution network. Other activities may take three to five years, or up to 10 years.
Significant clustering of low-carbon technologies—particularly prosumer PV and electric vehicles—will occur, driven by the grouping of building types and demographics. And distribution utilities must be ready to respond or risk facing unforeseen, localized stress on the network. This will require delivering increased flexibility in the grid, and our survey showed that three of the top four highest priority areas for distribution executives relate to visibility: the grid’s power status, consumer demand and prosumer exports, and grid-connected assets.
Nearly three-quarters of survey respondents believe electric vehicle growth will be more rapid than the speed at which necessary grid capacity can be built to accommodate them.
The risks of doing nothing are significant, endangering a distribution business’s operations, reputation and ability to comply with regulations. The critical issue: Distribution businesses find themselves ill-equipped to cope.
Some of this uncertainty could be alleviated regulatory frameworks that can support network resilience to the energy transition and other risks such as cybersecurity and extreme weather. However, this type of regulatory response has often been slow. And our survey showed that most of our respondents believe regulators are waiting for distribution businesses to propose innovative models that incentivize flexibility.
The challenge is to develop proposals to increase the use of flexibility solutions, including how they would encourage the participation of potential providers and incorporate flexibility use into everyday operations. While difficult, this could be a significant opportunity to self-define the way networks will be operated for the next century. However, many utilities are not yet ready to take on this leadership role in crafting the future regulatory model.
78% of distribution utility executives surveyed agree that regulatory models are unfit for purpose to deliver the energy transition.
Delivering the distribution system of the future
What is needed is a new digital infrastructure that supports truly active grid management as the energy transition moves forward. This means fundamentally increasing visibility and control of the electricity network, connected DER and consumer participation.
We see four distinct areas underpinning a distribution’s utility’s digital transformation. The first sets the foundation, making the best use of existing data and creating a data architecture that supports the evolving needs of the energy transition. The second extends core operational visibility and control, particularly targeting grid-connected distributed generation and the solutions required to effectively integrate it. The third greatly expands the scope of data through the deployment of IoT devices. The fourth improves distributed intelligence and control, enabled by cloud, edge computing, 5G, digital twins and platforms.
These areas are neither exclusive nor linear, but depend on many factors including location, regulatory model and industry structure. Different utilities will begin at different stages within these areas and use different elements of each as they evolve. Some will choose to advance more rapidly in select areas to address such challenges.
At the foundation is making the most of existing data and creating a data architecture that supports the evolving needs of the energy transition.
One of these needs is enhanced data exchange across a wide ecosystem in which distribution plays a central role. To successfully lay this foundational layer, distribution businesses must integrate multiple data types; ensure the platform scales to incorporate exponential growth of IoT data; is sufficiently flexible to adapt to rapidly changing requirements; embraces requirements of both core operations and many third-party requirements; and robust network communications.
The second area extends core operational visibility and control, targeting grid-connected DG and the solutions required to effectively integrate it. Many distribution utilities have limited visibility and control in lower voltages. But the energy transition necessitates much better visibility and closer management of lower voltages. Core advanced distribution management systems (ADMS) must be extended to low voltage networks to actively manage the growth of DG, support new flexibility services and integrate distributed energy resource management systems (DERMS) with existing network management solutions.
The third area expands the scope of data through the deployment of IoT devices. Because, while utilities will extend core control systems to low voltages, they will also improve visibility of the broader system—both utility and non-utility assets—using non-core IoT networks. IoT devices and gateways linked directly to the cloud, will improve grid optimization, particularly through flexibility services, prosumer demand and output forecasts, and improved asset visibility.
The fourth area improves distributed intelligence and control, facilitated by cloud, edge computing, 5G, digital twins and platforms. It enables near-real-time optimization of local assets, orchestrating DG and demand response on the load side. These capabilities will likely be deployed as needed, rather than pervasively across the grid, for instance in virtual power plants, microgrids and autonomous operations.
For distribution businesses to prosper in the energy transition, action is the imperative. This includes adopting new digital capabilities and technologies, founded on radically improved visibility and control of the grid, distributed energy resources and consumers. An innovative mindset and agility to execute must be baked into every initiative asdistribution businesses move toward meeting the challenges of the net-zero future.
We expect to see very different approaches around the world, depending on many factors including region, industry structure, regulation and their current point in the energy transition journey. And there will be many lessons to be learned between businesses that will help accelerate the transformation for all.