What does the future look like for electricity distributors? Given the profound strains facing the current industry model, few would question that the future will be very different. The more important question: In what ways?
The pressure for change is underscored by the new survey from Accenture’s Digitally Enabled Grid research program. The current distribution model is reaching the end of its usable life which is reflected among utility executives around the world; 45 percent stated that the traditional electricity distribution model is no longer fit-for-purpose. In Europe, it’s even more pressing at 64 percent.
Add to this the ongoing actions from regulators and policymakers around sustainability, distributed energy resources and network cost efficiency. It’s clear the long-established approach to distribution has run out of road.
So, as the strains start to show, what fault lines are emerging in the old model? One of the biggest cracks is the decoupling of peak and total demand. Historically, distribution companies have been remunerated on the basis of total demand for kilowatt-hours (kWh)—yet many network costs are driven not by total demand but peak load.
It’s like building a four-lane freeway that’s only busy during rush hour. And the need to build in sufficient distribution capacity to handle peaks pushes up costs for companies, customers and, ultimately, society. This challenge is increased by the fact that peak demand appears to be more resilient than total demand to energy-efficiency efforts and actions by “prosumers” who are generating their own electricity.
For electricity distributors to manage peak load while maintaining reliability, demand-response tools are key. While these tools haven’t been widely used in distribution in the past, this now needs to change. Success will hinge on highly localized demand response solutions using targeted delivery through a digitally enabled grid.
As these efforts to manage demand continue, a major new battleground is emerging in distribution: storage. As photovoltaic generation takes off in markets worldwide, investment by customers in “beyond-the-meter” storage is being encouraged by tariff structures and net metering pricing. Similarly, peak pricing can drive customer deployment of standalone storage to manage electricity costs.
In addition, as storage prices continue to fall, it will become increasingly attractive for customers in some segments and markets and will also emerge as a key investment area for distribution companies, who will build up storage capacity “in front of the meter” to bring greater optionality and flexibility when managing the network. Experience shows that distribution-controlled storage can be a powerful tool for network optimization and, over time, I believe it will become integral to how most distributors run their networks and control costs.
Our research confirms the rising trend of storage investment: Seventy-seven percent of utilities executives already are investing or are expecting to invest in storage in the next 10 years—and 65 percent expect to see growing use of storage to support renewable integration and optimization during that timeframe.
Taking all of these developments and opportunities together, a clear model is emerging for the distributor of the future: a digitally-enabled network business that uses data analytics-powered demand response, dynamic storage, and sophisticated, responsive pricing to keep costs low, maintain reliability and smooth off-peaks in demand. It will also be critical for distributors to engage customers who own distributed generation and storage resources to operate them in ways to increase grid reliability by providing grid services like generation curtailment, localized voltage support and energy storage to support contingency load transfers.
For a distributor to maximize the benefits across all these areas, it will be vital for all the components to be aligned, integrated and closely coordinated. For this reason, Accenture’s view is that the most sustainable model will be the “distribution platform optimizer”—an operator that handles all elements end to end and provides the optimal outcome for the overall system.
It’s true that the progression to becoming a distribution platform optimizer will be constrained by data availability, regulatory model and cost/benefit considerations, and other models may emerge in specific distribution companies, segments or areas of the network.
But of all the models, I think the direction of travel will be toward the distribution platform optimizer, especially in Europe. And industry executives in our research seem to agree: two-thirds say they expect their own company’s role to evolve towards one that integrates distributed energy resources (DER) and facilitates the market for DER services—a distribution platform optimizer, a figure that rises to 73 percent among European-based respondents.
In a complex, uncertain and shifting landscape, the future of distribution is in sight.