Low Carbon, High Stakes - Do you have the power to transform? - Accenture
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
Low Carbon, High Stakes Do you have the power to transform?
Contents Forewords 4 Executive Summary 6 2°C: The Tipping Point for Utilities 8 Five Trends Make the Prevailing Utility Business Model Unsustainable 12 Value Shifts in a Low-Carbon World 18 Five Business Model Pathways Toward a Low-Carbon Energy System 22 Making the Move: Key Actions to Drive Transformation 36 Appendix: Assessing the Value of Low-Carbon Business Model Pathways 40 References 42
Forewords
Few challenges are so critical as 2050, consistent with the level of
accelerating the transformation of the de-carbonization required to limit global
energy infrastructure of the world to fuel warming to 2°C as a Science Based
the needs of a smarter, efficient, Target. Our business plan foresees €8.8bn
renewably powered economy. The of investment in renewables growth by
upcoming COP21 conference represents a 2019, a 50% increase compared to the
unique opportunity for the international previous plan, which means over 7 GW
community to accelerate the transition to of new clean power capacity.
a low-carbon economy producing an
ambitious and concrete commitment to We put sustainability at the core of
combat climate change and its impacts. our strategy and will keep investing in
the most advanced and innovative
As a global energy company, Enel feels technologies, upgrading and digitalizing Francesco Starace
called to break ranks with business as infrastructures and driving efficiency, CEO and General Manager
usual and lead the energy revolution. to accelerate the process of Enel Group
Around 47% of the energy currently de-carbonization over the next few years,
generated by the Group already comes convinced as we are that climate change
from CO2 free sources and we are is a reality requiring urgent action.
committed to reach carbon neutrality by
In the last decades, the world has contribute towards a sustainable future.
undergone massive changes. Technology As a result of its strategy, EDP accepted
has allowed us to change the way we its responsibility in shaping the future by:
communicate, work, socialize and live. reducing CO2 specific emissions in 75%
Utilities play an important part in this till 2030 (in comparison with 2005);
changing game, evolving from pure-play surpassing 75% renewable generation
centralized power generators and installed capacity by 2020; reaching more
distributors to energy solution providers. than 1TWh cumulative savings through
Steered by an inspiring vision: To be a energy services in 2020; investing €200m
global energy providing company, leader till 2020 in research dedicated to clean
in creating value, innovation and energy, efficiency and smart grids and
sustainability, EDP has managed to stay installing smart grids in more than 90%
ahead of the game and move into clean of its Iberian customers by 2030.
generation, clean mobility, efficiency
services, access to energy, smart grids, We believe that change to a more António Mexia
pump and storage, just to name a few. sustainable world is happening right now CEO EDP
and we are proud to be inspirational
All these new businesses required leaders of that drive. The utility sector
anticipation and initiative. In some is a key player in this transformation.
of them EDP acted as a technology This is the time to foster collaborative
developer, in others as project facilitator partnerships built upon innovation,
and in some others even as a visionary commitment, cooperation and audacity.
entrepreneur. In all of them EDP is This is the time to set an ambitious
harvesting greenfield opportunities and agenda to a more sustainable and
creating additional value in what resilient path of doing business. Only
previously looked like a zero-sum game. with a strong ambition we will be able
All these new businesses aim to solve to succeed in our common endeavor of
consumer’s needs or concerns and transformation to a low-carbon economy.
4
The electricity system and the utilities It is a tall order, to be sure. However, with
that operate it play a large role in these challenges also come significant
creating prosperity and providing the new value and business opportunities—
comfort that we have come to expect according to Accenture Strategy’s
from electric power. However, the estimates, potentially worth €135 to
environmental and societal consequences €225 billion in saved and avoided costs
of fossil-fuel based power generation can and €110 to €155 billion in new revenue
no longer be ignored. We are starting to per year worldwide in 2030.
see the first impacts of climate change
affect our lives and livelihoods. Droughts Capturing this value will require utilities
and floods are disrupting our food supply, to consider three emerging business
and increasingly frequent extreme weather model platforms. Leading utilities have
events cause havoc to towns and cities. already started to adopt these new Peter Lacy
business models to some extent Managing Director
Business leaders recognize the need for a demonstrating the viability of low-carbon Accenture Strategy,
change and governments have begun to alternatives that also drive change Sustainability Services
act to foster a transition to a low-carbon throughout the energy system.
economy. President Obama, for instance,
announced additional incentives to In this report, we examine five potential
support private sector investment in business model pathways in the quest
renewable energy. And China has unveiled toward a low-carbon energy system. We
its plans for a national emission-trading analyze the environmental and economic
system to cut greenhouse gas emissions. value they can deliver, and explore the
We expect other business and political capabilities utilities need to adopt and
leaders to follow suit in the lead-up to sustain.
the UNFCCC Conference of the Parties in
Paris in December 2015, and rally around The research behind this report is based
a critical goal: limiting the average global on interviews with executives at leading
temperature rise to 2°C. businesses in the electricity utilities sector
that are part of the transition, as well as
As part of this objective, CO2 emissions Accenture Strategy’s modelling and CDP Paul Dickinson
from energy supply will need to drop by data analysis. We hope our findings and Executive Chairman,
90 percent or more below 2010 levels conclusions will inspire and help electric CDP
between 2040 and 20701. For the utilities in the transition to the low-
electricity sector players, this means carbon energy system that will define
facing some very difficult choices today our future.
and in the years ahead. They must find
a way to make the transition for their
businesses from being traditionally
carbon-intensive to lower-carbon ones—
all while maintaining their ability to meet
the world’s ever-increasing energy needs
and sustaining profitable growth.
5
Executive Summary
In the quest toward a low-carbon energy system, the electric utilities sector—with a
25 percent share of all carbon emissions globally2—plays a crucial role. How can utilities
move away from fossil fuels in an economically sustainable way? Five low-carbon business
model pathways could enable utilities to significantly reduce greenhouse gas emissions
and capitalize on €135 to €225 billion in saved and avoided costs and €110 to €155
billion in new revenue for the electricity sector worldwide in 2030.
The global community continues to direct eliminating—their reliance on fossil fuels. as governments have introduced
its collective strength to combat climate Utilities have been making progress to climate policies and regulation calling
change. A major milestone in these efforts reduce greenhouse gas emissions and for reductions in demand and
is expected in December 2015, when the increase their share of renewable energy. incentivizing investment in low-
annual UNFCCC Conference of Parties But the reality is that merely continuing carbon sources of electricity.
hopes to create a legally binding and doing what is required by climate • Technology enables low-carbon energy
universal agreement to limit the rise in regulation will no longer be enough. at scale. While policymakers are
average global temperature to 2°C—a They will need to substantially accelerate stepping up these efforts, advances
significant drop from the prevailing trend efforts to realize the long-term ambitions in technology—the biggest game
of 3.6°C 3. It is an ambitious goal, but one required in a 2°C world. changer—are making alternative
that is necessary to significantly reduce the sources of energy more attractive
impacts on the planet of greenhouse gas The drive toward a 2°C scenario is just to consumers and businesses.
emissions and increasing water scarcity. one element pressuring utilities to • Climate change impact threatens
change. It is part of five broader global the current and future energy supply.
With a 25 percent share of all carbon trends undermining the industry’s Climate change itself imposes new
emissions globally, electric utilities must prevailing business model and pressuring challenges to utilities through changing
successfully embrace low-carbon utilities to transform themselves to precipitation patterns, extreme weather,
solutions for the 2°C goal to be achieved. embrace sustainable alternatives: rising air temperatures, and the risk of
Yet because their business model is little water shortages, potentially affecting
changed from a century ago, utilities will • Policy pushes for 2°C reduction. the fuel supply chain and cooling
also encounter major challenges in Policy has been the main driver for the of thermal power plants.
substantially reducing—and ultimately shift to low-carbon electricity supply,
Figure 1. Five trends and five low-carbon business model pathways: four key actions to help capture the opportunity.
5
TRENDS
Policy Technology Physical climate
change
End-user
demand
Non-traditional
entrants
5
BUSINESS
CO2 MODEL
CU
4
PATHWAYS
Energy Local low-carbon Large-scale Flexibility Carbon capture
as-a-service energy access provider low-carbon optimizer and use operator
provider electricity generator
ACTIONS
Take leadership Keep Choose Join
and commit optimizing and transform forces
6
• End users demand energy efficiency acceptable nor socially sustainable. So of factors. However, there are four high-
and low-carbon energy. Rising costs how can utilities facilitate the transition level actions that all electric utilities could
of electricity, climate change concerns to a low-carbon energy system in an consider as they begin their transformation:
and technology developments together economically sustainable way?
are convincing and incentivizing end The good news is that while utilities’ • Take leadership and commit by
users to reduce their energy demand traditional value pool is at risk, new ones ensuring all levels of their organization
and shift to (and possibly produce could be created. Our analysis has found know what the 2°C scenario means
their own) low-carbon energy. that the industry as a whole has a value for their business and how their
• Non-traditional entrants challenge opportunity of €135 to €225 billion in organization is responding.
incumbents. Increased competition, saved and avoided costs and €110 to • Keep optimizing their current operations
particularly from new entrants from €155 billion in new revenue per-year to reduce CO2 emissions and free up
other industries as well as more worldwide in 2030. funds for the transformation to the new
innovative utilities, pose a growing models.
and significant threat to traditional The electric sector players can realize • Choose where to play and transform
utilities’ business. these value opportunities by considering by developing new business models and
three emerging power plays: strategies that build on their current
Together, these trends highlight the risks capabilities and are tailored to local
inherent to the established utility business • Low-carbon energy producer market conditions.
model, based on selling electricity as a optimizing the mix of energy sources • Join forces to develop capital-
commodity, which is not equipped for a • Distribution platform optimizer intensive innovations in electricity
low-carbon transition. In fact, utilities will meeting demand with the optimal storage and carbon capture and use
face rising costs and risks from increased sources of supply (CCU) technologies.
complexity and cost of carbon, as well • Energy solution integrator providing
as pressure on revenues from selling entirely new services to help customers As the world continues to work to address
electricity, in the next 15 years. According optimize their energy production and the climate change challenge, it needs an
to our analysis, the costs of building and consumption engaged, motivated, and effective power
operating power generation facilities and sector that is committed to transforming
networks could more than double between These represent platforms under which itself to adopt new low-carbon business
2015 and 2030, if we continue business as low-carbon business model pathways can models.
usual. Increasing demand for electricity support utilities in moving away from
will be a major factor, while the impacts fossil-fuel while growing profitably. A number of utilities have already taken
of climate change and carbon pricing will Adopting these business model pathways significant steps in doing so. By following
also add to rising operating costs. will not be easy, and each utility will face their lead, other utilities can help the
unique challenges along the way. international community achieve its 2°C
Electricity prices would need to rise by goal while positioning themselves to
almost one-third on average to make up Furthermore, the details of the ensure their existence in a more sustainable
for this increased investments and carbon transformation—strategies and timelines— future.
costs—a solution that is neither politically will vary by utility depending on a variety
Table 1. Three power plays and five low-carbon business model pathways.
Low-carbon energy producer Distribution platform optimizer Energy solution integrator
Large-scale low-carbon electricity Flexibility optimizers could tap into Energy as-a-service providers could
generators could capture €100 billion a €35 billion to €55 billion annual benefit from a €65 billion to €80 billion
to €160 billion in avoided costs annually market by optimizing efficiency across annual market by delivering energy-
by managing a low-carbon energy the value change, for example by related services e.g., energy monitoring,
portfolio. matching supply and demand through energy efficiency program, etc. to
energy storage technology. customers instead of selling electricity
as a commodity.
Carbon capture and use operators could Local low-carbon energy access providers could build a collective €10 billion to €20
generate as much as €10 billion annually billion annual business by partnering with communities and individuals to help them
by reducing carbon emissions from access locally generated low-carbon energy.
carbon-intensive plants and potentially
offering CO2 or carbon-based products as
input for industry processes.
7
2°C: The Tipping Point for Utilities 8
All industries, to varying degrees, are dependent upon and have an impact on the
environment and natural resources. With a 25 percent share of the circa 50 Gt CO2
emissions globally, the electric utilities sector has a more significant impact than most4.
That puts electric utility companies in a particularly vulnerable, but critically important,
position in the efforts to combat global climate change.
The 2015 annual UNFCCC Conference generation in the emerging world is emissions reductions must accelerate
of Parties conference in Paris (COP21) essential. Currently, the importance of to achieve the 2°C scenario identified by
has once again put carbon reduction at economic growth makes many emerging the IEA12, which means utilities must set
the top of its agenda, and business and countries focus on affordability and targets beyond the horizon of existing
political leaders are expressing their reliability of electricity, outweighing policy—much like what U.S. utility NRG
commitment to the cause. If pledges considerations about how to use energy and Enel Group have done in setting
made by all countries ahead of the Paris more efficiently9. Public institutions, targets that extend to 205013 14.
Conference are implemented, “there such as the World Bank and the European
will be a material impact on the energy Investment Bank, could provide Simply stated: While utility companies
sector,” according to Fatih Birol, executive technological and organizational have made significant progress in
director of the International Energy expertise, as well as financing, to help reducing their environmental impact to
Agency5. emerging economies develop low-carbon date and are on track to achieve their
electricity systems without compromising goals for 2020, they will need to step up
The objective: limit the average global their access to affordable and reliable their game to compete in a 2°C scenario
temperature rise to 2°C, well below the supply. The World Bank has, for example, beyond that point in time.
current trend of 3.6°C (see next page). As has financed 3.5 million solar home
part of the 2°C scenario, CO2 emissions systems in Bangladesh’s rural communities,
from electricity generation (i.e. 13Gt in
20126) are expected to drop by 90 percent
or more below 2010 levels between 2040
creating 70,000 installation jobs and
benefitting 15 million people, thereby
overcoming the political and financing
74%
of CDP utility respondents have GHG
and 20707. constraints10. emission reduction targets in place
Achieving these goals will be especially
difficult given the growing need for
electricity. With global demand set to rise
Of course, utility companies are not
sitting idly by. Many European utilities,
for instance, have set targets for reducing
12%
of CDP utility respondents have GHG
by 2.1 percent per-year on average by GHG emissions and increasing their share emission reduction targets beyond
2040, primarily in emerging markets, of renewable energy in line with the EU 2020 in place
power sector CO2 emissions would Energy and Climate targets for 2020, and Source: CDP, 2015. CDP Climate Change Information
increase by 16 percent under “business are roughly on track to meet them11. Request
as usual” conditions8. To reach a 2°C This is a good first step for reducing
scenario, low-carbon electricity power sector emissions. However, GHG
Figure 2. CO2 emissions from electricity generation need to be reduced by 50% by 2030 in the 2°C scenario
CO2 emissions from electricity generation (Gt/yr)
5,2
4,3
4,1
3,8
2,1
1,7 1,6 2,6
1,3 2,2
0,9 0,9 1,0
0,8
0,7 0,6 0,7
0,5
2012 2030 2012 2030 2012 2030 2012 2030 2012 2030 2012 2030
US EU China Russia India Rest of World
Current emissions Business-as-usual emissions 2°C Scenario emissions
Source: “World Energy Outlook 2014”, © OECD/IEA, 2014, http://www.worldenergyoutlook.org/.
9
The 2°C scenario:
This report assumes a future that is based efficiency standards in buildings and
on the International Energy Agency’s 450 transport.
Scenario*, which illustrates what it would
take to achieve an energy trajectory In the power sector, investment shifts
consistent with limiting the long-term towards renewables, so that 41 percent
increase in average global temperature of electricity generated worldwide
to 2°C. This scenario assumes that a CO2 is from renewable sources, compared
price is adopted in all major economies, to 30 percent in the business as usual
and CO2 prices rise to between €66 per scenario. The construction of coal-
ton and €88 per ton in 2030. Additionally, fired power plants is limited, but no
it assumes a phase-out of all fossil-fuel accelerated closure of fossil-fuel
subsidies by 2035 and increased energy power plants is planned.
* For more details about the assumptions behind the scenarios, please refer to the IEA World Energy Outlook 2014,
Chapter 1.
Figure 3. The 2°C scenario involves reduced energy demand and a shift to
renewables in the global generation mix.
Generation Mix
Annual generation output (TWh)
35,000
33,881
30,297
30,000
33%
20%
25,000
1%
22,721
2%
20,000 22%
41% 23%
15,000 16%
5%
12%
10,000 23% 20%
16%
11%
5,000
16% 21%
14%
5%
0
2012 2030: 2030:
Business as usual 2°C scenario
Coal Gas Hydro
Oil Nuclear Renewables
Source: “World Energy Outlook 2014”, © OECD/IEA, 2014, http://www.worldenergyoutlook.org/.
1011
Five Trends Make the Prevailing Utility Business Model Unsustainable 12
The proposed drive toward a 2°C scenario promises to have a major impact on utility
companies around the world. However, it is just one element in a confluence of
developments that will make business increasingly difficult for utility companies in
the next 10 to 15 years.
Several major trends, in particular, are Clean Power Plan and the aforementioned In South Africa, regulation pushing for
undermining the industry’s prevailing expected outcomes of COP21*—prescribe energy efficiency and renewable energy
business model, which has remained increasingly deep greenhouse gas emissions has been the most significant driver of
largely unchanged for decades: cuts. And regulation is set to become the decarbonizing of the country’s energy
more stringent, as emissions reductions system in the past decade, according to one
• Policy pushes for CO2 reduction will need to go beyond national executive at South African utility Eskom18.
• Technology enables low-carbon commitments to follow the 2°C trajectory. In addition, cities address climate change
energy at scale at the local level with such moves as tax
• Climate change impact threatens National policies are already guiding reductions and subsidies. For example, the
the current and future energy supply utility strategies toward investment in Covenant of Mayors, a European
• End users demand energy efficiency low-carbon solutions. Emissions Trading movement involving local and regional
and low-carbon energy Systems in Europe, areas of North and authorities, is committed to meeting and
• Non-traditional entrants challenge South America, as well as Asia, set the exceeding the EU 20-20-20 goals19.
incumbents framework, but have so far failed to
provide a meaningful price signal for
Together, these trends are pushing
electric utility companies to decouple
their business activity from emissions,
investors. There is genuine momentum
worldwide to strengthen and extend
emissions trading in the near future, as
73%
of CDP utility respondents see
which in turn require utilities to transform the European Commission has agreed on regulation regarding carbon emissions
their business model to support a market stability reserve to tighten the as a risk
sustainable, low-carbon solutions. supply emissions allowances according
Policy pushes for CO2 reduction
Utilities consider cap-and-trade schemes
to economic conditions16, and China has
announced plans for a national emissions
trading scheme starting in 201717.
76%
of the utilities that have implemented
together with international agreements carbon pricing are subject to carbon
among the biggest drivers for CO2 Further reductions in the number of CO2 price regulation. The prices they use are
reduction to date15. International and emissions rights available will raise CO2 broadly in line with regulated prices.
national climate initiatives—such as the prices and force companies to reduce
Source: CDP, 2015. CDP Climate Change Information
Kyoto agreements, the EU 20-20-20 their carbon footprint even more. Request
goals, President Obama’s announced
* This report was published before COP21
Figure 4. Recent GHG emission reduction efforts in various countries
United States Canada Germany Japan
The US EPA finalized its Canada announced its aims to Germany has agreed to reduce Japan is considering rejecting
proposed Carbon Pollution reduce its GHG emissions by operation of about five of the two new coal-fired electricity
Standards for Existing Power 30% by 2030 based on 2005 largest lignite-fired electricity projects with a combined
Plants (Clean Power Plan), emission levels, with the help plants in the country, capacity of 3.1 GW amidst
establishing different target of regulating methane representing a total capacity concerns over Japan’s ability
emission rates for each state. discharges in the oil and gas of 2.7 GW, to meet its target to meet a proposed 26% cut
Overall it is projected to sector, natural gas electricity of reducing CO2 emissions by in greenhouse gas emissions
achieve a 32 percent cut in plants emissions as well as 40% by 2020 based on 1990 between 2013 and 2030.
electricity sector emissions the chemicals and nitrogen emissions levels. The electricity
by 2030 based on 2005 fertilizer industry. plants will merely function as
emission levels. “capacity reserve“.
Source: C2es.org,. 2015. ‘Q&A: EPA Regulation Of Greenhouse Gas Emissions From Existing Power Plants’. http://www.c2es.org/federal/executive/epa/q-a-regulation-
greenhouse-gases-existing-power; Enerdata.net,. 2015. ‘Research On Energy Efficiency, CO2 Emissions, Energy Consumption, Forecast.’. http://www.enerdata.net.
13Technology enables low-carbon
energy at scale
The biggest game changer in the transition
development of renewables leads to a
reduction in the annual operating hours
of fossil fuel plants, because renewables
76%
of the utility executives expect to
to a low-carbon world is technology. The like wind and solar PV operate at low support the integration of distributed
value proposition of low-carbon solutions marginal costs. Running less of the time, resources in the next 10 years
is continuously improving due to rapid it becomes more difficult for fossil fuel
advances in technology and decreasing
costs of solutions such as distributed
generation (e.g., solar photovoltaics (PV)
plants to recover investment during their
lifetime, and stimulating investments in
renewables—leading to a self-reinforcing
68%
of the utility executives expect to
and battery storage). For example, the cycle. As policy incentives are gradually invest in distribution sensing and
cost of solar per MWh has decreased by phased out and renewable energy moves automation in the next 5 years
a factor of three between 2010 and 2015, from a subsidy-driven market to a fully Source: Accenture, 2015. Accenture’s Digitally Enabled
making solar cheaper in some cases than commercial solution, utilities will have to Grid program, 2014 executive survey.
combined cycle gas turbines or coal-fired determine the right pace for their own
power plants20. investments in this area. study page 25). And a missing element in
the energy transition, battery technology,
As a result, investment in such Deployment of intelligence in the is being scaled rapidly by companies such
technologies is growing dramatically. In electricity system provides a further boost as BYD, Tesla and Panasonic. The
2015, renewables represented more than to the growth of renewables. For instance, opportunity is sizeable, as distributed
half of all electricity generation capacity real-time analytics and two-way generation could make up one-third of
investments worldwide21. Going forward, communication give consumers more installed capacity in the US by 201723.
the IEA expects that between 2014 and control in choosing their supply source This will transform generation as we know
2025, investment in renewable electricity and optimizing their electricity use, it, and is a direct threat to traditional
production will be almost double that in leading to new business models for utilities’ revenues.
fossil-fuel power generation22. Extensive companies such as Sungevity (see case
Figure 5. Renewable technology costs are decreasing and becoming competitive with fossil fuels
The levelized cost of electricity represents the per-megawatthour cost (in real euros) of building and operating a generating plant
over an assumed financial life and duty cycle.
Levelized cost of electricity (€ / MWh)
1000
900
800
700
600
500
400
300
200
100
0
2010 2015 2010 2015 2010 2015 2010 2015 2010 2015
Solar PV Onshore Wind Gas CCGT Nuclear Coal
Renewable energy Traditional energy
Source: NEA/IEA,. 2015. Projected Costs Of Generating Electricity 2015. Paris: OECD Publishing.
14Climate change impact threatens
the current and future energy
supply
A clear example of the potential impact
of water issues can be seen in Brazil,
where water reservoirs—specifically in the
93%
of CDP utility respondents see physical
Climate change itself poses new populated Southeast—have reached an climate change as a risk
challenges to utilities through changing all-time low due to continued drought.
precipitation patterns, extreme weather,
and rising air temperatures. Both water
withdrawal and water consumption for
This has led to a drop in hydro electricity
generation and a proportional increase
38%
of CDP utility respondents experienced
power generation are due to increase in Brazil’s fossil-fuel power generation— detrimental impacts related to water
in the next several decades, making which, in turn, has driven an increase in 2014, affecting costs and brand
availability of and access to water a in carbon emissions (with a potential value negatively
risk for utilities24. upswing of 15 percent to 30 percent Sources: CDP, 2015. CDP Climate Change Information
per-year) and a spike in electricity prices Request; CDP, 2015. CDP Water Information Request
Yet while over 80 percent of energy sector (of 60 percent alone in 2015).
executives identify water scarcity as a
significant risk, only 18 percent conduct a The hydro-crisis presents an immense
comprehensive water risk assessment and opportunity to bring online new
approximately one-third have assessed renewable energy sources, diversifying
how water challenges may constrain and greening the already renewable
long-term (more than five years) business Brazilian energy matrix. In addition,
growth25. Furthermore, water poses a the Brazilian utility AES, seeks develop
significant risk in electric utilities’ supply enhanced battery storage capacity to
chains for fuel sources, as primary fuel cope with decreasing hydro storage
production requires significant amounts capacity and increasing intermittent
of water26. electricity generation27.
Figure 6. Both water withdrawal and water consumption for power
generation are due to increase in the next several decades
Global water use for electricity generation in a business as usual scenario and its
compound average annual growth rate (billion cubic meters)
Water withdrawal Water consumption
568
58
+18
+15
550 43
2010 2035 2010 2035
Source: World Energy Outlook 2012, © OECD/IEA, 2012, http://www.worldenergyoutlook.org/.
15End users demand energy Figure 7 shows that many consumers are Similarly, Phaesun, a German company
efficiency and low-carbon energy expressing interest in becoming power specializing in the installation and service
On their own, climate change and self-sufficient—in effect, becoming of off-grid wind power and photovoltaic
technology developments play a major “prosumers.” In fact, close to half of systems, offers consumers in Somaliland
role in the drive toward low-carbon consumers in Europe and North America local low-carbon energy access without
solutions. Together, they incentivize end are considering becoming completely the use of a grid29.
users to reduce their energy demand and energy-independent, led by those in
shift to low-carbon energy. Germany (48 percent), the U.S. The same shift can be seen in business
(51 percent), and Spain (62 percent). and public sector customers. For instance,
End users around the world are embracing large global companies such as Ikea,
the ability of new technologies to give These figures are even higher in many Philips, BT and Unilever—part of the
them insight into and control over their emerging markets, reaching 63 percent in RE100, a global initiative to engage,
energy use and bill and choice of energy China, 81 percent in Brazil and 88 percent support and showcase influential
source allowing them to reduce their in South Africa28. companies committed to using 100
environmental and societal impact. percent renewable power—have pledged
In rural areas, electrification is happening to use 100 percent renewable electricity
For example, around 8 in 10 consumers by completely skipping the development by 2020 and have ambitious targets to
in the Philippines (87 percent), Brazil of electricity grids. For example, in Mexico, increase their energy efficiency30.
(80 percent) and China (78 percent) where 3 million people live without
are considering purchasing residential electricity, social projects offer off-grid Mars, a global food manufacturer based
monitoring and control products in communities low-carbon energy access in the United States, has joined forces
the next five years, the highest of any with photovoltaic home systems. with Sumitomo, a Japanese integrated
country. trading company, and BNB Renewable
Energy, a renewable energy generation
asset developer from the U.S., to build a
Figure 7. Up to 90% of the consumers is considering investing in becoming 200MW wind farm expected to supply
electricity self-sufficient 100 percent of Mars’ U.S. energy demand31.
88%
81% 69%
of CDP utility respondents believe that
changing consumer behavior leaning
towards more sustainable products
63% 62% represents new business opportunities
59%
51%
48%
52%
of consumers are likely to install
41% energy technologies to generate part
39%
36% or all their own power by 2020
Sources: CDP, 2015. CDP Climate Change Information
Request; Accenture, 2015. The New Energy Consumer:
Unleashing Business Value In A Digital World.
South Brazil China Spain Australia USA Germany Great Japan France
Africa Britain
Source: Accenture, 2015. The New Energy Consumer: Unleashing Business Value In A Digital World.
16Non-traditional entrants requirements that traditional utilities It’s clear that traditional electric utility
challenge incumbents must contend with. Solar solution companies—and their longstanding
Evolving consumer values and preferences companies like SolarCity allow consumers business model—face a highly challenging
are attracting non-traditional entrants, and communities to cut out the utility future, both in the short and long terms.
and with the cost of innovation at an all- altogether and take control of their own In fact, our research confirms that the
time low, both regulated and deregulated energy supply. Add players like Tesla and traditional utility value chain, based on
markets are seeing an influx of new Apple, planning to launch their EV-fleet in selling electricity as a commodity, is not
players from all directions—startup digital 2019, and one can expect to see a totally equipped for success in a low-carbon
retailers, telecom giants and prosumers, different energy landscape in the near world. However, these trends represent
as well as incumbent utilities from future. significant new opportunities and new
elsewhere. Technology giants, including sources of value that utilities can capture
Google, Samsung and Verizon, are Investment by both disrupters and with new business models that are built
partnering with incumbent hardware incumbents in emerging technologies, as with sustainability in mind.
and software providers to develop home well as the unbundling of services across
Internet-of-Things ecosystems, integrating the value chain, will result in a major shift
home energy management solutions in of value in the coming decade. Solar
a complete suite of home and lifestyle energy companies, for instance, received
services. Digital start-ups, such as Bounce by far the largest amount of startup
Energy in Texas and Powershop in New investment in renewables between 2012
Zealand, use platforms offering energy to 2015, totaling €4.8 billion, with
packages and products, unburdened by SunRun and SolarCity among the major
legacy investments and regulatory recipients32.
Figure 8. Already-high expectations for new competition across a number of areas, increased in 2014.
Do you believe competition from new entrants will increase in the following areas in the next five years?
Data-related services 92%
(e.g., services that leverage energy
consumption data) 85%
81%
PEVs and associated charging infrastructure
59%
Demand-side aggregation 79%
(i.e., load shifting services to distribution and
transmission companies or direct to electricity
markets) 67%
Power electronics hardware and services 73%
(e.g., deploy and sell power electronics-
enabled services to distribution companies
or consumers) 46%
2014 2013
Base: All respondents who selected “yes”.
Source: Accenture, 2014. Digitally Enabled Grid program, 2014 executive survey.
17Value Shifts in a Low-Carbon World 18
If they continue to operate as they do now, utilities will face increasing challenges to
balance costs and revenues. In a 2°C world, the costs for the sector will increase by a
staggering €930 billion per-year in 2030 due to growing demand for electricity and the
introduction of carbon pricing.
According to our analysis, growing demand
for electricity will raise the costs of Value modelling methodology
building and operating power generation Value modelling analyzes a 2°C scenario*, This is facilitated by the introduction
facilities and networks by €484 billion which illustrates what it would take to of additional policy measures for CO2
per-year in a 2°C scenario between 2015 achieve an energy trajectory consistent emissions reduction, including targeted
and 2030 (Figure 9). This is an increase with limiting the long-term increase in energy efficiency improvements in
of 33 percent of total system costs. average global temperature to 2°C. In this industry, buildings and transport,
scenario, energy efficiency measures will limits on the use and construction of
Carbon pricing will create additional reduce global electricity demand inefficient coal-fired power plants,
costs that will drive up electricity prices, by more than 3,500 TWh in 2030, or and partial phase-out of fossil-fuels
as existing Emissions Trading Systems 11 percent lower than if the current subsidies to end-users. Crucially, carbon
will be strengthened and broadened. In demand trend continues. The growth of pricing is introduced in all major
2030, the power sector’s CO2 costs could low-carbon electricity generation also economies, with prices rising to €88
amount to more than €406 billion per- accelerates, increasing to 57 percent of per ton in OECD countries and to €66
year, assuming strong carbon pricing total supply. in emerging economies in 2030.
policy resulting in an average price of * The IEA New Policies Scenario is the basis for the Business-as-usual scenario, and the 2-degree scenario was based
€74 per ton CO2e33. Cost increases will on the IEA 450 Scenario. For more details about the assumptions behind the scenarios, please refer to the IEA
World Energy Outlook 2014, Chapter 1
disproportionately affect consumers in
emerging economies, where demand for
electricity grows fastest.
Figure 9. Utilities will face rising costs, while revenues are under pressure
Increasing demand is generally good
news for utilities, as these costs reflect Global utility costs and revenues in two scenario's in 2030 compared to 2012 situation.
rising demand for their products, and the
additional costs will be accompanied by Subsidies for electricity generation and consumption explain
rising revenues. Similarly, rising CO2 cost the difference between costs and revenues in 2012.
primarily affected end-users in the past
in the form of increasing electricity prices, +7%
0.2
but this is less likely in the future. While
consumers had little choice but to buy
0.7 +56%
electricity from utilities, alternatives like
on-site generation and energy saving are
2 2.2
increasingly accessible and cheaper by
the day. This reduces the possibility of 1.3
covering CO2 costs fully through price
increases, undermining the profitability
of utilities.
-1.4
-2.4 -2.2
-0.9 +64%
0.2
-7%
2012 2030: 2030:
2°C with 2°C with new
traditional low-carbon
business models business model
Amounts in trillion €/yr pathways
Revenue Demand growth Impact of new business
model pathways
Costs CO2 costs and demand growth
19While costs rise, the growth of revenues So is the future for utilities one of
from selling electricity will increase at ever-escalating costs and pressures on The costs of adapting to climate change
slow pace, because of a shift to revenues revenue? The answer is yes—but only Climate change impacts will increase
from utilities to third parties, as end-users for those utilities unwilling or unable to operating costs as a result of extreme
start generating their own energy, and change the way they do business. Utilities weather events and the risks associated
new entrants capture part of the market. that see the opportunities inherent in with water availability for cooling
In developed markets such as Europe and the industry’s changes and build the thermal power plants. The impact of
the United States, the decline of revenue appropriate business models to capitalize climatic changes—such as water
from electricity commodity will be will be on them will reap the rewards. temperature, precipitation patterns,
partly offset by electrification of demand— wind speed and frequency of extreme
for example, in transportation and heating According to our analysis, the opportunities weather—is estimated to cost the
and cooling36. In emerging economies, the for the electric utility industry sector are European power sector €15 billion to
expansion of economic activity will still worth €135 to €225 billion in saved and €19 billion in 2080, for instance due
increase demand for electricity, but a drive avoided costs and €110 to €155 billion in to rising costs of cooling for nuclear
for energy productivity will put pressure new revenue per year worldwide in 2030. power34. Similarly, the total annual
on utilities for tight cost control. electricity production costs in the U.S.
This impressive figure is spread across the in 2050 are projected to increase 14
All in all, however, utilities will see an value chain in six value pools centered on percent (€45 billion) if no action is
increasing gap between costs and facilitating the shift to low-carbon energy taken, because of greater cooling
revenues. In fact, while utility cost are sources; optimizing across generation, demand, compared with a control
expected to rise by 64% between 2012 distribution, and end use; and meeting scenario without future temperature
and 2030, revenues will only increase end-user demand for energy efficiency changes35.
56%. Clearly this is not sustainable. and local generation (Figure 10).
If costs rise without marginal revenues
keeping up, power plants become
unprofitable and would close, reducing
capacity and over time raising prices
even more for end-users.
Figure 10. Value pools with environmental and financial value
CO2 Financial
(Gton/yr) (€ bn/yr)
0 50 100 150
Plant & portfolio efficiency 0,5
Energy
efficiency
Energy demand reduction 3,6
Local Low-Carbon electricity 0,5
Low-carbon
Large-scale Low-Carbon
electricity 1,1
electricity
generation
Flexibility optimization
0,1
CCS Carbon capture and use 1,1
New revenues Avoided and saved costs
20Value pool 1: Value pool 3: Value pool 6:
Plant and portfolio efficiency Local low-carbon energy Carbon capture and use
Enhanced energy efficiency in electricity Demand for distributed generation will The 2°C scenario requires extensive action
generation remains an important create opportunities in local energy to reduce CO2 emissions. Applying carbon
conventional value pool for utilities. initiatives. Accounting for decreasing capture at fossil-fuel power plants could
However, additional CO2 savings achieved revenues from electricity commodity be an important building block for
in plant and portfolio efficiency will be sales, distributed renewables services achieving this, if a conductive regulatory
minor by 2030 (around 500 Mt CO2e per- could enable utilities to generate revenues environment is created. An additional
year) because, as efficiency is an effective of €10 billion and €20 billion per year 1.1 Gt CO2e per-year could be saved if,
cost-control measure, the business-as- by 2030, while avoiding approximately by 2030, one-quarter of all coal- and gas-
usual case already assumes improvement 500 Mt CO2e emissions per-year. fired power plants were to be fitted with
in this area. carbon capture and sequestration, thus
Value pool 4: creating a new value pool focused on
According to our analysis, the business Large-scale low-carbon electricity the capture and use of carbon-based
value of plant and portfolio efficiency As electricity generation shifts toward products.
improvement could range between €35 low-carbon sources, assuming reduced
billion and €55 billion per-year by 2030, emissions in power generation will be The commercial viability of carbon
driven by reductions in operational and approximately 1.1 Gt CO2e annually, capture is still a challenge today.
CO2 emissions costs and equaling a 1 revenue from low-carbon electricity will Deploying a coal-fired power plant with
percent costs reduction versus current offset the lost revenue from fossil fuel CCS comes with a cost premium of 20 to
conventional costs. Future wholesale generation. 60 percent, and costs are expected to fall
prices and CO2 emissions prices are the only gradually; thus, the value generated
main uncertainties that will determine Our analysis found this to be the largest remains limited to 2030, up to €10 billion
the actual value. Importantly, this value value opportunity for utilities in a 2°C per-year. Beyond 2030, however, this
pool will only be available during the scenario, providing a benefit of €100 value pool might expand, as opportunities
transition to a 2°C world; it will dry up billion to €160 billion per-year by 2030. to generate value from carbon-based
after 2030. These benefits are the result of savings in products or CO2 might materialize.
fuel and CO2 costs related to displaced
Eskom, a South African utility, provides fossil-fuel generation, and therefore As our analysis demonstrates, the low-
one example of a company making such depend on CO2 prices as well as the rate carbon future—while challenging—offers
a transition. With coal accounting for of cost reduction in low-carbon electricity opportunities. Although electric utility
approximately 85 percent of its generation technology. companies will continue to see their
capacity, Eskom plans to reduce its carbon traditional revenue streams decline over
emissions by enhancing its coal generation Value pool 5: time due to the gradual phasing out of
with clean coal measures such as pursuing Flexibility optimization carbon energy sources, significant new
underground coal gasification, possibly System optimization and flexibility revenue sources could take their place. In
operating smaller coal units, and increasing management make a modest direct the next section, we discuss five business
the use of lower-carbon emitting contribution to emissions reduction of model pathways that will be critical to
technologies such as renewables, gas, approximately 100 Mt CO2e emissions utilities’ ability to capitalize on those
and nuclear37. annually in a 2°C scenario, but they are revenue streams.
essential to reducing emissions
Value pool 2: throughout the system.
Energy demand reduction
End-user reduction in energy demand is a By optimizing efficiency in all segments
game changer in the transition to a 2°C of the value chain through the tight
scenario, as it will be highly effective in matching of supply and demand, as well
cutting emissions, yielding a reduction of as by maintaining system balance and
as much as 3.6 Gt CO2e annually. Utilities reliability, flexibility optimization will
can earn back revenue losses from create €35 billion to €55 billion per-year
electricity demand reduction by value for utilities by 2030, depending on
capitalizing on the growing interest in how the value is shared among end-users,
energy management products and utilities and other market players.
services—an estimated €65 billion to €80
billion per-year by 2030, depending on
customers’ willingness to pay and the
share of system benefits that utilities
manage to capture.
21Five Business Model Pathways Toward a Low-Carbon Energy System 22
Unlocking future growth will require utility companies to operate very differently—
and in some cases, become very different companies. According to Accenture Strategy
research three power plays can help utilities unlock future growth38: Energy solution
integrators provide entirely new services to help customers optimize their energy
production and consumption; Distribution platform optimizers meet demand with the
optimal sources of supply; Low-carbon energy producers optimize the mix of energy
sources. These represent platforms under which several low-carbon business model
pathways are possible.
Based on our research, we have identified five low-carbon business model pathways (Figure 11 and Table 2) that enable
utilities to tap into value pools by developing integrated energy solutions for end users, optimizing the distribution platform,
and generating low-carbon energy39. These business model pathways are not mutually exclusive nor exhaustive and no single
option will work for all utilities. Utilities should consider the merits of each as they make business portfolio decisions.
Table 2. Three power plays and five low-carbon business model pathways
Low-carbon energy producer Distribution platform optimizer Energy solution integrator
Large-scale low-carbon electricity Flexibility optimizers optimize efficiency Energy as-a-service providers deliver
generators manage a low-carbon energy across the value chain by matching energy services to customers instead of
portfolio. supply and demand and maintaining a commodity.
system stability and reliability
Carbon capture and use operators Local low-carbon energy access providers partner with communities and individuals
reduce carbon emissions from carbon- to help them access locally generated low-carbon energy.
intensive plants and potentially offer
CO2 or carbon-based products as input
for industry processes.
Figure 11. Five low-carbon business model pathways
Power Plays
Low-carbon energy producer Distribution platform optimizer Energy solution integrator
Residential & SMB
Market Operations/ Smart
Generation Transmission Distribution
Trading Meters
Commercial & Industrial
CO2 reduction
measures Business model pathways
1
Energy
efficiency
Optimization of current business model Energy as-a-service provider
3 2
Low-carbon Large-scale low-carbon electricity generator Local low-carbon energy access provider
electricity
generation 4
Flexibility optimizer
Flexibility provider - Flexibility aggregator - Flexibility broker
5
CO2
CCS CU
Carbon capture and use operator
23Energy as-a-service provider
Energy-as-a-service realigns the utility However, other players with strong Case Study—Eneco sees
business model around delivering energy technology capabilities are entering the business model innovation
services to customers instead of electricity energy services market and targeting
as-a-commodity—a focus that could households through connected home and cooperation with
enable such companies to capture solutions. It is therefore essential that innovators crucial to its
business value between €65 billion and utilities develop compelling customer
€80 billion per-year by 2030 from the value propositions backed by seamless
longer-term existence
energy demand reduction value pool. execution. One way to do so is by joining
Energy as-a-service providers help forces with other in-home service Type
customers reduce their energy use and providers—much like Direct Energy has Generation and wholesale sales of
bills through monitoring and signaling done. This large retail provider of electricity and heating, as well as
and by controlling devices remotely on electricity, natural gas, and home services distribution and retail sales of electricity,
customers’ behalf. Eneco is one company in North America has teamed with Google heating, and gas
that has embraced this business model to support the adoption of Google’s Nest
by placing the customer-centric energy services41. Region
management device “Toon” at the core of The Netherlands
its strategy. Toon helps consumers control In addition, traditional utilities are
their building heating, lighting, and other partnering with promising new energy Size
smart devices, and is the perfect contact startups to understand and explore how • 2,988 MW installed capacity
point for Eneco to leverage new services. to operate a new retail business. For • 7.191 GWh generation output
example E.ON, a traditional German • 45,358 km electricity distribution
Becoming an effective energy-as-a- utility, is partnering with Sungevity, a network
service provider will require a utility to North American solar energy start-up that • 2.2 million utility customers
shift its revenue model away from volume is moving into the German residential
sold to benefits delivered—for example, market. Installed capacity42
actual reduction in electricity use or 43.8% conventional, 40.5% onshore wind,
specific services delivered. Sustained Nevertheless, not all markets have the 10.0% offshore wind, 3.4% biomass,
consumer trust will be vital within this right characteristics for such a model. 2.4% sun
pathway. Energy-as-a-service providers The most suitable markets are those
will need deep competencies in with the requisite infrastructure for Generation output43
understanding customers’ needs, energy sophisticated energy services—in particular, 50.8% conventional, 26.3% onshore wind,
purchase criteria and usage behavior smart meters, smart grids, and a growing 13.5% offshore wind, 3.4% biomass,
(through customer analytics) and number of end users with connected 0.8% sun
multichannel interaction capabilities devices. Extensive electricity use and high
to build strong customer relationships. electricity prices increase the market
Providers also will require robust digital potential for utilities. North America, Context & Strategy
capabilities that enable them to monitor, northern Europe, Japan and Australia The Dutch government is encouraging
analyze, and manage energy remotely are among the regions most suited to consumers and retailers to reduce energy
in real time. an energy as-a-service model. demand via a national smart meter roll-
out that offers utilities and other
Retail utilities are especially well companies the opportunity to develop
positioned to become successful energy products and services to monitor and
as-a-service providers. They can gain control energy. Eneco envisions itself as
access to customers with smart office a digital utility of the future and wants
and connected home systems, and are to leverage the smart meter roll-out by
recognized as reliable suppliers of energy providing Energy as-a-service solutions.
solutions by consumers: 61 percent of
consumers are interested in buying energy
services from energy utilities40.
24Business model Case Study—With Business model
Eneco has put the energy management Sungevity’s value proposition is managing
digital technologies and
device “Toon” at the core of its customer the installation of PV panels with additional
strategy. The Toon is a smart thermostat a community-based services such as lease, insurance,
and display that helps to optimize energy approach, Sungevity brings monitoring, and other customer services.
efficiency and comfort for residential
housing. A digital platform that monitors
scale to the solar market for With the help of long-term (e.g., 20 years)
service relationships, Sungevity expects to
and controls energy use, Toon has been consumers become a trusted brand for smart home
installed in more than 100.000 technologies and will sell new additions
households. Consumers pay a fixed Type to existing services, such as home energy
subscription fee for the device. Providing local low-carbon energy access management, application scheduling, and
and providing of energy as-a-service EV charging.
The successful uptake of Toon and the
access to its connected devices enables Region It foresees solar as the gateway to
Eneco to offer its consumers innovative North America, United Kingdom, the smart home market. Unlike other
products and services to manage their The Netherlands, Germany, Australia conventional utilities’ business models,
energy. For instance, working with the Sungevity provides tailor-made solutions
Dutch startup Nerdalize, Eneco is testing Size aligned with customers’ needs. With the
the feasibility of using waste-heat from 10,000 utility customers help of new digital technologies and new
data servers to heat homes. A cooperation media, the company keeps track of its
with TESLA has led to an offering for customers’ preferences and enables
electric vehicle owners to earn money by Context & Strategy interactive relationships with its
allowing an energy company to use their Sungevity sees the conventional customers.
car batteries for energy storage. electricity system changing to a more
democratized utility industry with a In 2015, Sungevity entered the German
Utilities need to embed innovation in the growing number of distributed generation electricity market by partnering with
core of their business and develop systems. Information and communication E.ON, utilizing E.ON as a sales channel
partnerships with innovative players in technologies are now available and are to millions of customers. For E.ON, the
the market. As Eneco’s chairman and CEO getting cheaper, enabling the partnership is a learning journey for both
puts, it “Successful partnerships where management of electricity supply and parties to understand and explore how
both parties share the risk and rewards demand in real time and at scale, e.g., to run a retail business.
drive us to become a truly digital utility.” with demand response. Consumers are
becoming more and more involved and Key success factors
Key success factors service-oriented, due to their ability to • Understanding customer journey
• Customer centricity choose their retailer, enabled by new • Digital capability (remote design)
• Smart meter rollout digital technologies. Sungevity wants to • Capability on how to run an
• Digital capability leverage these changing business interactive web
• Smart devices partnerships dynamics by broadening and deepening • Customer-centric approach
the customer relationship
“Successful partnerships “Its not a matter if all
where both parties share roofs will be covered with
the risk and rewards drive PV, its more a matter when
us to become a truly all roofs will be energy
digital utility.” producers”
Jeroen de Haas, Danny Kennedy,
Chairman and CEO, Eneco Founder & CEO Sungevity
25You can also read
