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How Renewable Energy is Transforming Utilities with the Prosumer at the Center

Utility Value Discovery Advisor TATA Consultancy Services (TCS)

Anindya Pradhan is a Utility Value Discovery Advisor in the Utilities Innovation and Transformation Group (ITG) at TATA Consultancy Services (TCS). He has over 18 years of global business...

  • Member since 2021
  • 4 items added with 1,176 views
  • Jan 27, 2021

The renewable energy (RE) industry is primed for robust growth. According to Bloomberg, nearly two-thirds of the world’s population today lives in countries where solar and onshore wind power are the cheapest sources of new power generation. This in turn is gradually putting traditional energy sources under pressure, and in 2019, coal’s share in primary energy fell to 27% - its lowest level in 16 years. In April 2019, for the first time ever, renewable energy outpaced coal by providing 23% of the US power generation compared to 20% of the output from coal. Let’s take a deeper look into the factors driving rapid growth in the RE industry and how leading global companies are harnessing the power of solar, wind, hydro, and biomass to shape the future of energy.

Fueling the Rapid Growth of Renewable Energy

The levelized cost of electricity generation from onshore wind and solar projects is down to around $50 per megawatt-hour today, thanks to reduced equipment costs, technology advancements, rising capacity factors of RE sources, and stimulus from governments. Increased competitiveness in the battery storage space is also playing a significant role in adoptions of RE and instances of solar plus storage projects are on the rise.

Regional mandates from global energy regulators are serving as catalysts for many utilities companies to accelerate their renewable energy journeys. For instance, Reforming Energy Vision (REV) in New York has a target of reducing greenhouse gas emissions by 40% from 1990 levels along with setting up a 50% renewable energy portfolio for the generation of New York’s state electricity by 2030.

In the current context, the impact of COVID-19 on electricity demand and wholesale electricity prices is also an opportunity for the utilities industry to embrace RE due to the lower marginal cost of the renewables. Moreover, the renewed emphasis on grid resilience is encouraging the utilities industry to build microgrids, often including renewables like solar power.

A Partnership Approach to Renewable Energy

The utilities industry’s journey towards RE varies from market to market based on individual characteristics such as interconnectedness between different power markets to manage load (like the US PJM market), markets where clean power comprises the majority of the baseload (like France with nuclear plants), or markets with renewables as a small portion of the baseload (like parts of eastern Australia). Despite this variance, we see an emerging theme among utilities firms on their journey towards RE: increased collaboration with partners and customers.

For instance, in the US, utilities are establishing large-scale community solar programs such as ‘Solar Together’ - a subscription program allowing customers (commercial, industrial, and residential) to access solar-sourced power without the need of equipment. Under ‘Solar Together’, customers will be able to voluntarily pay more on their electric bills to finance the solar projects and later receive bill reductions/credit, which will provide them a ‘payback’ in the coming years.

Similarly, a customer enrolled in the Solar Massachusetts Renewable Target (SMART) program in the US will receive billing credits for surplus energy contributed to the grid and incentives for total energy generated. The program aims to generate 1600 MW of energy from new solar projects.

In Australia too, energy retailers are offering their end consumers, or prosumers, billing credits for the first couple of months of enrollments for harnessing the power of their solar batteries as part of the Utilities Virtual Power Plant (VPP) program.

In Europe, Denmark-based energy firm Ørsted, which was a fossil fuel-intensive energy company a decade ago, became the world’s largest producer of offshore wind energy in 2019. During its transformation journey, it acquired wind turbine installation companies, partnered with leading manufacturers, and developed business models to protect investors from development, construction, and operational risks.

Lastly, UK-based Drax Power, which provides approximately 6% of the UK’s electricity, plans to embrace ‘neutral to negative emissions.’ Around two-thirds of the power plants of the Drax Group today run on biomass - a neutral resource, where wood pellets are used to generate steam and then electricity.

Bringing the Prosumer Front and Center

As new and interconnected digital technologies give more power to consumers over their energy usage and procurement, prosumers—customers involved in designing their own power products and plans—will be at the center of the future of renewables in the utilities industry:

  • Prosumers are adopting the renewable ecosystem at a much faster rate.
  • Rewarding prosumers for their contribution to renewables can increase customer satisfaction.
  • Investments from prosumers can defer capital investments from utilities.
  • A behind-the-meter connection from customers can helps utilities manage the peak loads by leveraging the customers generation.

To serve these prosumers, utilities will need to create the right ecosystem of partners who can add value for every stakeholder. Collaboration between partners and prosumers will determine the success of RE in the industry

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Matt Chester's picture
Matt Chester on Jan 27, 2021

Do you think there's been a challenge from utilities viewing the prosumer as a threat rather than a partner, and if so what's the best way to flip that script?

ANINDYA PRADHAN on Jan 31, 2021

It is very good question Matt. Prosumers actually helping Utilities in many way starting from managing the Utilities Peak load by participating in the Utilities VPP programme through prosumers own renewable generation. Prosumers renewable generation are also helping utilities to defer the capital investment in generation.

At the same time, the prosumers are also a having significant amount of energy selling share from utilities resulting decrease in revenue from utilities.

In sum, I think the benefits to Utilities from prosumers is more compare to the challenge from prosumer.

Matt Chester's picture
Matt Chester on Feb 1, 2021

Thanks for the follow up-- I agree with you, though I think the prosumer model can still rightfully expect some pushback or challenge from the utility side, at least on specific issues as the optimal 'role' evolves and how this will look in a way that benefits the grid as a whole the most

Jim Stack's picture
Jim Stack on Jan 29, 2021

A lot is happening to change over to renewable energy. I think the fast growing Battery Storage with batteries that are getting lower in cost is the key. Many people and companies don't care about the environment but do respond to the lower costs. Recycling of batteries from consumer goods to centralized power storage is also going to grow.  Redwood Industry is doing a great job on recycling batteries.

     Which utilities and state do you see as the leaders in adapting to this new energy transformation?   Do you think the right policies and tariffs can get prosumers and utilities to work together?  

ANINDYA PRADHAN on Jan 31, 2021

Very nice observation Jim. I agree with you .

I believe, going forward, regulator has a significant role to play in bringing both utility & customer together.

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