In its second annual survey of global utilities, Accenture has found that utility revenues are set to take a major hit, as solar, wind and energy efficiency measures continue to disrupt utility models. The research also shows that 61% of utilities are aware of the potential disruption and expect significant or moderate revenue reductions as a result.
The scenarios Accenture has plotted estimate that utility revenues could fall by $123 billion per year by 2025 in Europe and the U.S. combined at the top end and by $66 billion per year on the low end of its scenario. Accenture says that economically competitive energy efficiency and distributed generation, including solar, are the drivers for the potential reductions in revenues.
Based on our research, Accenture believes that the most likely scenario in the next 10 years could lead to revenue losses at the lower end of our scale, $18 billion a year in the U.S. and 39 billion (US$48 billion) in Europe, caused by a moderate reduction in load on the grid network, said Valentin de Miguel, global managing director of Accenture Smart Grid Services. Falling technology costs, shifting consumer sentiment and moderate electricity price increases will drive to increased penetration of clean technologies and the reduced utility revenues.
Major shifts within the utility landscape in Germany and U.S. are already evident, with only last week German utility E.ON announcing a major restructuring and the Hawaiian Electric being purchased by NextEra. Both the German and Hawaiian electricity networks have seen major disruption in the form of high levels of distributed generation technologies in recent years with solar PV playing a major role.
Accenture notes that solar PV is at grid parity in many states in the U.S., across Australia and in most of the EU. The consultants expect Japan to follow suit in the next few years, then being joined by the rest of North America, with the exception of Canada and some U.S. states with particularly low electricity prices.
Death spiral unlikely
Accenture notes that reports of the utility spiral may have been widely exaggerated.
While the death spiral, as commonly defined, is a myth, the demand disruption caused by the growing adoption of energy demand-disrupting technologies is a very real threat to utilities business models, added de Miguel. And in addition to the financial pressure, this will cause significant operational challenges for utilities, increase technical stress on the grid and open the market to new competition for energy products and services.
The death spiral itself may not eventuate, but Accenture reports that utilities are becoming increasingly aware of the threats to their business models. While only 43% of utility executives surveyed by Accenture in 2013 said they expect significant or moderate revenue reductions as a result of growing distributed generation and energy efficiency, this number has grown to 61% this year.
Accenture has also found that increasingly utility executives expect grid faults to result from increases in distributed and large-scale renewable penetration in the future. Almost two thirds of utility executives expect grid faults to increase on the low-voltage networks by 2020 with around half expected this also to occur on high voltage networks as a result of large scale renewables. This is significant increase on the 41% and 33% which expected grid disruption on low and high-voltage networks respectively in 2013.
New entrants are also perceived to increase competition in the utility space. Accenture found that 92% of utility executives expect data-related services to become competitors, 87% distributed generation services, 90% beyond-the-meter energy efficiency and demand response technologies and 81% electric vehicles and charging infrastructure.
As part of this transformation, [utilities] should focus on engaging with regulators to secure the long-term viability of the distribution business, said Accentures de Migel. This includes the adoption of new tariff structures, opening up new markets and aligning subsidies; investing in grid optimisation, such as automation, sensing devices and real-time analytics; and developing new customer products and services.
Accenture surveyed 85 utility executives across 20 countries between July and October 2014 in the drafting of its report. The report can be found here.