The Great Energy Transition - Meeting the Challenges

This informal CPD article The Great Energy Transition - Meeting the Challenges was provided by Cambashi, a leading global industry analyst & consulting firm.

The Great Energy Transition - Meeting the Challenges

With sustainability and energy security at the top of utility companies’ agendas, they must be prepared with the latest market intelligence to maximize the opportunities. There’s no doubt that utilities companies are facing a number of challenges in their businesses. Before the COVID-19 crisis, there were several trends that they were responding to, some of which have accelerated post-COVID-19, including increased competition, matching supply and demand, a highly regulated environment, and a skilled worker shortage.

So, what is the current position of the utilities industry? Energy prices soared towards the back end of 2021, fueled by the rising prices of oil and natural gas. The problem was compounded a few months later with Russia’s invasion of Ukraine, casting doubt over energy security across Europe.

Given the relationship between energy prices and economic growth, recovery from the pandemic is going to suffer. European nations must improve their energy security – and accelerating their energy transition will be a crucial strategy in achieving this.

With this massive energy transition happening, it’s no surprise that people involved in business communications with utility companies, from CEOs to sales and marketing managers, are finding it hard to keep up with trends and challenges¹ impacting the sector.  That’s why tactical industry intelligence² linked to the latest trends in the industry is absolutely fundamental to address the things that really matter.

Sharp realization

In 2021, Russia was supplying roughly 40% of the European Union’s natural gas. Following the invasion and the introduction of sanctions, supply of natural gas from Russia has been progressively cut. Supply through the Nord Stream pipeline fell to zero in September 2022 – the official statement is that the pipeline requires maintenance that cannot be completed as a consequence of sanctions cutting off supply to the required parts, European countries are not convinced.

As Russian gas supply fell, and with winter fast approaching, European countries needed to act, starting with large-scale stockpiling of natural gas. The target set in May, which was completed ahead of schedule, was to fill natural gas storage sites by 80% by November 1. While this target enhanced the resilience of the gas system, the higher storage requirements added to gas demand inflating prices.

As energy prices rise, so do production costs, as companies pay more to power factories, keep lights on, or refrigerate and transport goods. Over time, these costs work their way through to consumers in the form of higher prices. Combine this with the fact consumers have less disposable income, since they are paying more to heat their homes, a reduction in demand is almost inevitable. This problem is particularly prominent across Europe, with multiple countries predicted to enter recession in 2023.

The sharp realization of the need to shore up energy security is prompting many countries to look at accelerating their energy transition strategies.

Energy transition

‘Energy transition’ is a term coined for the current movement society is going through, pivoting away from fossil fuels and towards renewables. Unlike past transitions, this is not driven by demand or availability, but by the acknowledgement of the detrimental effect fossil fuels are having on the planet.

Utility providers are facing the challenges of increasing renewable energy, ensuring reliability and resilience, and maintaining security, all while keeping costs low. To meet these challenges, the utilities industry must continue its ‘3D’ transformation –decarbonization, decentralization, and digitization.

But, as utility companies invest in digitizing their networks, their vulnerability to cyberattacks increases. The electricity system of an entire nation could be affected by cyberattacks, which primarily aim to bring about massive infrastructure breakdowns. As a result of the expanding interconnectivity of infrastructure and systems, as well as the rise in utility-targeted assaults, cybersecurity concerns continue to be at the top of utilities' priority lists.

Creating a comprehensive security policy that spans the entire organization and includes both physical and cyber-based security, is a challenge that cannot be ignored.

What are the opportunities?

Part of the International Energy Agency’s 10-point plan to reduce the EU’s reliance on Russian natural gas is to accelerate the deployment of new wind and solar projects. The impact will be an additional 35 TWh of generation from renewable projects over the next year, over and above the already anticipated growth from these sources, reducing gas use by 6 bcm. If positioned correctly, the changing energy mix will present new opportunities for utilities providers to grow their earnings throughout this decade.

Wind power is a popular renewable energy source and has a much smaller impact on the environment than burning fossil fuels. Offshore wind is the deployment of wind farms located in bodies of water, where higher wind speeds mean electricity generation is higher per amount of capacity installed, compared to wind farms located onshore.

However, despite near-record capacity growth in 2020 and 2021, the EU saw wind power generation fall by 3% in 2021 due to unusually long periods of low wind conditions, further fueling long-standing reliability concerns.

The main challenge for utilities companies involves expanding the transmission infrastructure to connect renewable energy to the grid, and wind power, especially offshore wind, presents a particularly unique challenge in this area of connecting the turbines to the coastal infrastructure.

Solar power was initially used as a source of electricity for small and medium-sized applications, from the calculator powered by a single solar cell to remote homes powered by an off-grid rooftop PV system. Solar PV is rapidly becoming an inexpensive, low-carbon technology to harness renewable energy from the sun. As the cost of solar electricity has fallen, the number of grid-connected solar PV systems has grown into the millions. The cost competitiveness of solar PV is enabling a new business model, with solar and storage becoming two very complementary technologies. The main benefits of combining solar and storage are cost synergies, improved operational efficiencies, and a reduction in storage capital costs.

Utilities companies must understand how they can implement this type of offering into their business plan, or they will find themselves at risk of new players offering the service instead.

Positioning for success

The changing landscape presents new opportunities for utility providers, and positioning to embrace and enable the shifting energy mix will be a recipe for success. However, the competitive landscape is consolidating as companies, utilities, and governments prepare to meet ambitious climate targets, tighten up energy security, and lay foundations for the energy transition.

Partnerships and strategic alliances may prove to be the best way forward. We may start to see utility companies increasingly looking to the oil and gas sector, with years of offshore drilling experience under their belts. Turning their attention towards new applications, such as offshore wind farming, could be lucrative, and provide utility companies with the vital knowledge and capital that will be required to succeed in the new era of renewable power.

As the utility industry faces the Great Energy Transition, executives must stay up to date. This involves keeping track of key industry trends, challenges, and regulations across all the countries their companies operate in. It's essential to identify the different categories of products and grasp the various business strategies, as well as engage with the main areas of change, growth, and risks in the industry.

We hope this article was helpful. For more information from Cambashi, please visit their CPD Member Directory page. Alternatively please visit the CPD Industry Hubs for more CPD articles, courses and events relevant to your Continuing Professional Development requirements.

References

¹https://cambashi.com/utilities-industry-insights-and-market-research/

²https://cambashi.com/our-services/industry-training/