europe's energy transition: take control of your future
TRANSCRIPT
EUROPE’S ENERGY TRANSITION: TAKE CONTROL OF YOUR FUTURE
NAVIGATING MEGATRENDS AND TIPPING POINTS
MARK LIVINGSTONEDirector +44 20 7469 [email protected]
Mark Livingstone is a director in the Global
Energy practice, based in London. He has
more than 25 years of experience navigating
change in energy, utilities, and telecom
sectors. His strengths include strategy
development, economic analysis, business
planning, support for major commercial
decisions, and leading teams to solve complex
business problems. Key clients include major
energy companies, governments, regulators,
and infrastructure investors.
JAN VRINSGlobal Practice Leader - Energy +1 305 341 [email protected]
Jan Vrins is a managing director and Navigant’s
Global Energy practice leader. He advises
utility executives on developing strategies for
ensuring long-term operational and financial
success in a rapidly changing landscape. Jan
developed the Utility of the Future Framework
to help clients understand how the trends in
the market and evolving business models can
improve their commercial and operational
performance. His utilities industry experience
includes investor-and government-owned
utilities in North America, Europe, and Latin
America. Jan has authored various publications
and presented at leading industry conferences.
With extensive consulting experience (24+
years) in the energy sector and a history of
growing businesses in diverse, global markets,
Jan is a global leader in today’s energy
consulting industry.
CONTRIBUTORS
STUART RAVENSAssociate Director
GAJAN SRITHARANDirector
ERIC WOODSAssociate Director
AUTHORS
ABOUT NAVIGANT
KATHLEEN GAFFNEY Managing Director +44 20 7469 [email protected]
Kathleen Gaffney is a managing director in the
Global Energy practice, based in London.
With more than two decades of experience
in managing large-scale, multi-year
engagements and overseeing the work of large
interdisciplinary research teams, Kathleen plays
an integral role in advising energy clients
on demand-side policies, markets, and
programmes. Her work centers on directing
targeted market research that incorporates
robust data analytics, customer segmentation,
and behavior modeling to help clients better
understand evolving customer expectations
and strengthen their competitive position
in a rapidly changing environment.
Navigant Consulting, Inc. (NYSE: NCI) is a
specialized, global professional services firm
that helps clients take control of their future.
Navigant’s professionals apply deep industry
knowledge, substantive technical expertise,
and an enterprising approach to help clients
build, manage and/or protect their business
interests. With a focus on markets and clients
facing transformational change and significant
regulatory or legal pressures, the Firm primarily
serves clients in the healthcare, energy and
financial services industries. Across a range
of advisory, consulting, outsourcing, and
technology/analytics services, Navigant’s
practitioners bring sharp insight that pinpoints
opportunities and delivers powerful results.
More information about Navigant can be found
at navigant.com.
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EUROPE’S ENERGY TRANSITION: TAKE CONTROL OF YOUR FUTURE
NAVIGATING MEGATRENDS AND TIPPING POINTS
The pace and impact of change in the utilities industry globally
is unrelenting. Europe is no exception, and one could argue
that the pace of the energy transition in Europe is faster than
anywhere else in the world. The European Union (EU) as a market
is the largest energy importer, importing 53% of its energy at an
annual cost of around €400 billion (~$446 billion). This drives
many aspects of energy policies, including placing the EU at the
vanguard of grid reform over the past decade.
In this white paper, Navigant Consulting, Inc. (Navigant) shares its
view on the energy transition in Europe by describing the related
megatrends and tipping points. The tipping points are clear and
the megatrends discussed cannot be underestimated. They are
accelerating the energy transition in Europe, enabling the entry of
new players, putting pressure on incumbent players, and altering
traditional strategies and business models. Organisations will need
to adapt, and there will be winners and losers as this transition
takes shape. In the sections that follow, Navigant describes
strategic pathways and new business models to navigate the fast
changing energy landscape.
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Each of the following megatrends is changing the way we
produce and use power. Together, these megatrends are
revolutionising the energy industry:
1. Rising number of carbon emissions reduction policies and
regulations: The long-term impact of the Paris Climate
Agreement will be significant. The agreement will focus on
limiting global warming to well below 2°C (3.6°F) by the
year 2100. A record number of countries (175) signed the
agreement, which they must now each ratify and approve—
which could take some time. But European countries,
provinces, cities, and utilities are not waiting. They are taking
actions now toward the outlined objectives and targets of
the agreement. In fact, sustainability objectives between
government, policymakers, utilities, and their customers are
more closely aligned than ever before. Numerous European
cities have committed to sustainability targets; some
have already committed to 100% clean energy, including
Copenhagen, Malmo, and Munich. The EU has shown no signs
of slowing down in its ambition to standardise reform across
unique markets through regulatory and policy momentum. A
single energy market for EU member states is an enabler—if
not a necessary condition—in a policy of an “ever greater
union,” with or without the UK. Meanwhile, the UK has enacted
legislation to deliver emissions reductions consistent with the
2°C target through the Climate Change Act of 2013 and the
commitment to remove 100% of coal-fired generation from
the UK system by 2025. As the EU moves with ever greater
momentum, Navigant believes other European countries in
the hinterland around the EU will also be swept along. This
is in part because these counties will seek to gain from the
triple bottom-line benefits (climate sustainability, increased
efficiency and productivity, and greater energy security)
and in part because the EU as a trading partner will require
compliance with these standards, policies, and regulations.
2. Shifting power-generating sources: According to the Energy
Information Administration (EIA), net European generation
capacity will increase by 7 GW in 2016. Much of Europe’s new
capacity now comes from renewables, with close to 75% of
new capacity coming from wind (44%) and solar (29%). While
some new coal (16%) and gas (6%) capacity was added, far
more coal and gas assets were decommissioned. As a result,
net new capacity in Europe is virtually 100% renewables.
While recent solar subsidy cuts have tempered its growth,
wind is marching inexorably onward. There is still no effective
utility-scale solution to the inherent intermittency in renewable
generation, with storage solutions and grid interconnection/
active management still lacking penetration at scale.
5
Natural gas is therefore the obvious bridging fuel during
the shift to renewables. Given the abundance of natural gas
availability globally, lower long-term prices, and increasing
import capacity in Europe, Navigant expects more natural
gas generation capacity to come online in the mid-term. More
traditional generation assets, particularly coal and nuclear, face
an uncertain future. For coal, every scenario looks dark—at
best bad and at worst grim. Older coal plants are being phased
out; others are being converted to biofuels and eventually
natural gas. Nuclear power accounts for 25% of all European
electricity consumed, and any change in nuclear’s role in the
generation mix will take time to implement. However, nuclear
power highlights the significant differences in national energy
policies across the EU and the wider European context.
Nuclear was abandoned in Germany, yet still may enjoy a
renaissance in the UK if the British government decides to
move forward after all. Meanwhile, new plants are under
construction in France, Finland, and Slovakia. Germany has
undergone the most significant generation source transition
in Europe: it leads the market in renewables capacity, while its
nuclear decommissioning programme has been accelerated.
As a result, its two largest utilities are separating their
businesses to focus on the one hand on renewables, grid
modernisation, and distributed energy resources (DER), and
on the other hand traditional generation and trading. Germany
has become a net exporter of power, and the knock-on effects
of this shift in power generation sources means neighbouring
countries have had to significantly change their networks to
manage the impact of intermittency on their own systems and
more investment in their own grid.
3. Delivering shareholder value through mergers and
acquisitions (M&A), restructuring, and divestment: New
industry ventures, M&A, and divestitures are happening at a
rapid pace. In the search for shareholder value through scale,
increased synergies, and reducing exposure to less performing
businesses, this is a path that utilities will continue to explore.
European renewables leader DONG Energy became the
largest initial public offering (IPO) in 2016 with a valuation of
approximately €13.5 billion (~$15 billion), and RWE Innogy is
slated for its own IPO by year-end. ENGIE (formerly GDF Suez)
and Centrica are investing billions in creating new DER and
energy services businesses with numerous acquisitions. EDF,
Enel, and others continue to acquire assets outside Europe in a
search for global expansion and shareholder value. All this has
been occurring while much of the 2016 M&A activity so far has
been the divestment of non-core assets, with 1 GW of utility-
owned wind assets sold to investors in 2016.
4. Globalisation and regionalisation of energy resources: The
EU actively seeks to deliver Europe’s 2030 climate and energy
targets while ensuring security of supply and affordable prices.
The EU also seeks to be a world leader in renewable energy.
Achieving these goals requires a transformation of Europe’s
electricity system, including the reconfiguration of individual
member state electricity markets into a single energy market.
The EU must also achieve a balance with meeting consumers’
expectations, delivering benefits from new technology,
and facilitating investments in renewables and low-carbon
generation while also recognising the interdependence of
member states. A critical part of this initiative is connecting
isolated national and regional electricity systems to secure
supply and to achieve a truly integrated EU-wide energy
market—a key enabler for the continent. While the UK’s vote to
leave the EU raises a number of questions about future policy,
it is too early to call what impact Brexit will have on the UK’s
participation in the EU’s future single energy market. What is
clear is that a focus on greater levels of interconnection (both
offshore and onshore) and energy efficiency will continue to
be necessary aspects of EU energy policy and will continue to
receive much scrutiny.
5. New entrants and converging industries: With €400 billion
(~$446 billion) in new industry value up for grabs, new
entrants see value in European power markets, which is
disrupting the traditional utility industry and taking market
share away from utilities. These new entrants include
manufacturers; technology companies (from startups to
global powerhouses like Apple, Amazon, and Google);
telecommunications and other data, content, and network
providers; and even some oil & gas companies (like Total). For
utilities, it will become more expensive to address a smaller
market with the resulting impact on margins. Europe is no
exception, and with significant opportunities for growth across
the value chain and new energy and digital technologies
available, Navigant sees new entrants investing in renewables,
DER (distributed generation [DG], energy efficiency, demand
response, storage, etc.), energy management, smart cities and
infrastructure, and transportation. We see many cross-industry
movements between utilities and oil & gas. Shell getting back
into renewables and Total announcing the creation of a Gas,
Renewables and Power division—which the company has said
will help drive its ambition to become a top renewables and
electricity trading player within 20 years—are examples of this
new competition’s encroachment on traditional utility markets.
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6. The power of customer choice and changing demands:
Whether residential, commercial, or industrial, customers want
to control their electricity usage and spend, as well as when
and what type of power they buy. But beyond having supplier
options (in competitive markets), customers now want the
ability to self-generate and sell that power back to the grid.
Many residential customers in Europe have and will continue
to install rooftop solar, and despite the reduction of subsidies
in some countries, overall residential DG will continue to grow.
On the commercial and industrial (C&I) side, large corporations
like Amazon, Apple, Cisco, Google, HP, Mars, and many other
large energy buyers in Europe have increased their focus on
sustainable energy solutions. For example, Swedish furniture
retailer IKEA plans to completely shift to renewable energy
by 2020 and will invest up to €1.5 billion (~$1.7 billion) in wind
and solar energy as part of new safeguard nature strategy. The
company does not rule out becoming a net energy exporter,
potentially selling the surplus of energy to suppliers or
customers. The key question is: Who will capture the value of
more local (distributed), broader (energy management), and
individualised energy—the incumbents or the disruptors?
7. The emerging Energy Cloud: Old infrastructure is being
replaced, and the trend toward a cleaner, distributed (flexible),
and smarter energy infrastructure, known as the Energy Cloud,
will accelerate. The Energy Cloud is an emerging platform
of two-way power flows and intelligent grid architecture
expected to ultimately deliver higher quality, greener, and
more affordable power. While this shift poses significant risks
to incumbent power utilities, it also offers major opportunities
in a market that is becoming more open, competitive, and
innovative. Fuelled by steady increases in DER, this shift will
affect policy and regulation, business models, and the way the
grid is operated in Europe. The work by EU member states
in decarbonising and digitising the grid has made the region
a global leader in energy transition and puts Europe at the
forefront of testing Energy Cloud reform through policies
that mitigate carbon emissions, expand the role of DG, and
promote smart grid initiatives.
In the following section we discuss each of the megatrends and
their impact on the energy transition in Europe. We also discuss
what this means for key stakeholders, customers, incumbents,
disruptors, and government organisations and describe strategic
pathways to navigate the many changes. By understanding these
megatrends and subsequently defining and implementing new
strategies and business models, you can take control of your
own future.
1. RISING NUMBER OF CARBON EMISSIONS REDUCTION POLICIES AND REGULATIONS
The rising number of carbon emissions reduction policies and
regulations is fundamentally changing the European utilities
industry. Europe has always been a leader in climate change
and carbon reduction initiatives. Policies and regulations to
reduce greenhouse gas (GHG) emissions continue to evolve
at the European level, as well as across the unique markets at
the individual country and local levels (provinces and cities).
Europe has established a long-term goal of reducing emissions
to 80%-95% below 1990 levels by 2050. This overarching goal
is supported by a range of polices, regulations, and binding
targets (currently set for 2020 and 2030) targeting GHG
reductions for specific sectors, energy efficiency, building
performance, and renewables.
Although there is no question that there have been threats to
its ability to achieve these targets—including various austerity
and financial measures, Brexit, and, more recently, Clexit1 —the
EU remains committed and has recently put into place new
regulations to provide the needed incentives for individual
member states to dig even deeper. Several countries are leading
the way, and when combined with initiatives at the local level
(often in partnership with the private sector and local energy
companies), we are seeing the sustainability objectives of
governments, policymakers, utilities, businesses, and local
communities become more closely aligned than ever before.
The long-term impact
of the Paris Climate
Agreement2 will be
significant. This agreement
will focus on limiting global
warming to well below
2°C (3.6°F) by the year
2100. Each nation sets
its own target for reducing emissions each year. While a record
number of countries (174 and the EU) signed the agreement in
April 2016, the agreement will only go into effect when at least 55
countries representing at least 55% of global emissions formally
become parties to it. Through August this year, only 24 countries
had ratified the agreement.3 On September 3, the United States—
immediately followed by China—announced it would formally join
the agreement. This brings the total to 26, representing nearly
40% of the world’s emissions.4 Hopefully, a few of the other major
emitters—India, Mexico, Canada, and Australia—come through on
their public commitments to join the agreement this year in time
for COP225 in Marrakech during November 2016.
TIPPING POINT
Paris Climate Agreement
signed by 174 countries and
the EU will focus on limiting
global warming to well below
2°C (3.6°F) by the year 2100.
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What Are Individual Countries Doing?
Many European countries have made significant contributions
toward the EU’s climate and energy targets; a few examples are
offered below.
Despite Brexit, the UK stands out as the first country to
establish legally binding carbon policies and regulations. The
UK’s Climate Change Act of 2008 establishes the framework
for its transition to a low-carbon economy and requires that
UK GHG emissions in 2050 are reduced to at least 80% below
1990 levels. In fact, the UK’s most recent Fifth Carbon Budget,8
which legislates the UK’s GHG emissions reductions targets,
limits GHG emissions during 2028-2032 to 57% below 1990
levels. In addition, the UK government has announced plans to
close all coal-fired power plants9 by 2025 and restrict their use
by 2023.
Germany has led the market for solar renewable energy
development, with other countries like the UK, France, Italy,
and Spain having made substantial investments over time, and
some countries continuing to accelerate investments, especially
for distributed solar PV. Despite some short-term challenges
in certain countries, Europe as a whole is highly committed
to advancing its renewable energy agenda. For example,
distributed solar PV will be a major contributor to the EU’s
renewable targets; over 150 GW of solar capacity representing
€250 billion ($279 billion) in revenue is forecast for 2016-
2024,10 of which three-quarters will be distributed solar PV.
Germany also appears to be leading in the area of energy
efficiency, having recently announced a €17 billion ($19.4
billion) campaign titled Effizienzoffensive,11 the ultimate goal
of which is to cut the country’s energy consumption in half
by 2050. The German government has launched the scheme
because expansion in renewable energy sources alone will not
be enough to meet the country’s carbon emissions reduction
targets. The campaign will include a competitive tender to
acquire cost-effective energy savings, a pilot smart metering
programme, a waste heat recovery initiative, and other
activities promoting cross-cutting technologies.
EU Carbon Regulation
The EU has long had some of the most aggressive carbon
policies and regulations in place, along with complementary
policies establishing binding targets for energy efficiency,
building performance, and renewables. Its most recent strategy
is set out in the Energy Roadmap 2050.6 Policies and measures
have also been put in place to achieve interim goals and targets
for 2020 and 2030. While it is expected that the EU will achieve
its 2020 targets for GHG, emissions, energy efficiency, and
renewables, current predictions indicate that it will fall short
of the 2030 targets by a considerable amount. Based on that,
a proposal for new regulation was announced on 20 July
2016. Referred to as Effort Sharing Regulation,7 this regulation
establishes binding national targets ranging from 35%-40%
for some EU member states with higher than average GDP per
capita and significant cost-effective GHG reduction potential
(e.g., Luxembourg, Germany, and the UK). It also sets targets of
0%-10% for member states on the other end of the spectrum
(e.g., Bulgaria, Romania, and Latvia).
The EU’s Energy Roadmap 2050 explores pathways for the
transition to a new energy system that meets these GHG emissions
goals while simultaneously promoting competitiveness and security
of supply. In its analysis, the EU concludes that decarbonisation
is technically and economically feasible. A European approach is
expected to result in lower energy costs and more secure energy
supplies compared to individual national schemes. Further, the EU’s
move to establish a fully integrated internal energy market aims to
remove technical and regulatory barriers to improved competition
and expanded consumer choice, while at the same time create
interconnections needed to improve energy security, reduce
imports, and prepare networks for carbon-free energy resources.
With or without the UK, Europe is moving forward on its path
to achieve its ambitious carbon emissions reductions targets,
which will continue to be facilitated by its long-established and
well-supported climate and energy policies. Many of Europe’s
leading countries have already begun to realise the triple
bottom-line benefits from these policies. Other countries will
follow along, and over time, Europe—as a major international
trading partner—could advance its position as a global leader in
establishing climate and energy compliance standards worldwide.
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Key Roles for Stakeholders
Meanwhile, many utilities are decommissioning or converting their
existing coal plants and investing in utility-scale renewables, as well
as DER. We have seen Centrica, ENGIE, and others make significant
investments in new energy businesses focused on new distributed,
greener, and smarter energy products and services. The biggest
challenge in this energy transition will be balancing ongoing
investments in the grid while the total volume (and with that,
total revenue) that flows through core centralised components
decreases over time. This includes mitigating the risk of stranded
assets that may become obsolete or financially unsustainable, as
well as their cost to their business, their customers, and society.
Governments and regulators at all levels have a key role to play,
as well. They will have to balance a wider set of imperatives
supporting a safe, reliable, and affordable power grid while
at the same time incorporating clean, distributed, and more
intelligent energy. In doing so, they must ensure that this shifting
landscape accommodates innovation while also adapting rules
and procedures to keep up with the pace of change underway.
What Does This All Mean?
The sustainability objectives of government, policymakers, utilities,
and their customers are more closely aligned than ever before.
Countries and local governments will continue to discuss how
sustainable targets can be met without affecting jobs and the
access to safe, reliable, and affordable power. And utilities will
continue to evolve to support cleaner, more distributed, and more
intelligent energy generation, distribution, and consumption.
Recommended action items for countries, local governments,
and utilities include:
• Understand the possibilities, costs, and full impacts of
low-carbon generation and DER (energy efficiency, demand
response, and others).
• Implement a workable framework and develop an integrated
plan to move toward lower emissions goals, since it’s certain
that decreased emissions requirements will be in place in the
near future.
• Leverage neighbouring country and local government designs
and efforts (as described above) at the European level to
develop joint plans, policies, and goals.
• Implement (pilot) initiatives that include renewable energy
and other low-carbon generation into a reduced emissions
framework while also incorporating energy efficiency and
DG as resources into the decreased emissions planning process.
In the transport sector, Norway is leading the charge toward
decarbonisation with its support for EVs (Electric Vehicles).12
Today, nearly one-quarter of all new cars sold in Norway are
EVs, which is a key outcome of the government’s efforts to raise
awareness and support EV market development for the past 30
years. Norway’s (dis)incentive programmes (taxes, fees, tolls,
access lanes, etc.) have also contributed to this outcome, as has
its investment in EV charging infrastructure. Today, Norway has
more than 1,000 public charging stations covering 55,000 miles
of roadway, as compared to the 13,000 stations covering 4 million
miles of roadway in the United States.
Norway and other European countries (e.g., Sweden, Germany,
France, and the Netherlands) have also recently announced
plans to phase out fuel-powered transportation.13 While there
is considerable opposition to these plans from a diverse set
of political and commercial perspectives, it is expected that if
multiple EU member states succeed in establishing these types
of bans, the EU will attempt to enforce similar rules throughout
its territory.
Local Initiatives
Although policy and regulation at the EU and country level will
continue to evolve, Navigant also sees significant movement at
the local level. Numerous cities have committed to clean energy,
with some establishing 100% clean energy targets, including
Copenhagen, Munich, Malmo, and the Isle of Wight. Cities and
businesses have been showing tremendous leadership in reducing
the emissions responsible for climate change and building
resilience to climate impacts. That’s why the Center for Climate
and Energy Solutions (C2ES) and the US Conference of Mayors
are teaming up to create the new Alliance for a Sustainable
Future. This alliance will help mayors and business leaders
develop concrete approaches to reduce carbon emissions, speed
deployment of new technology, and implement sustainable
development strategies. We see public-private partnerships
between local governments, utility incumbents, new entrants,
and large corporations taking shape and driving the sustainability
agenda forward.
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2. SHIFTING POWER-GENERATING SOURCES
The shift in power generation fuel mix is transforming the European
power industry. European electricity-generating facilities that
use oil, coal, and nuclear are devaluing and, at risk of becoming
stranded as generation sources are shifting to less expensive
renewable generation and natural gas generation. This shift is
playing out in different ways across Europe.
Generation Fuel Mix Shift Is Accelerating
According to the US EIA,
net European generation
capacity will increase by
7 GW in 2016. Much of
Europe’s new capacity
comes from renewables,
with close to 75% of new
capacity coming from
wind (44%) and solar (29%). While new coal (16%) and gas (6%)
capacity was added, far more coal assets were decommissioned.
As a result, net new capacity in Europe is virtually 100%
renewables. Although recent subsidy cuts have tempered solar’s
growth, wind is marching onward. There is still no effective
utility-scale solution to the inherent intermittency in renewable
generation, as storage solutions and grid interconnection/active
management are still lacking penetration at scale. Natural gas is
the bridging fuel during the shift to renewables, supported by
the abundance of natural gas available globally, lower long-term
prices, and increasing import capacity in Europe.
What Are the Drivers Behind This Shift?
Navigant sees five main drivers for the shift in generation
resources described above:
1. Climate change policy: Europe has taken definitive steps
to decarbonise its power generation, including relatively
generous support for renewables and economic penalties
for carbon emitters via the EU Emissions Trading System
(EU ETS).
2. European market coupling: A second aspect of Europe’s
power sector is the physical and economic integration of
markets. Interconnection growth has been strong, and
the economic incentives via use of power exchanges for
dynamic price signalling has provided further support for
low-carbon generation.
3. Generation economics: While policy and regulatory support
for low-carbon generation has taken centre stage, the
economics of various forms of generation have also been
shifting. Within 7 years, solar power has gone from a heavily
subsidised resource to a key component of the generation mix,
even with zero or minimal subsidies. Europe continues to lead
the world in development of offshore wind, particularly in the
North Sea. Thermal generation economics have also changed—
despite relatively low gas and coal prices, low marginal cost
renewables are increasingly forcing thermal plants to shift from
stable baseload operation to less efficient cycling and reliance
on ancillary service contracts.
4. Decentralisation of generation: The scale of DER is not yet
huge across Europe; however, this trend is already shaking the
traditional utility business models. The rise of the prosumer is
gathering momentum, be it an industrial customer who invests
in combined heat and power, a new commercial building with
a biomass boiler, or a housing development with rooftop solar
panels.
5. Public sentiment: This driver cannot be underestimated
given the prevalence of democratically elected governments
in Europe. Public support for action to curb climate change
despite the costs has been most obvious in Germany, where
the changes via nuclear shutdowns and solar growth have
been massive—and expensive. In the UK, it is more expensive
to construct offshore wind than onshore, but the public and
political preference is that location trumps economics.
How Does This Play Out Across Europe?
Navigant Research forecasts that 66% of European installed
renewable generation capacity in 2016 will be in five countries—
Germany, Italy, France, Spain, and the UK. In the struggling
economies of Portugal, Italy, and Greece, the rate of renewable
growth has slowed to just 0%-2%. Countries that are still
dependent on coal as a fuel source face economic and fuel
supply obstacles.
Beyond the recognised elements of the shifting power generation
trend in Europe, there are a series of potential tipping points that
will have pronounced consequences depending how they fall:
• New nuclear: This is a topic of much debate in the UK and
France. Germany has all but made its mind up, barring a major
political reversal. Until recently, the UK Department of Energy
and Climate Change (now part of the Department of Business,
Energy and Industrial Strategy) was a strong supporter of
new nuclear in a portfolio of low-carbon generation. The
new Hinkley Point C nuclear facility was planned to begin
a renaissance of nuclear, but with new skepticism rearing
TIPPING POINT
In 2016, solar (10.3 GW) and
wind (10.1 GW) are expected
to make up almost 75% of
total planned generation
additions in Europe.
10
its head in the UK media, there is still a chance that the
nuclear renaissance will stall and the UK will turn to a mix
of more gas and offshore wind. France is another country
to watch given its historic strength in nuclear power. Unless
the struggling Flamanville facility can turn the corner soon
and get commissioned, the growing renewables may get a
massive boost that goes beyond current political support.
Public sentiment is also an important card to play in the
nuclear game. As the power system shifts from the traditional
centralised model toward a more dynamic, distributed
environment, there are both significant strengths and
significant weaknesses in retaining large inflexible baseload
generators. Ultimately they are likely to look increasingly out of
place in the new world order.
• Electricity storage technology and economics: Elements of
storage in the electricity system are not new, but pumped
hydro storage and fuel storage to provide thermal generation
are increasingly being surpassed in the perceptual stakes by
other new technologies. The recent National Grid Enhanced
Frequency Response tender in the UK was massively
oversubscribed. Among all the disruptive technologies that
affect the electricity system, a breakthrough in electricity
storage technology and economics offers perhaps the greatest
potential to radically change the power system of the future.
The US Department of Energy is so convinced of this that
it is funding 75 breakthrough research projects developing
electricity storage solutions. These include radical new options
such as organic flow batteries,14 which avoid the need for
costly and rare metals such as lithium and vanadium. The race
is on to find ways to bring storage costs down below $100/
kWh, or €90/kWh at present exchange rates.
• European shale gas developments: Shale gas has proven
revolutionary in the United States; however, it remains
questionable in Europe. Even though it is highly unlikely to
have the same supply and economic characteristics as it does
in the United States, it may indeed prove a further tipping
point in favour of gas-fired generation if significant quantities
of shale gas are produced within Europe. Security of supply is
always of paramount importance, so the notion that countries
in Europe would produce then export most of their supply
would be hard to comprehend. Whereas coal is struggling
to find favour other than in countries with little alternative,
Europe has a great deal of relatively modern gas-fired
generation that is not being well utilised. There may be a trend
toward smaller, more flexible plants, but gas-fired generation
has a viable future under most scenarios for many decades yet.
• Carbon target commitments for 2030: While COP21 was
a major milestone in global climate change, when the
microscope is turned on European national commitments
to decarbonise power generation, the image is less rosy.
Some countries such as Spain and Italy appear to have
reached peak renewables, where their appetite to push
on and manage the ongoing system impacts are not high.
Germany is struggling to digest its huge solar investment
and accept the consequences on battling local firms such as
RWE, E.ON, and Vattenfall. The UK has repeatedly backed
away from committing to 2030 carbon targets, preferring to
stick with existing 2020 and 2050 numbers. Until firm 2030
commitments by country are made in early 2017, there is
insufficient muscle to power Europe forward.
• Interconnect and Brexit: No discussion about Europe is
complete without a mention of Brexit. The immediate
question and a potential tipping point is how European
interconnect developments will fare, especially those
proposed in the North Sea to connect Scandinavia, Germany,
the Netherlands, France, and the UK. These projects greatly
affect the larger renewable generation economics, allowing
easy and unrestricted export and import of power between
countries as wind, sunshine, and other renewable sources
vary between nations. Most commentators assume that the
UK will retain its close ties to European energy markets;
however, if this changes, it could precipitate an unravelling of
arrangements with far-reaching consequences.
What Does This Mean for Generators?
More traditional generation assets, particularly coal and nuclear,
face an uncertain future. For coal without carbon capture and
storage, every scenario looks at best bad and at worse grim.
As evidenced by Navigant’s Generation Knowledge Service
(GKS), the average capacity factor of coal plants has declined by
20%-30%, which translates to a 20%-30% drop in gross revenue
opportunity. To deal with the combination of lower realised
revenue and higher operating costs, companies are evaluating
their plants to determine if they can survive in the new world.
They are actively seeking new ways to reduce costs through
staffing changes, fewer planned outages, and higher operating
efficiencies while maintaining high reliability to support the
increased use of variable generation. Older coal plants are being
phased out and others converted to burn biofuels. Revenue
support from capacity contracts and better ancillary service
contracts such as black-start capability is also becoming crucial.
11
Nuclear power today accounts for 25% of all European electricity
produced, and any change in nuclear’s role in the generation mix
will take time to implement. However, nuclear also highlights the
significant differences in national energy policies across the EU
and the wider European context. Nuclear was effectively killed in
Germany, yet may still enjoy a renaissance in the UK; new plants
are under construction in France, Finland, and Slovakia.
As a result, the economics have changed and some of the existing
(coal and nuclear) assets are experiencing eroded profit margins.
These margins are resulting in challenging economics and, in
some cases, significant devaluation. More generation assets are
increasingly at risk of becoming stranded investments, as the fuel
mix is shifting more quickly than envisioned.
And to Make Things Worse: The Move from Big to Small Power
More and more customers are choosing to install DER on their
premises. DER solutions include DG, demand response, energy
efficiency, distributed storage, microgrids, and EVs. In 2016, DER
deployments will reach 32 GW in Europe (not including energy
efficiency). According to the EIA, central generation net capacity
will decrease in 2016 (with 7 GW new generation additions and
8.5 GW retirements). This means that DER is already growing
significantly faster than central generation. On a 10-year basis
(2015-2024), DER in Europe is expected to grow more than 5
times faster than central station generation (530 GW vs. 106
GW), not including energy efficiency.
This trend varies by country because policy approaches, market
dynamics, and structures vary. However, the overall move to
small power will persist. In other words, the movement toward
customer-centric solutions and DER will ultimately become
commonplace across Europe. This will have major impacts on
integrated resource planning (long-term planning of resources),
energy markets (with aggregated DER resources becoming
available), and the way the grid is being operated day-to-day. All
three levels of integrated DER (iDER) are critical to capture the
full value of DER and manage the risk of stranded assets.
Path Forward
As a path forward, generators must clearly define the mission of
each generating unit to understand their new role and how to
survive economically. To succeed, Navigant believes companies
must do the following:
• Conduct a strategic review of generating assets and determine
what, if any, changes need to be made in their generation
portfolio and/or how these assets are managed under several
regulatory and commodity pricing scenarios.
• Find innovative ways to reduce operations and maintenance
costs while maintaining the reliability required by the
independent system operators during target operating periods
(for plants that will continue to run in the near term).
• Seek new sources of revenue to replace the capital-
intensive position for large generating plants by considering
investments in renewables and DER, particularly energy
storage, and optimising commercial contract opportunities
with system operators.
• Have a strategy to manage significant reductions in staffing
levels and loss of critical experience across the board,
including dealing with the impacts on funding pensions and
local economies when plants are retired.
• Plan for a changing workforce that will include deeper
knowledge of digital technology and an understanding of how
to optimise operations in a more variable power market.
• Assess options for global asset diversification given the
changes and new opportunities in traditional parts of the value
chain such as transmission and distribution.
12
3. DELIVERING SHAREHOLDER VALUE THROUGH MERGERS AND ACQUISITIONS, RESTRUCTURING, AND DIVESTMENT
The increase in M&A and divestment activity is reshaping the
utilities industry. Large acquisitions and restructuring maneuvers
have significant impacts on the European utility markets.
What’s Happening?
In the search for increased
shareholder value and to
address policy changes by
governments encouraging
clean energy, companies are
looking at scale, synergies,
and reducing exposure
to lower-yielding parts of
the business. Europe has seen renewables leader DONG Energy
become the largest IPO in 201615 with a valuation of approximately
€13.5 billion (~$15 billion), and RWE Innogy is slated for its own
IPO by year end.16 E.ON announced it will be separating its more
traditional forms of power generation into a new company that is
expected to be listed during the second half of 2016. ENGIE and
Centrica are investing billions in new DER (includes DG, energy
efficiency, demand response, storage, and more) development
and energy services businesses through numerous strategic
acquisitions. Even the oil majors are getting back into new energy,
making strategic investments well beyond their traditional oil &
gas businesses.
What’s Driving This Change?
There is a widely recognised downturn risk, with global growth
forecast downward, the impact of the UK referendum, the mature
European market, and the growing awareness of the impact of
the slowdown of four of the largest emerging economies (China,
Russia, Brazil, and South Africa). Despite this, there is evidence
of healthy deal flow in the utility sector affecting incumbents
and new participants alike. The main drivers behind this are low
demand growth (which limits earnings growth), increased carbon
reduction policies,17 changing customer demands, the growth of
DER, and the attractiveness of the steady returns from regulated
assets in the sector.
But it goes further than that. With the emergence of the
Energy Cloud18 driving a broad and deep digitisation of the
industry, utilities, manufacturers, technology companies, and
others are looking for ways to retain their customers, improve
their market position, and grow earnings.
They are targeting a completely new market of technologies and
services, including DER, building-to-grid, electric transportation,
smart cities, Internet of Things (IoT), and transactive energy,
which Navigant has estimated will generate $446 billion in new
annual industry revenue by 2030 in Europe. The European energy
transition in many ways is leading the way globally, and we see
the following acquisition, new venture, and divestiture scenarios
playing out across the industry.
Utilities Acquiring Other Utility Companies or Assets
A combination of falling deal value in Europe and rising deal
value in other parts of the world resulted in a decline in European
utilities’ share of the of the global M&A deal market over the last
4 years. A large part of this was due to European acquisition
targets being in short supply, being less attractive when coupled
with the policy constraints faced by many European power utility
companies, and the US government’s clampdown on cross-border
tax inversion deals.
However, there has been targeted activity driven by a renewed
search for international growth and synergy savings. Enel Green
Power (EGP) in January 2016 took the first step into the German
renewables market with the acquisition of a majority share in
Erdwärme Oberland (EO), a company that specialises in the
development of geothermal projects. In addition, Iberdrola
made a $4.4 billion acquisition of UIL Holdings in the United
States, which is the most notable outbound move by a European
utility for expanding outside Europe, and MET Group made an
acquisition of Repower’s energy supply operations in Romania
as part of its expansion along the value chain. Navigant does see
large-scale M&A increasing again after this year once divestitures
and IPOs have stabilised and the overall investment climate in
Europe becomes more favourable.
TIPPING POINT
DONG Energy becomes the
largest IPO in 2016 with a
valuation of €13.5 billion
(~$15 billion).
Utility M&A Deals 2012-2016
YEAR NUMBER OF DEALS VALUE
2012 442 $52 billion
2013 370 $45 billion
2014 344 $40 billion
2015 318 $38 billion
1Q 2016 $7 billion
(Source: Mergermarket)
13
Institutional Investors and Private Infrastructure Funds Acquiring Utility Companies
Institutional investors’ search for steady yields remains
undiminished around the world. The steady, long-term returns
available from regulated assets in the power utilities sector
are attractive to investors, particularly in today’s low interest
environment. Institutional investors, especially cash-rich private
equity funds from the Far East and China, are moving into
generation, where in previous years the interest was based in
network assets.
We have also seen an increasing number of investment yield
vehicles and holding companies designed to give Middle Eastern
investors in particular access to portfolios of longer term
contracted assets, with the renewables sector being a particular
focus. A number of the largest deals announced in 2016 fall into
this category, with 16 deals worth a total of $4 billion in the first
quarter. The most notable of these were Beijing Enterprises
Holdings’ acquisition of German energy-from-waste company
EEW Energy for $1.6 billion, ISQ Global Infrastructure Fund’s $1.1
billion acquisition of Viridian Group, and Danish pension provider
PKA and Kirkbi A/S’s acquisition of 50% of DONG Energy’s UK
offshore wind farm project for $1 billion.
Divestitures and IPOs
Divestment of non-core assets to focus on capital projects
and growth through acquisitions will be the likely source
of restructuring activity in Europe in 2016. The number of
divestments marks the highest half-year deal count since 2003,
according to figures published by Mergermarket. DONG Energy’s
intended divestment of its oil & gas pipelines and review of its
exploration & production business will be a significant deal in this
respect. This deal would represent a milestone in unbundling one
of Europe’s largest power utilities.
Other landmark deals include RWE’s separation of its renewable
power generation and distribution business into Innogy and
selling a 10% stake through an IPO later in the year. The company
intends to use the funding from the IPO to increase its capital
expenditure in renewable energy and trends of the energy world
of tomorrow. There’s also E.ON’s separation of its conventional
power business into a separate entity called Uniper, which is
expected to be listed in 2016. While developments both were in
response to Germany’s drive to develop more renewable power
capacity at the expense of more conventional coal and gas-fired
plants and to close its nuclear stations, all big utility companies
in the major European markets are reviewing their portfolios
in response to the decarbonisation drive and to optimise their
balance sheets. In the UK, National Grid’s intent to dispose of a
majority stake in its gas distribution business is likely to attract
considerable interest from a range of institutional funds. Similarly,
competition is likely for OMV Group’s planned sale of up to a 49%
minority stake in Gas Connect Austria.
Utilities Buying Energy Technology Companies
Globally, Navigant sees more technology companies being
acquired by utilities with acquisitions of renewables, energy
storage companies, and DER. In a recent cross-border transaction,
French utility giant ENGIE took a majority stake in Green Charge
Networks. In Europe, this trend is distorted by the size of the deals
falling below the radar; many of the deals are small to midsize in
nature or joint ventures and tend to focus on beyond-the-meter
service offerings, energy storage solutions, and other disruptive
technologies. In March 2016, Ecova, a leading US energy company,
acquired Power Efficiency Ltd., a leading European energy
procurement and carbon reduction service provider. In late
2015, E.ON signed an agreement with Samsung to develop a
business model for targeting applications for lithium ion batteries
in selected markets. Earlier that year, E.ON sold its Italian solar
operations to private infrastructure fund F2i SGR as it exited the
Italian solar market. F2i subsequently signed an agreement with
EGP to form a joint venture to boost the development of solar PV
in Italy. In that same year, EGP opened its first solar power plants
combined with battery storage facilities with technology partner
General Electric.
A development we are seeing in the United States that has yet
to make its way to Europe is the acquisition and investment
of analytics companies by utilities in an effort to adapt to the
increasingly complex distributed energy environment. A recent
example is the $20 million investment in AutoGrid Systems
from Energy Impact Partners, a utility group that includes
Southern Company, Xcel Energy, Oncor, National Grid, and
Envision Ventures.
Oil Majors Diversifying into the Sector through Acquisitions
When Chatham House warned oil majors that they must
transform their business or face a short and brutal end, no one
expected the ensuing events. There were always signs that oil &
gas majors were moving into the power market for their resource
production, with Gazprom being the most notable until now with
its $4 billion purchase of Moscow Integrated Power Company
in 2013. With Shell and Total now diversifying their portfolios
into the local carbon and cleantech markets,19 the landscape
has changed. We see oil & gas majors making investments in
renewables, DER, transportation, smart infrastructure and cities,
and energy management.
14
In the first half of 2016, Total acquired Lampiris, a renewable
power vendor based out of Belgium, for $225 million,20 as well
as battery maker Saft for $1.1 billion. Total has a stated ambition
to be the top renewable and electricity player within 20 years;
the company previously acquired a majority stake in solar
company SunPower, and in April announced21 the creation of a
Gas, Renewables and Power division. Shortly after, Shell, Europe’s
largest oil giant, established a new division called New Energies
to invest in renewables and low-carbon power generation. With
close to $2 billion in capital investment already attached to this
business and an estimated $200 million in annual funding, the
company has ambitious plans to be at the leading edge of the
transition to lower carbon economies.
Manufacturers or (Energy) Technology Companies Acquiring Other Manufacturers and (Energy) Technology Companies
Globally, this category has seen significant activity with solar
companies acquiring other solar companies, solar companies
merging with energy storage companies, and even technology
companies buying other technology companies. In the United
States, from Google buying Nest to Oracle buying Opower,
there is an acute interest in being part of the momentum, and
companies are looking for unique and differentiating technologies
and capabilities to stay ahead of the competition. In Europe,
Navigant sees a tremendous number of new companies coming
into the energy space, selling new and innovative energy
technology products and services. This is expected to be the
growth area for the volume of deals, with a significant amount
of investment pouring into newer, greener ways of producing,
managing, and using power. Europe is at the beginning of a
greentech groundswell, and IKEA is leading the way with a pledge
to invest $650 million (on top of its earlier investment of $1.6
billion) into cleantech energy projects.
So What Does This All Mean?
Our advice to utility companies is threefold. Your landscape
is changing rapidly, and technology improvements and new
participants in the market are forcing the pace of this change to
unfamiliar territory. If you take the “low regret cost” option, you
will end up with stranded assets as new entrants will innovate,
provide utility products and services, and gain market share.
Think out of the box on how to diversify your revenue streams
from new products and services along the value chain, as well as
complementary products. Look beyond your comfort zones into
emerging markets and form partnerships with local incumbents.
Your customers today can become your competitors tomorrow
(as seen with IKEA), or they could seek to be energy self-
sufficient, as seen in Apple’s search for European sites with
renewable energy sources to power its data centres.22 This
emerging trend with customers using the grid infrastructure to
buy and sell power (i.e., transactive energy) where the traditional
utility companies are required to maintain the infrastructure
has the real risk of forcing you down the low ROI direction. If
you are not proactive in forming strategic partnerships with
non-traditional participants to explore opportunities, however
insignificant and tangential it may seem in your current
environment, you will become a reserve source of energy rather
than a primary one.
The transition from fossil fuels to a low-carbon mix due to
technologies and market players will transform the sector
from what it looks like today. Embrace green technology—your
customers and your stakeholders are. If you do not, then you will
lose customers who opt for newer, greener technologies as they
change their strategy to meet their own customers’ desires for
low-carbon energy consumption.
Balancing today’s business with tomorrow’s opportunities is key.
Thinking through strategy and future case scenarios will help
you understand the opportunities and threats. Existing planning
horizons and tools, such as strategic plans and integrated
resource plans, are insufficient. A more agile strategic planning
approach is needed to pinpoint the trends, opportunities, and
threats, and to introduce new technologies and business models
successfully to address market and customer needs. Navigant’s
white paper, Navigating the Energy Transformation,23 offers a
framework for approaching strategic planning within an industry
facing historic transformation, outlining five steps industry
participants should follow to prepare their organisations to
maneuver around disruption and capture value in the Energy
Cloud. Navigant can help clients understand the impacts of
the many industry changes in their business and develop and
implement a strategic identity and growth plan (10-15 years), as
well as an agile Energy Cloud Playbook (6-12 months) that will
help you navigate a path forward and take control of your future.
15
4. GLOBALISATION AND REGIONALISATION OF ENERGY RESOURCES
The globalisation and regionalisation of energy resources is
fundamentally changing the European energy industry.
What’s Happening?
The EU is actively aiming to deliver on Europe’s 2030 climate and
energy targets while ensuring security of supply and affordable
prices. The EU also seeks to be a world leader in renewable
energy. Achieving these goals requires a transformation of
Europe’s electricity system. To assist in this transformation, the
EU must achieve a balance of meeting consumers’ expectations,
delivering benefits from new technologies, and facilitating
investments in low-carbon generation while also recognising
the interdependence of member states. A critical part of this
initiative is connecting isolated national and regional electricity
systems to secure supply to help achieve a truly integrated
EU-wide energy market—a key enabler for the continent and
one that goes well beyond precursors such as Nord Pool. While
the United Kingdom’s vote to leave the EU raises a number of
questions about future policy, it is too early to say what effect
Brexit will have on the United Kingdom’s participation in the EU’s
future single energy market. (The United Kingdom has, however,
been an enthusiastic proponent of this to date.) What is clear is
that a focus on greater levels of interconnection (both offshore
and onshore) and energy efficiency will continue to be necessary
aspects of EU energy policy—and ones that receive much scrutiny.
To get access to the necessary energy supply and resources, more
regions, countries, energy markets, and utilities—including those
in Europe—are looking beyond the traditional borders of their
energy business and territory.
What’s Driving This Change?
The main drivers behind this globalisation and regionalisation of
energy resources are:
• Access to cheaper natural gas globally
• Accelerated shift of generation resources to renewables,
which requires greater system flexibility to maintain security
of supply
• Economic and political imperatives for energy import
and export
Access to Cheap Natural Gas Globally
Driven by a technology breakthrough applied in the field, shale
gas has transformed the global gas market. On 24 February 2016,
for the first time in history, liquefied natural gas (LNG) from North
America was exported from the contiguous United States—from
the Cheniere Sabine Pass facility in Louisiana—to Europe, a
historic moment in the globalisation of the gas industry.
Globally diverse sources of
natural gas and increased
movement of these
sources—in the form of
LNG by ship—is becoming
increasingly prevalent from
places far from one another.
As Australia, the United
States, and Canada follow Qatar with plans to export LNG in
large volumes, the global gas market is poised for a renaissance.
Although the LNG industry has been a victim of its own success
as prices have declined, the growing availability of gas to global
markets is set to impact places that never previously had access.
This movement is bringing with it the opportunity for new gas-
powered industries such as petrochemicals and an increased
availability of cleaner gas-fired power generation to people and
places around the world.
Extensive European infrastructure for gas transmission, including
pipelines and new LNG facilities, is helping ensure that cheap gas
will be available in most parts of Europe. There is a lag effect as
to how this impacts gas generation development; however, in the
short to medium term, it at least underpins gas’ ability to remain
a key fuel source for heating, industrial use, and flexible power
generation. While the latter use may fly in the face of carbon
targets, with questions around new nuclear and other baseload
low-carbon generation, the net reduction from replacing coal with
gas is still significant and may prove to be at least a convenient
bridging arrangement.
Accelerated Shift of Generation Resources to Renewables
In Part II of this white paper, we discussed the changing
generation mix across Europe. Virtually all net growth in recent
years has come from renewables. To achieve this while managing
the system security of supply requires much greater flexibility
in the way the electricity systems are managed across Europe.
Flexibility is essential and the key underpinnings of this are
interconnection, storage, and demand response. To date, the most
prevalent of these has been the rapid growth in interconnection—
for example, the import of French nuclear power to support
Germany’s solar boom and the high-voltage direct current
(HVDC) interconnection to enable the United Kingdom and
Denmark to rapidly develop their wind generation sector.
TIPPING POINT
On 24 February 2016, for the
first time in history, LNG was
exported from North America
to Europe.
16
It can be argued that without access to hydro reserves from
Norway and Sweden, neither country would be able to accelerate
its current offshore wind program. This interconnectedness is
a strength of the European system, but it also means that, in
effect, each nation relies on others for its ultimate security of
supply. In the future, the impact of storage will complement this
and aid renewables integration and system stability. Storage and
the ongoing development of demand response will also lead to
local regionalisation, whereby markets at a more local level are
necessary to deal with increasingly decentralised generation and
the local flexibility enabled by smarter metering.
Economic and Political Imperatives
The third driver may be obvious to some but is the most
challenging to achieve in practice in many ways. Greater
affordability for consumers across Europe is promoted
through a more regional approach to energy supply. However,
macroeconomic theory and national politics do not always pull
in this same direction. It sounds simple for Norway to increase
its exports to the United Kingdom via a new interconnector
as both countries gain overall; however, if this leads to higher
wholesale prices in Norway through a reduced surplus, then
consumers may see an impact on their retail price. To date the
economic efficiency of Europe’s market coupling has proven
a sound platform for rapidly improving the regionalisation of
energy resources across the continent while political will has held
firm in most respects. Some initiatives such as the North Sea
Grid may work on a region-wide basis yet do not translate into
a commercial rationale that leads to specific profitable projects
for investors. Given the importance of a united energy policy for
maintaining affordability and energy security across the continent,
this needs to remain a critical area of policy and regulatory
attention as 2030 targets come firmly into focus.
So What Does This Mean?
It is worth reminding ourselves of the underlying objectives as
defined by Europe’s Energy Union:
• Electricity systems will become more reliable, with lower risk
of blackouts.
• Money will be saved by reducing the need to build new
power stations.
• Consumers’ increased choice will put downward pressure on
household bills.
• Electricity grids will be able to better manage increasing levels of
renewables, particularly variable renewables like wind and solar.
Looking forward, the EU market, national policymakers, and
utilities first need to adapt their long-term resource plans
and incorporate regional scenarios for power supply, while
also building in a rapidly changing fuel resource mix toward
renewables and natural gas. Second, they must think outside the
box with regard to securing fuel or access to renewables well
beyond their traditional territory borders. Third, to effectively
develop system plans, the planning processes need to take into
account the entire regional transmission system. Regional entities
should find a way to bring together players such as distribution
network operators, municipalities, and other smaller industry
players to ensure their needs are also addressed and more
holistic solutions are presented. Finally, to facilitate and enhance
emerging market offerings such as enterprise information
management, the planning toolkit needs to expand to better
address the challenges of large-scale renewables integration
across multiple regions.
5. NEW ENTRANTS AND CONVERGING INDUSTRIES
With €400 billion (~$446
billion) in new industry value
up for grabs, new entrants
see value in European
power markets, which is
disrupting the traditional
utility industry and taking
market share away from
utilities. These new entrants
include manufacturers;
technology companies (from startups to global powerhouses
like Apple, Amazon, and Google); telecommunications and other
data, content, and network providers; and even some oil & gas
companies (like Total).
For utilities, it will become more expensive to address a smaller
market, with the resulting impact on margins. With significant
opportunities for growth across the value chain and new
energy and digital technologies available, Navigant sees new
entrants investing in renewables, DER, energy management,
smart cities and infrastructure, and transportation. Smart cities
are dynamic, localised platforms that recombine technologies
and services around energy, transportation, and data
communications and provide fertile testing grounds for both
industry incumbents and disruptors.
TIPPING POINT
Navigant projects that the
Energy Cloud’s evolution
could result in nearly €400
billion (~$446 billion) of
new value in Europe from
investments in digital
infrastructure and associated
services by 2030.
17
Navigant sees many cross-industry movements between
utilities and oil & gas. Shell getting back into renewables and
Total announcing the creation of a Gas, Renewables and Power
division—which the company has said will help drive its ambition
to become a top renewables and electricity trading player within
20 years—are examples of this new competition’s encroachment
on traditional utility markets.
What’s Happening?
Europe’s focus on the interdependent goals of creating a
low-carbon economy, ensuring energy security, and enabling
competitive energy markets make it a test bed for many of the
developments associated with the energy transition. This is
reflected in the European market’s attraction for players across
the energy value chain, including many new entrants that see
an opportunity to disrupt the traditional utility industry and take
market share away from incumbent utilities.
The role of energy companies, including utilities, network
operators, and oil & gas companies, is being transformed by a
series of fundamental shifts, including the following:
• Energy consumption and GDP growth: Although population
and GDP growth (at a slower pace) drive growing energy
demand, the trend line between GDP and energy consumption
growth has been broken in absolute terms in EU countries.
Primary energy consumption in the EU countries was almost
the same in 2013 as in 1990 according to the European
Environment Agency24 (albeit partly as a result of economic
recession). This dynamic puts pressure on all players in the
energy sector. Utilities with no or limited customer growth see
their overall revenue declining. Utilities that still see customer
growth are reporting that demand (and revenue) is not
growing at the same pace. This is creating an unsustainable
situation: utilities with flat or declining revenue yet growing
costs to serve their customers and maintain the grid.
• Impacts of climate change: In a Navigant Research blog,25
we discussed the impacts of the growing number of policies
and regulations to reduce carbon emissions. It is clear that
this impact is being felt, as Europe is on target to meet its
2020 goals for renewable energy and carbon emissions
reductions. However, member states now face the challenge
of meeting more challenging new targets if they are to make
progress toward the grand goal of making Europe a low-
carbon economy by 2050. In the meantime, cities and large
corporations are not waiting—they are setting their own
sustainability targets and investing in programs that reduce
their carbon footprint. Power generators, network operators,
and energy retailers are all active in this transformation but
also face significant, and in many cases unknown, challenges
as they try to understand the new demands placed on their
businesses and operations.
• Big power to small energy and the rise of the prosumer:
Commercial, industrial, public sector, and residential energy
consumers are all becoming more actively engaged in
energy management and energy generation. More and more
customers are choosing to install DER on their premises. DER
solutions include DG, demand response, energy efficiency,
distributed storage, microgrids, and EVs. Europe is expected to
have the greatest percentage of new DER capacity deployed
compared to centralised generation throughout the next
decade. New energy retailers are also taking advantage
of these changes and the development of smart energy
applications and online service models to provide more
innovative and lower-cost solutions for customers. These new
entrants are further challenging the established position and
profitability of the incumbent players.
How Industry Giants Are Responding
As a consequence of these changes, electricity utilities are
under pressure. As revenue declines, costs are increasing due
to needed investments to provide safe, reliable, and affordable
power while also supporting an emerging, cleaner, and more
distributed and intelligent grid that is required to provide needed
flexibility. Therefore, utilities are looking for new revenue streams
and thinking through new business models26 that will create
shareholder value going forward. Oil & gas companies, under
additional pressure because of the continued low oil price, are
looking for ways to survive by taking out costs, reducing their
upstream capital investments, and shutting down unprofitable
assets. However, their long-term future also requires them to find
new opportunities to grow revenue and shareholder value in new
energy businesses.
Both utilities and oil & gas companies are looking to turn the
challenges of the energy transition into their advantage through
entry into new markets and the delivery of new energy platforms
and services. Total’s Chairman and CEO Patrick Pouyanné has
stated27 that the company’s goal “is to be in the top three global
solar power companies, expand electricity trading and energy
storage and be a leader in biofuels.” Meanwhile, French energy
giant, ENGIE has been investing heavily in renewables and
storage technologies, developing its energy services business,
and establishing its Cities of Tomorrow28 programme to target the
growing smart cities market.
18
European utilities have also been embracing DER and developing
alternative business models to capitalise on new technologies
and the changing resource mix. This is especially true in Germany,
where there are high levels of DER and utilities like RWE and E.ON
have begun transforming their business into a more capital-light,
DER-based model by shedding centralised generation assets and
positioning themselves as enablers and integrators of new DER.
For example, RWE has invested in and formed a rooftop solar
partnership with German solar developer Conergy and is white
labelling Sonnenbatterie’s behind-the-meter battery systems for
solar-equipped German homes. As DER penetration in Europe
accelerates, Navigant sees more value in moving from generation
to distribution and beyond the meter.
Energy market incumbents are developing strategies to position
themselves as the leading force in creating the new order. At
the same time, other players—from giants in the transport, IT,
telecommunications, and engineering sectors to energy service
and technology startups—are looking to increase their share of
these emerging opportunities. For example, Europe is seeing
the emergence of a new class of DER aggregators aiming to
take advantage of these new technologies and the utilities’
evolving business models. LichtBlick, Caterva, Next Kraftwerke,
and Ampard are just a few of the companies establishing virtual
power plant business models to provide additional value from
the integration of DER into the European grid. Many other,
much larger players also see the potential in brokering the new
relationships emerging between energy companies and their
end customers.
Cities at the Heart of the Energy Transition
The continuing interest in developing smart cities is closely
aligned to the transformation in the energy market and
provides an important example of how the energy landscape
is evolving. More than any other region, Europe has recognised
the importance of smart city developments to its energy
transition programme. Cities are examining the sources and
efficiency of their energy to reduce their GHG emissions
and energy costs. In the process, cities are becoming more
ambitious and proactive in setting energy strategy.
They are seizing opportunities to work with utilities and other
stakeholders to create new urban energy systems. The emerging
vision is of a smart city with integrated large- and small-scale
energy initiatives, including major infrastructure investments, citywide
improvements in energy efficiency, and distributed energy generation.
Across the continent, city leaders have been signing up for ambitious
carbon emissions targets and are taking an active role in encouraging
utilities and other players to support their strategies. Stockholm and
Copenhagen have led the way with plans to become carbon-free
cities, and many more cities are now following their path. Frustrated
at the slowness of the change they are seeing, some cities are even
taking matters into their own hands and looking at re-municipalisation
of utilities or the creation of new city energy companies. Hamburg, for
example, took back control of the city’s energy in 2014. In the United
Kingdom, Bristol and Nottingham have established new city-owned
energy companies, and the new Mayor of London has made a strong
commitment to a new energy policy for the capital.
Utilities are responding to these challenges by working closely with
cities and communities to develop new energy models. Alliander,
for example, has been a long-standing supporter and investor in
the ambitious Amsterdam Smart City29 programme. E.ON has been
working with smart cities in order to test integration of its smart
grid solutions that enable more effective energy management and
integration of DER. In Malmo, Sweden, the utility and the city signed
an agreement to adapt the entire Hyllie district of Malmo to a climate-
friendly energy supply. By 2020, the entire district’s electricity, heating,
and cooling will be powered exclusively by renewable resources and
energy recovery.
Another aspect of Europe’s urban agenda that is having a
strong influence on the energy sector is the focus on sustainable
transportation. The EU has put the triple play of energy, transport,
and information and communications technology (ICT) at the heart
of its innovation programme for cities. Reducing emissions from
transportation is the next critical frontier in the decarbonisation of the
European economy—electrification of heat and transport pose the
most obvious options for sustainable demand growth in the present
market. Europe has arguably the strongest level of utility engagement
in developing EV charging services. Utilities and energy companies
such as Germany’s RWE, Italy’s Distribuzione, Ireland’s ESB, and the
Danish utilities SEAS-NVE, SE, NRGi, EnergiMidt, and Energi Fyn have
all funded charging deployments or invested in companies that
deploy chargers. For example, Danish company CLEVER30 is owned
by the five largest utilities in Denmark and operates a network
of several hundred EV supply equipment stations throughout
Denmark; the company is now branching out into other geographic
markets. Enel has developed an interoperability platform and is
aggressively deploying charging stations, with more than 2,000
deployed across Italy.
19
So What Does This Mean?
The next decade will see a reshaping of the European energy
sector to meet the needs and challenges of a low-carbon
economy. We have already seen some of the industry’s largest
players moving quickly to expand their capabilities and services to
meet these new requirements. Further diversification and mergers
and acquisitions are inevitable as players look to gain a footprint
in emerging services and exploit new energy technologies.
Energy companies also need to broaden their partnership
network, working with those in the public services, transportation,
infrastructure, and ICT sectors to deliver the integrated
capabilities needed to make the energy transition a reality. They
also need to create new relationships with their customers,
as they too become partners as much as end consumers. The
industry giants of today are using their resources as some of
the biggest companies in the world to engineer this energy
transformation and to meet future shareholder interests. They
will need to continually reinvent themselves and become broader
and more adaptable energy companies able to protect existing
revenue streams and seize new opportunities. However, not all
bets will pay off. We will inevitably see some wrong turns in this
process of adaptation and the eventual winners may well be those
who learn quickest from their mistakes.
6. THE POWER OF CUSTOMER CHOICE AND CHANGING DEMANDS
Customer choice and rapidly changing customer demands are
among the most impactful megatrends driving Europe’s energy
transition. Utilities and new entrants are competing for customers
and market share through new energy products and services.
They are also implementing new business and revenue models in
search for growth and shareholder value. Navigant’s Energy Cloud
Playbook is one path forward.
What’s Happening?
Whether residential, commercial, or industrial, more customers
want to control their electricity usage and spend, as well as when
and what type of power they buy. Historically, customer choice was
restricted to switching suppliers. However, the European market
is rapidly changing, and utilities will have to prepare themselves
for far more complex customer demands and relationships. For
example, many customers now want the ability to self-generate
and sell that power back to the grid. Many European homeowners
have installed rooftop solar and are interested in storage.
Additionally, despite the reduction of subsidies in some countries,
overall DER will continue to grow in the long term.
On the C&I side, large corporations like IKEA, BMW, Metro AG,
Unilever, Swiss Re, Roche, Aviva, and others are increasing their
focus on sustainable energy solutions. The key question moving
forward is: Who will capture the value of more local (distributed),
broader, energy management and individualised energy—the
incumbents or the disruptors?
Increasing Competition
The European power markets are struggling to balance the
requirements to reduce prices, invest in renewable generation,
secure supply, and improve the customer experience. European
electricity customers pay some of the highest prices in the
world, yet many customers receive substandard service from
their current utility provider. The move toward a single European
energy market is the cornerstone of EU energy policy; thus,
there is an expectation that power markets will become more
competitive, not less. Competition has many consequences
for a utility’s customer relationships, which can directly affect
the utility’s business model. However, it is not the only factor:
consumers are becoming increasingly aware of the financial
and environmental cost of their power consumption. They are
also increasingly expecting better, more personalised service
from suppliers. As a result, customers will engage with the
power industry in new ways, demand new services, and seek out
alternative suppliers and options (like self-generation, energy
management, etc.).
A New Deal for a New Breed of Customer
The EU wants to put consumers at the heart of the power market.
In the second half of 2016, a set of legislative proposals for a new
energy market design31 will be published. This new deal for energy
consumers is based around three pillars: saving money through
better information, a wider choice of actions when participating in
the power market, and maintaining the highest level of consumer
protection. The market design will enable customers to actively
participate in the market, adapt their consumption according to the
requirements, create clearer bills, and accurately compare prices to
improve switching rates. The EU also reiterated its desire to tackle
the issue of residential price regulation that hampers competition.
Finally, the market design will try to remove barriers stopping
customers from generating their own power and selling excess
generation back to the grid.
C&I customers are central to Europe’s transition to a low-carbon
economy. Many corporations have incorporated sustainable
energy consumption within their corporate responsibility
agendas. For example, Swedish furniture retailer IKEA plans to
completely shift to renewable energy by 202032 and will invest
up to €1.5 billion (~$1.7 billion) in wind and solar energy as part
of its new safeguard nature strategy. The company does not
rule out becoming a net energy exporter, potentially selling the
surplus of energy to suppliers or customers.
20
Most customers—both residential and commercial—who generate
their own power33 will do so with solar PV (potentially combined
with storage). Until a few years ago, Europe dominated the market
for solar PV installations, driven largely by a range of different
subsidies. These subsidies have largely been removed, and the
market has flattened. However, we could be witnessing a short-
lived consolidation period for solar: the market could soon pick up
as the cost continues to decrease and if current import tariffs on
cheap Chinese panels are lifted.
Other DER will further transform the way customers consume
power. Locally available battery storage will help customers
become more self-sufficient; EVs will dramatically change how,
when, and where customers use energy; and peer-to-peer trading
networks will help customers decide to whom they will buy or sell
their power.
A New Business Model for the New Deal
These new customer demands are already reshaping the utility
market. The more forward-thinking utilities are making significant
investments into new business models, and competition is increasing.
Time is running out for the less adventurous: smart metering will be a
reality in the majority of European countries by 2020.
Those companies that have prepared for a more connected,
digital, and personalised customer relationship will be at an
advantage against those that have not.
One of the most significant business model changes is the shift
from a commodity-based supply business to an energy service
provider. Many utilities have expanded their product offerings
beyond the regulated power supply model and broken into
new areas—smart home technologies, boiler maintenance or
replacement, insurance, home appliances, and security systems
are just some of the services offered. One other important area
is the relatively new phenomenon of broadband and other
communications services. Dutch utility Delta sells broadband,
fixed-line, and pay TV services alongside power and gas.
The market is not immune to new entrants. Some
telecommunications companies such as Croatia Telecom are
now bundling energy with their more traditional services. Other
telecoms, such as Deutsche Telekom and O2, are heavily investing
in smart home technologies. New models of buying power—
including collective switching groups and energy cooperatives—are
appearing. In the United Kingdom where the model of municipal-
owned utilities was scrapped years ago, councils are setting up their
own energy businesses to offer low-cost power to their citizens.
TRANSPORT OF ELECTRICITY
21
Competition will not end there, as many companies will likely
enter the market with radically new business models. For instance,
as solar PV and battery storage technologies become cheaper
and more efficient, many customers could be taken completely
off-grid by new entrants. Retailers, technology companies, and
telecoms are also looking at smart home technologies that could
ultimately cut utilities out of many customer relationships.
New Business Models Need Better Customer Understanding
As new technologies—smart meters, electric vehicles, demand
generation, energy storage, and smart home devices—proliferate
and mature, so will the opportunity to develop deeper and
more complex relationships with customers. However, as these
opportunities grow so does the threat from competition. To create
the right products and services and market them in the most
effective way, utilities must better understand their customers’
needs. New technologies will bring deep insights into each
customer’s requirements. By using advanced analytics, utilities
have a unique opportunity to put the voice of the customer at the
heart of their business planning.
What Does All This Mean for Utilities?
Utilities have to adapt. Customers will look for better, greener, and
cheaper alternatives, and more and more of these alternatives
are becoming available. What’s more, the fight for large C&I
customers is going to change dramatically. If only a small
percentage of large C&I and government customers switch
over to local DG and energy management solutions, current
suppliers and network operators will be in trouble. This will affect
their revenue streams, roles, and the cost versus value of the
centralised managed grid.
Facing declining revenue as customers consume less and
produce more of their own power, utilities are confronted with
potential stranded generation (and eventually transmission and
distribution) assets. This makes it even harder to make large
investments aimed at improving reliability and resilience in
their current grid while also making it more intelligent. Utilities
also have to make investments in developing DER capabilities,
offerings, and businesses.
Given these challenges,
utilities must play both
defence and offence. An
updated defensive strategy
requires suppliers to
engage with customers to
understand their changing
demands regarding price,
sustainability, and reliability. They also have to continue to
improve customer service at the lowest prices possible. Network
operators must engage with regulators to find equitable
ways to charge net metering customers for transmission and
distribution services that fairly address the cost to serve. They
have to continue to improve grid reliability at the lowest cost
possible and streamline asset management and operations,
while also developing utility-owned renewable assets to appeal
to environmentally conscious customers.
Playing offence is even more important. Suppliers must create
new revenue streams through the development of new business
models, products, and services. They also have to transform
their organisations and culture in order to fully integrate sales,
customer service, and operations. Network operators must
upgrade the grid and operations to facilitate the integration of
DER and explore new revenue streams as network orchestrators.35
There is no going back to the old ways of doing business. Utilities
must lead—by playing both defence and offence—or they run the
risk of being sidelined.
Utilities conducting strategic planning must embrace an agile
mindset focused on achieving two objectives: accelerating the
time to market readiness and reliably producing high quality
results. This will be crucial to remaining competitive, as value
moves down the value chain and barriers to entry are decreased/
eliminated. The opportunity lies in continuously shaping DER
portfolios, embracing the rise of the digital prosumer, and
capitalising aggressively on platform opportunities for unbundled
solutions. Navigant believes that utilities must begin transforming
their operations and business models today by simultaneously
pursuing risk mitigation capabilities and making bold bets
on potentially high-growth product offerings. In Navigant’s
Navigating the Energy Transformation white paper,36 we describe
how businesses develop and implement a strategic identity
and growth plan (10-15 years), as well as an agile Energy Cloud
Playbook (6-12 months) that will help them navigate the path
forward and take control of their future.
TIPPING POINT
Existing planning mechanisms,
like strategic plans (with
typically a 5-year horizon)
and integrated resource
plans (typically 30 years) are
insufficient.
22
7. BUILDING A COMPETITIVE ADVANTAGE IN THE EMERGING ENERGY CLOUD
The emerging Energy Cloud is the last megatrend covered
in this white paper. Below is a discussion of how the Energy
Cloud is transforming our industry and how utilities can build a
competitive advantage.
What’s Happening?
There is widespread consensus that a historic transformation
of the utility industry is now well underway, and Europe is
leading the way. From the move to cleaner generation resources
to the prolific rise of DER to customer empowerment to
digitisation efforts across the value chain, disruptive changes
are transforming the way power is produced and consumed.
The result is an increasingly intelligent grid that is cleaner, more
distributed, flexible, and efficient. We call this the Energy Cloud.
• Large, centrally located generation facilities
• Designed for one-way energy flow
• Utility controlled
• Technologically inflexible
• Simple market structures and transactions
• Highly regulated (rate base) and pass through
• Distributed energy resources
• Multiple inputs and users, supporting two-way energy flows
• Digitalisation of the electric-mechanical infrastructure: smart
grid and behind the meter energy management systems
• Flexible, dynamic, and resilient
• Complex market structures and transactions
• Regulation changing rapidly around renewables, distributed
generation (solar, microgrid, storage), net metering etc.
In the Energy Cloud, as described in Navigant’s Navigating the
Energy Transformation white paper, changing customer needs,
evolving policy and regulation, and accelerating technology
innovation and integration will drive the creation of more
distributed transactions and dynamic business models, a more
sophisticated two-way grid platform, and a rapidly evolving
ecosystem. Moving beyond siloed technologies, for example,
ongoing digitisation efforts are laying the foundation for dynamic
platforms that combine technologies and services like iDER, smart
cities, IoT, and transactive energy. These platforms provide fertile
testing grounds for industry incumbents as well as disruptors and
are, as previously mentioned, expected to result in €400 billion
(~$446 billion) in new annual industry revenue by 2030 in Europe.
In the last 2 years, many utilities have rapidly changed their
perspectives on customer engagement (“we now actually listen to
our customers”), innovation (“we are all in”), and DER (“we want
to play”). This future state is no longer a question of if, but rather,
when—and more importantly, how.
Wind Farm with Energy
Storage
Utility/Community Solar
Electric Vehicles Homes with Solar PV and
Storage
Hospital Campus with
Microgrid
Wind Farm with Cogeneration
Power Plants
Commercial O�ces with
Rooftop Solar
Factory with Natural Gas
Combined Heat and Power
EMERGING: THE ENERGY CLOUD
POWER PLANT
COMMERCIAL
TODAY: ONE-WAY POWER SYSTEM
RESIDENTIAL
INDUSTRIAL
TRANSMISSION & DISTRIBUTION
(Source: Navigant) (©2016 Navigant Consulting, Inc. All rights reserved.)
23
A 2030 Energy Cloud Scenario
European utilities are at various stages of integrating DG, demand
response, energy efficiency, electric vehicles, and electric storage.
Navigant expects this trend to accelerate. Based on our forecasts,
DER is expected to grow more than 5 times faster than central
station generation in the next 5 years in Europe. That makes
DER one of the most disruptive factors affecting the grid today
and into the future. Under an aggressive scenario, we describe a
transformative Energy Cloud ecosystem in 2030 as follows:
• Utility-scale and distributed renewables account for 50%-100%
of generation; DER uptake is widespread, accounting for a vast
majority of new build capacity.
• Annual industry revenue reaches more than $1 trillion in Europe
in 2030, resulting in more than $8.7 trillion in cumulative
revenue generated between 2016 and 2030 across the region.
Digital innovations (i.e., information and operations technology,
data analytics, and connectivity) account for more than one-
fifth of total revenue generation.
• Revenue across the electric value chain shifts significantly
downstream toward the edge of the grid and beyond
(customer side of the meter). Revenue and cost allocation of
generation and supply and new energy services effectively
swap. Cost and revenue of distribution and customer energy
management represent more than half of revenue allocation
across the value chain.
• Grid boundaries are expanded, integrating the existing
infrastructure with behind-the-meter building energy networks
and community-scale nanogrid and microgrid infrastructure,
as well as supergrids linking power networks that extend
across geographic regions well beyond traditional state-nation
boundaries.
• The distributed, intelligent grid gives way to a neural grid that
is nearly autonomous, self-healing, and leverages innovations
in artificial intelligence and cyber-physical systems (i.e., IoT,
self-driving electric vehicles, and the smart grid). The
application of blockchain technology gives rise to
peer-to-peer power exchanges and transactive energy.
How to Build Competitive Advantage
The most critical part of the Energy Cloud transition is balancing
ongoing investments in the core grid and additional dynamic
platforms that support new technologies and products and
services like iDER, customer energy management, smart cities
and transportation, IoT, and transactive energy. Over time, the
total volume (and with that, revenue) that flows through the core,
centralised assets will decrease. These assets will increasingly
become at risk of being stranded, and they may become obsolete
or financially unsustainable. Asset owners must plan now to
mitigate this risk to minimise the cost to incumbent utilities,
customers, and society.
Utilities play a key role in this transition. They must integrate
new technologies, products, and services with the existing
infrastructure, transforming their organisations into network
orchestrators37 so that the full value of distributed energy is
captured while the impact of stranded assets is understood and
managed. Existing planning mechanisms, like strategic plans (with
typically a 5-year horizon) and integrated resource plans (typically
30 years), are insufficient. A medium-term strategic identity and
growth plan (10-15 years) and an agile Energy Cloud Playbook (6-
12 months) are needed to pinpoint the trends, opportunities, and
threats and introduce new technologies and business models that
address merging markets and client needs.
To help navigate our clients in this changing landscape, Navigant
has developed an Energy Cloud Playbook. The first step in the
Energy Cloud Playbook is an assessment of your current status and
level of preparedness. Navigant’s multifaceted iDER Maturity Model
provides an assessment of a utility’s progress in DER integration
capability. We start with a blueprint for what a fully integrated
DER system looks like, and then define five levels of iDER maturity
based on that blueprint. We will assess your strategy, organisation,
and operations against these maturity levels.
No two markets are alike, and the Energy Cloud transformation
will play out differently across European countries, reflecting
unique on-the-ground realities. While not all strategic pathways
to navigate this transformation will be appropriate (or even
successful) for all players across all markets, those that already
acknowledge the complexity of the challenge ahead have an
advantage. Facing more uncertainty, industry stakeholders, and
utilities in particular, will need to adopt a more agile mindset to
maneuver their organisations and position for long-term success.
24
8. FINAL ADVICE: TAKE CONTROL OF YOUR FUTURE
The tipping points are clear and the megatrends discussed in this
white paper cannot be underestimated. They are accelerating
transformation in the energy industry, enabling the entry of new
players, putting pressure on incumbent players, and altering
traditional strategies and business models. Organisations will
need to adapt, and there will be winners and losers as this
transformation takes shape.
We are at the beginning, and Navigant believes we haven’t
seen anything yet. We will likely enter into a 20-year period of
uncertainty, trial and error, successes, and many failures as we
figure out ways to transform our power generation, delivery, and
consumption systems to an orchestrated, agile, open, and efficient
Energy Cloud platform.
Navigant’s advice to senior leadership of energy companies
is to take an integrated, holistic view of the opportunities and
challenges that are flowing from these megatrends. To help
you, Navigant has developed the Energy Cloud Playbook, which
describes the steps you should take. Only then will you be able
understand the full impacts and path forward. And that is the only
way you can really take control of your future.
Navigant is at the forefront of what is happening in our industry.
We collaborate with our clients to help them navigate the rapidly
changing energy landscape. Learn more about our clients,
projects, solution offerings, team, and the Energy Cloud Playbook
at navigant.com/Energy.
MATURITY LEVEL
NUMBER OF DEALS
5Fully mature iDER businessFull set of value-added DER products and services, significant revenue, fully integrated into IRP, markets, and operations
4Managed iDER at scaleFull implementation, DER at scale fully integrated into IRP, markets, and operations, limited value-added DER products and services
3Integrated pilot DERPiloting, DER at scale, initial integration of some DER to IRP, markets, and operations
2 Fragmented DER at scalePlanning, DER at scale, not integrated
1Inactive DERInactive, no significant DER at scale, not intergrated
(Source: Navigant)
ASSESS
STA
KE
HO
LDE
R E
NG
AG
EM
EN
T
CH
AN
GE
MA
NA
GE
ME
NT
VA
LUE
EN
HA
NC
EM
EN
TCREATE STRATEGY
DESIGN ARCHITECTURE
DEVELOP ROADMAP
DEMONSTRATE & ITERATE
IMPLEMENT
ENERGY CLOUD PLAYBOOK
(Source: Navigant)
25
1. Valerie Richardson, “U.N. Pushes Fast-Track Ratification of Paris Climate Deal as Countries Get Cold Feet,” The Washington Times, 19 July 2016.
2. www.cop21paris.org/about/cop21.
3. Eliza Northrop, “Paris Agreement: Getting Closer to ‘Entering into Force- this Year,” World Resources Institute, 28 July 2016.
4. Statement, “U.S. and China Join Paris Agreement; ‘Raise the Bar’ for Climate Action,” World Resources Institute, 3 September 2016.
5. www.cop22-morocco.com/index.php.
6. European Commission, Energy Roadmap 2050, 2012.
7. European Commission, Proposal for a Regulation of the European Parliament and of the Council on Binding Annual Greenhouse Gas Emission Reductions by Member States from 2021 to 2030 for a Resilient Energy Union …, 20 July 2016.
8. www.theccc.org.uk/tag/5th-carbon-budget.
9. Department of Energy & Climate Change and The Rt Hon Amber Rudd MP, “Government Announces Plans to Close Coal Power Stations by 2025,” 18 November 2015.
10. Navigant Research, Distributed Solar PV, 2015.
11. Carbon Pulse, “Germany Launches €17 Billion Campaign to Boost Energy Efficiency,” 12 May 2016.
12. Clean Energy Leadership Institute, “What the U.S. Can Learn from Norway’s Electric Vehicle Policy Innovation,” 4 August 2016.
13. Pedestrian Observations, “Several European Countries to Follow Norway’s Lead, Ban Fuel-Powered Cars,” 1 April 2016.
14. Ambrose Evans-Pritchard, “Holy Grail of Energy Policy in Sight as Battery Technology Smashes the Old Order,” The Telegraph, 10 August 2016.
15. Richard Milne, “Dong Energy Becomes Largest IPO So Far This Year,” ft.com, 9 June 2016.
16. Jeevan Vasagar, “RWE Plans IPO of Its Business Focused on Renewable Energy,” ft.com, 1 December 2015.
17. Kathleen Gaffney, “Europe’s Energy Transition Megatrends and Tipping Points, Part II: Rising Number of Carbon Emissions Reduction Policies and Regulations,” Navigant Research, 10 August 2016.
18. Navigant Consulting, Inc., Navigating the Energy Transformation, 24 August 2016.
19. Terry Macalister, “Shell Creates Green Energy Division to Invest in Wind Power,” The Guardian, 15 May 2016.
20. Reuters, “UPDATE 1-Total acquires Belgian renewable power provider Lampiris,” 14 June 2016.
21. Bate Felix, “Total Targets Gas, Renewables and Power Expansion,” Reuters, 19 April 2016.
22. Joe Wright, “Apple Gets the Green Light to Build Its Irish Data Center,” AppAdvice, 12 August 2016.
23. Navigant Consulting, Inc., Navigating the Energy Transformation, 24 August 2016.
24. European Environment Agency, Primary Energy Consumption by Fuel, 26 July 2016.
25. Kathleen Gaffney, “Europe’s Energy Transition Megatrends and Tipping Points, Part II: Rising Number of Carbon Emissions Reduction Policies and Regulations,” Navigant Research, 10 August 2016.
26. Gajan Sritharan, “Europe’s Energy Transition Megatrends and Tipping Points, Part IV: Delivering Shareholder Value through Mergers and Acquisitions, Restructuring, and Divestment,” Navigant Research, 24 August 2016.
27. Total Press Release, “Total Presents Proposed New Organization to Achieve Its Ambition to Become the Responsible Energy Major,” 19 April 2016.
28. ENGIE, “ENGIE Envisions the City of Tomorrow,” www.engie.com/en/innovation-energy-transition/sustainable-cities-regions-mobility/city-of-tomorrow.
29. amsterdamsmartcity.com.
30. clever.dk/uk.
31. European Commission, “Commission Proposes ‘New Deal’ for Energy Consumers, Redesign of Electricity Market and Revision of Energy Label for More Clarity,” 15 July 2015.
32. www.ikea.com/ms/en_GB/about-the-ikea-group/people-and-planet/energy-and-resources.
33. Navigant Research, Residential Energy Innovations, 2014.
34. Navigant Consulting, Inc., From Grid to Cloud: A Network of Networks – In Search of an Orchestrator, 6 October 2015.
35. Navigant Consulting, Inc., Navigating the Energy Transformation, 24 August 2016.
36. Ibid.
37. Navigant Consulting, Inc., From Grid to Cloud: A Network of Networks – In Search of an Orchestrator, 6 October 2015.
REFERENCES
©2016 Navigant Consulting, Inc. All rights reserved. 00006191
Navigant Consulting is not a certified public accounting firm and does not provide audit, attest, or public accounting services. See navigant.com/Licensing for a complete listing of private investigator licenses.