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Top five renewable energy challenges for the utilities industry

So far, the 2020s have delivered a pandemic and a spate of major weather and climate events. Not to mention a variety of interconnected political, social, and economic issues – all of which have brought renewable energy to the forefront of global awareness. Consumer expectations are also rapidly growing more complex, with increased demands for choice and transparency as to how energy is consumed and distributed – and where it comes from. Leaders in many parts of the world are making aggressive commitments to the reduction of greenhouse gases. Wind and solar providers are ramping up their energy production capacity.

 

And while environmental concerns are certainly not a new topic, there is nonetheless a growing sense of urgency. In a 2021 Wall Street Journal article, Pascal Lamy, the former head of the World Trade Organization, tells us:

If you compare the world today to the world 18 months ago, the big difference is that . . . only 25% of the world had a decarbonization horizon. Today, 75% of the world economy has a decarbonization horizon. This is a major shift.

All of these factors place enormous pressure on the energy sector as it transitions from carbon-based energy to cleaner power sources. Faced with increased challenges and complexity, utilities industry leaders are exploring fresh solutions and innovative business models. 

Power Source % Growth from 2000-2019
Coal 0.3%
Oil 1.5%
Natural gas 2.6%
Nuclear 1.5%
Hydro 1.9%
Renewables 13.8%

Growth figures sourced from Earth System Science Data.

Turning the supertanker: Making the shift to sustainable energy solutions

During an SAP Industries Live session in 2021, Miguel Gaspar Silva, the global head of utilities industry business unit (IBU) at SAP, expressed that “Utilities need to evolve. They need to become much more agile…in the way that they approach the business processes that they take care of, and also be able to capture business opportunities with that agility.”

 

To remain profitable during and after this shift, the utilities industry must expand and adapt their traditional pay-as-you-use business model to reflect changing expectations. The best sustainable energy solutions should be holistic and capable of evolving with speed and flexibility, as the industry will only continue to get more complex as renewable energy prices drop and the ability to generate energy moves towards smaller distributed and prosumer providers. This creates more opportunities for innovative providers that can move quickly to deliver a streamlined and user-friendly solution to their clients. 

What is a “prosumer”?


“Prosumer” is a portmanteau word combining “producer” and “consumer.” Energy prosumers typically remain connected to the central grid. However, they are also capable of producing and even storing energy – typically with photovoltaic solar panels and EV batteries. Depending on the amount of power generated, this energy can either be used to offset monthly bills or be sold back as surplus to utilities companies or other energy distribution services. This model may be applied to both residential and commercial prosumers, with a growing number of businesses plugging their solar panels and EV fleets into the grid. 

Five renewable energy challenges as utilities move toward decarbonization

Technological advancement and innovative thinking across the sector mean that the utilities industry is in a time of enormous opportunity and potential. Nonetheless, disruptions ranging from extreme weather to changing regulations and expectations mean that it is also a time of challenge and change.

  1. Disruptive events: As we’ve seen in the last few years, no area of the world is safe from the chaos caused by both natural events and human behavior. The energy sector is also facing myriad other disruptions in the form of political and economic events that have massive impacts on supply, demand, and pricing. Additionally, the cost of preparing for disruptions continues to rise. Utility companies must have predictive and compensatory solutions in place to ensure that they are agile and resilient enough to guarantee continued service.
  2. Increased complexity: As more renewable and distributed energy sources are incorporated into the power network, it makes existing grids more complex to operate. Renewable energy sources are typically prone to variability and intermittency, meaning that they need to be managed with particular care. 

    Additionally, with this increased complexity comes increased risk regarding grid reliability and cybersecurity. According to the U.S. Government Accountability Office, U.S. electrical grid distribution systems “are becoming more vulnerable to cyberattacks, in part because of the introduction of and reliance on monitoring and control technologies. However, the scale of potential impacts from such attacks is not well understood.”  
  3. Urgent need for digital transformation: In order to manage complex networks and distribution systems, digital transformation is an essential priority. AI-powered utilities technologies will assist in supporting consumer demands for smart metering, offer a greater degree of protection from cybercrime, and help meet compliance standards across a vast array of generation points. 
  4. Changing customer expectations and behaviors: As prosumers become increasingly capable of generating and distributing their own power, they are becoming less reliant on traditional, centralized utilities providers. 

    Energy companies will need sophisticated, smart solutions to help them understand their consumers’ usage patterns in real time. Companies will need to use that data not only to better inform and diversify their own services, but also to provide useful and personalized information to their customers, to help them feel more engaged and get better value from the services they receive.
  5. Less control over power sources: A shift to renewables means a shift away from human-controlled carbon-based power generation, and a shift toward nature-controlled power generation like solar or wind. This variability creates cost and complexity in supply and demand forecasting models. Additionally, increased prosumer power generation and the proliferation of smaller energy companies also requires utilities companies to develop more complex analytical and strategic systems to help anticipate and compensate for this loss of centralized control. 

Utilities companies can meet and beat renewable energy costs and challenges

Within this old and venerable industry, there are still many opportunities for growth – to help ensure a future where renewable energy is both manageable and profitable.

  • Develop new business models and revenue streams. To decarbonize while remaining competitive, utilities companies are moving away from traditional patterns focused solely on large-scale, centralized power generation. Future opportunities lie in new business models, markets, partnerships, and service offerings.

    By providing a customer experience that is more streamlined and customized to each individual, they can leverage and monetize the prosumer community. Additionally, they can expand their services to become aggregating agents for all things energy-related – providing value-added services such as installation and maintenance, energy-related products like smart thermostats, solar panels, and electric vehicle (EV) chargers, and even education and training.
  • Diversify and invest. The utilities industry is in a unique position to take a leadership role in our post-COVID-19 economic recovery. According to a 2020 Goldman Sachs report, “Renewable power will become the largest area of spending in the energy industry in 2021, on our estimates, surpassing upstream oil and gas for the first time in history.” This investment is set to drive the creation of more than 15 million jobs. 

    Whether energy companies are focused on diversifying their renewables portfolios or investing in emerging technologies that make carbon capture easier, this shift is set to represent 4% of capital expenditures in 2021, with some European companies spending up to 10%. This points to a global sea change where publicly owned utilities are venturing out of their comfort zones to speculate more seriously on renewable energy investments. 
  • Commit to digital transformation. With capital expenditures in renewables growing year over year, there needs be a corresponding digital transformation to ensure the ability to manage and optimize this growing market. 

    Empowering cloud-based IoT devices, smart networks, and smart meters with AI-powered solutions will help utilities distribute intelligence across the grid and through all areas of their business and customer base. Intelligent utilities solutions not only capture and store vast amounts of both structured and unstructured data – they bring the ability to analyze and leverage the power of that data.

    And due to the growing distribution of smart meters and smart utilities solutions, energy companies must also be conscious and conscientious about cybersecurity from the very start of their digital transformation journey. Legacy systems are often not equipped to deal with this so it’s crucial to ensure that industry management systems are equipped with the necessary security measures.
  • Build customer relationships. Historically, regulated utilities providers have enjoyed a large and available customer base. Their marketing and advertising efforts were focused more on brand equity and less on direct and responsive communications with their customers. With the rise of prosumers and new developments in distributed energy resources (DER), it will become necessary for companies in the utilities sector to engage more directly with customers. To meet younger audiences, this should also include a variety of media and social channels. Creating availability on multiple channels can support improved customer engagement and more successful management of current consumer trends. 

Distributed energy resources and the utilities industry of the future

Utilities companies can take great pride in the formidable infrastructures and essential human services they’ve provided over the past century. Using this wealth of experience and expertise, they are poised to push forward and help lead us into a more sustainable future of energy consumption.

 

The world will be watching to see how the utilities sector handles these challenges over the coming months and years. With the application of smart technologies and courageous leadership, the transformation to renewable energy has the potential to be both profitable and beneficial to the planet we all share.

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