DIY electricity trend a threat to power utilities

Consumers could produce renewable energy at the point of use, freeing them from reliance on a single electricity provider such as Eskom. (Oupa Nkosi, M&G)

Consumers could produce renewable energy at the point of use, freeing them from reliance on a single electricity provider such as Eskom. (Oupa Nkosi, M&G)

Major changes in the energy market, such as revolutionary technology and changing demographics, have profound implications for power utilities, according to a report from the advisory firm PwC and its consulting arm Strategy&.

The report was issued on Wednesday and comes at a time when Eskom has been load shedding for several consecutive days.

Technological innovation is at the heart of the upheaval facing utilities, according to the report. Developments in smart-grid technology, the potential for breakthroughs in the cost and feasibility of battery storage and the combination of the internet, mobile and data tools, with smart meters, are rapidly influencing customer behaviour.

For utilities that do not find ways to adapt, these changes could erode their revenues and undermine their business models, according to the report.

Similarly, climate change and a scarcity of resources are driving a shift to renewable energy and, with it, the potential to move away from large, centralised energy systems to distributed power generation. This means consumers could produce power at the point of use, without relying on a single electricity provider and its large distribution and transmission network, as is the case in South Africa.

The resulting fragmentation of the power system could strand existing power stations, the report said.

In South Africa, there is already evidence of this as both companies and domestic consumers are finding ways to generate their own electricity and reducing their reliance on the grid, decreasing the revenues of both the municipal distributors and Eskom.

According to the report, in the United States more than 30% of new electricity generation capacity was added between 2010 and 2013.
Solar photovoltaic units are now on more than 1.2-million Australian homes and producing more than 3.3 gigawatts a year, and, in Germany, renewables “accounted for 24% of gross electricity consumption in 2013”.

Energy efficiency was also increasingly important and, with renewable technology and changing customer outlook, was “leading to a transformation of the electricity environment”.

“They are causing the value chain to shift away from large conventional power plants towards local power generation and a greater focus on distributed energy and demand management,” the report said.

This was particularly relevant to developing countries, which faced “the triple challenge of being unable to meet existing demand for electricity while also facing huge demand growth and the need to extend access to those who don’t have electricity”.

But technology would provide the opportunity to leapfrog the traditional grid evolution, it noted.

In a presentation given at the release of the report, PwC’s power and utility leader for Africa, Angeli Hoekstra, said power utilities needed to transform to survive.

The report offered possible market models that could emerge and the positions traditional utility companies, as well as new entrants, could take within them. These included the “green command and control” model or “a market in which government owns and operates the energy sector and mandates the adoption of renewable generation and digital technology”.

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