Innovation & Disruption at the Grid’s Edge St Brides 19 June 2018 One perspective … … and another
Smart meter rollout - actual vs 15 year replacement and new starting in 2010 60.0%
50.0%
40.0%
30.0%
20.0% Smart Smart penetration
10.0%
0.0%
Replacement and new Actual (BEIS) Customer Stratification From consumer to nonsumer
Fereidoon Sioshansi Menlo Energy Economics San Francisco CA www.menloenergy.com Thank you
To Nigel & colleagues for organizing To fellow speakers for contributing To you for attending Not a book marketing event
Why Innovation & disruption at the grid’s edge My aim is to share my views on work in progress Hear other perspectives Get your feedback Background Forthcoming book
First
Consumer => prosumer => prosumager
Old news? Next
“Aggregators” & “intermediaries”
Platforms for trading & exchange
Already happening Where might it end?
Semi-independent micro-grids of “nonsumers” Why/how such scenario may materialize New electric company: Your home Wall Street Journal 21 Jan 2015 Integrated energy services? Tesla energy: PVs, EVs & storage
Source: Tesla unveils residential solar roof and new Powerwall battery, Utility Dive, 28 Oct 2016 Totally off grid … where there is no grid Semi off-grid … where grid is unreliable as in Puerto Rico Disrupters hard at work Facebook: Move fast & break things
Source: http://www.yeloha.com/about Disrupters’ business plan
Who currently delivers services
Inefficiencies?
Superior services at lower cost? Where is the weak point?
Bundled services @ regulated price
Clueless & lethargic incumbents not well-liked
No need to get all services from wires company Unbundle energy from delivery
Add value & monetize thru scale/aggregation
Incorporate intelligence to profitable customers Lower monthly bills Go after the most valuable customers first Distributed solar 700,000 solar homes in CA and counting Prosumer => Prosumager Just add storage
Source: The Wall Street Journal 2 May 2015 Distributed storage Tesla’s $5 billion gigafactory near Reno, NV Why stop there?
Alternative steps to different end points
Start w a ZNE building or collection of buildings
Add distributed generation
Add sophisticated energy management system
Add intelligent storage, not just batteries
Offer P2P trading on platforms
Integrate thru remote sensing, monitoring & control
Aggregate & balance load & generation
Add artificial intelligence & machine learning
Manage & monetize the entire value chain Zero Net Energy Will apply to new residential buildings in CA starting 2020 ZNE house: Not rocket science CA 2020 mandate for new residential, 2030 commercial ZNE village: Ditto West Village, Univ. CA Davis ZNE campus: Why not? Office parks, shopping malls, hospitals, universities, whole cities
Source: NREL ZNE office Apple’s new headquarter going beyond ZNE Beyond ZNE: Solar ordinance City of Lancaster, CA: 2 W per sq. ft. living space CBD as powerhouse Entire surface of buildings generates power
Source: Skanska Customer stratification Over time, consumers will self-select what works best
Off-Grid
Microgrid
Prosumage
Status Quo New interface/relationships Different needs/different cost causalities
Consumers Content with status quo: Bundled, regulated tariffs ALL kWhs provided by/thru existing network Maintain existing relationship/interface/tariffs Prosumers Take few/fewer net kWhs from network Require different pricing/service relationship Prosumagers Ditto, but even more so Radically different pricing/service/interface relationship More exotic? Service aggregated/enabled/assisted by intermediaries Semi-autonomous micro-grids of “nonsumers” P2P trading & transactive energy Integrated energy services Where is the value the in the value chain? In the platform OhmConnect Sonnen’s Project in Prescott, AZ 2,900 homes,11.6 MW; 23 MWh
Source: https://www.mapsofworld.com/usa/states/arizona/maps/arizona-state-map.jpg Who is in this space today? Head office? June 2018
Distributed Energy & Power Presentation for Innovation and Disruption Edmund Reid Centrica’s mission is to satisfy customers’ changing needs, and those needs are changing fast
•Growth in distributed rather than centralized Decentralisation power generation “To provide energy and services to Storage •Rapid increase in battery storage capacity satisfy the changing Digitalisation •Technological advances provide more data and needs of our easier integration of the energy network customers” •Platforms and marketplaces used to co- Disintermediation ordinate rather than companies
Centrica Business Solutions Distributed energy 35 Decentralised power is fast replacing centralised power, mainly through the growth in renewables as costs have fallen
Renewables have fast overtaken coal generation in …driven by falling costs, which are likely to continue the UK…
Coal and renewable 12 month rolling total generation (TWh) Solar capex costs ($/kW)
160 4.5 150 Coal Utility 140 Renewables 4.0 Commercial 130 Residential 3.5 120 110 3.0 100 90 2.5 80 70 2.0 60 50 1.5 -4% 40 1.0 30 20 0.5 10 0 0.0 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 99 01 03 05 07 09 11 13 15 17
BEIS, Dukes
Centrica Business Solutions Distributed energy 36 Falling battery storage costs are likely to drive a substantial increase in storage capacity globally, fundamentally altering the power supply chain
The cost of lithium-ion batteries has fallen rapidly in …leading to a rapid increase in battery storage capacity recent years; this trend is forecast to continue
Lithium-ion battery costs ($/kWh) Global battery storage capacity (GW)
1,000 Utility scale Price Survey 900 Forecast Behind the meter 800 55.2
700 -18% 600 42.0
500 35.9
400 31.3
300 26.3 69.3 -10% 21.5 200 56.3 18.3 44.6 6.4 4.8 15.0 34.5 2.2 3.2 3.4 12.5 26.3 100 0.1 0.3 0.6 1.1 2.3 10.2 20.1 0.6 1.3 8.1 15.3 0.0 0.1 0.2 0.4 8.9 11.7 0 4.9 6.7 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Centrica Business Solutions Distributed energy 37 Digitalisation is providing more data, greater control and easier integration of the energy system
Smart meters are a building block for digitalisation …with IoT deployment accelerating
UK residential smart meters (m) Cumulative Hive units sold 10 Smart-Type Meters 0.8 9 Smart Meters
8 0.8
7 0.8
6 0.8 0.8 5 0.9 8.8 4 0.9 7.6 0.9 6.7 3 5.8 0.8 4.9 2 0.8 4.0 0.8 3.3 0.8 2.7 0.8 1 0.8 0.8 1.9 0.8 0.8 0.8 1.2 1.5 0.6 0.7 0.7 0.7 0.5 0.7 0.9 0 Q4 Q4 Q4 Q4 Q4 Q4 2012 2013 2014 2015 2016 2017
Centrica Business Solutions Distributed energy 38 Competition is increasing, with a growing trend towards disintermediation
Number of competitors in GB retail energy market Cornwall LEM and LO3 Energy are trialling blockchain innovations for local energy markets
Ofgem data 69
52
40
27 24 20
14 13 12 12 12 12 10 11
Total
Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17
Centrica Business Solutions Distributed energy 39 These trends are a significant challenge for Centrica’s core energy supply business UK Home electricity and gas (RHS) supplied
28 5.3 26.0 Gas (bn therms) 5.5 25.6 25.7 25.1 26 Electricity (TWh) 5.0 24 4.5 22.8 22.6 -39% 4.3 22.1 -20% 4.5 22 4.1 20.7 20 4.0 3.5 3.5 18 3.4 3.5 3.2 16 3.0 14 2.5 12 10 2.0 8 1.5 6 1.0 4 2 0.5 0 0.0 2010 2011 2012 2013 2014 2015 2016 2017
Centrica annual reports
Centrica Business Solutions Distributed energy 40 DE&P is built to benefit from these trends by harnessing energy technologies for customers
SOLUTIONS Buy less…
OPTIMISATION Pay less…
INSIGHT Use less…
Centrica Business Solutions Distributed energy 41 DE&P has significant growth ambitions, and with a global reach
We are aiming to reach £1bn of revenue by 2022, DE&P is already an international business, with plans CAGR of 42% to further expand our global footprint
DE&P Gross Revenue (£m) (2016 adjusted for sale of building management systems business)
1,000 1,000
900
800 +42% 700
600
500
400
300 +34%
200 171 128 100
0 2016 2017 2022
Centrica Business Solutions Distributed energy 42 There is considerable customer benefit, the challenge is complexity and long lead times We are delivering real benefits to customers A more complex decision than energy procurement
• Reducing costs •Deciding on overall business strategy and co-ordinating different business units. Executive buy-in is essential to motivate business units. • Improving resilience Executive • Facilitating faster growth •Projects often require large capital outlay, with different financing options, which the finance department will need to assess. • Expediting decarbonisation Finance Case study - St George’s Hospital •Manages the contracting of services, with energy as a service becoming increasingly important. St George’s Hospital in Tooting is the largest Procurement healthcare provider in South West London. It has 800,000 patients, and employs over 8,500 people. An •Manages the environmental impact of an organization’s operations and ensures regulatory compliance. energy centre is being installed to replace the Sustainability existing 40-year-old system. This comprises a new •Needs to understand the impact of services such as demand response on the business operation. combined heat and power plant, efficient boilers and Operations lighting alongside heating, ventilation and air
conditioning systems. We estimate savings of £1m in •New energy offerings are often integrated directly into the facility. opex and 6,000tCO2e emissions p.a. Facilities
Centrica Business Solutions Distributed energy 43 The energy system architecture is built for centralised, rather than distributed solutions
Markets for flexibility at the distribution network level are underdeveloped
Difficulties in connecting to distribution networks are often a constraint on delivering distributed energy solutions
The electrification of transport is likely to exacerbate constraint issues but may also create opportunities
Centrica Business Solutions Distributed energy 44 Thank you Anna Moss
HELPING YOU MAKE SENSE OF THE ENERGY AND WATER SECTORS www.cornwall-insight.com • Traditionally a homogenised product
• Consumers seek convenience and choice
• So where can suppliers compete?
o Operational strategy and efficiency (cost)
o Service
o Added value
www.cornwall-insight.com 47 • New entrants to the sector are trying to reduce the time and complexity associated with switching • Automated switching and switching apps provide one alternative o Paid for by consumer or supplier o Labrador and Flipper give ease of use • Look After My Bills reaches 10k customers • App services include Voltz (DixonsCarphone), Lumo (Ovo Energy) o Sending notifications to customer
www.cornwall-insight.com 48 Number of fully licenced domestic suppliers Q114 24 Q214 25 Q314 25 91 Household suppliers Q414 26 Q115 27 Q215 29 Q315 30 Q415 34 Tariffs in the domestic market Q116 37 192 Q216 41 Q316 41 Q416 48 Q117 51 Q217 57 23% Energy share held outside the Big Six Q317 59 Q417 66 Q118 68 Q218 70
www.cornwall-insight.com 49 Rising proportion of dual fuel customers Rising proportion on fixed tariffs (elec – BEIS) 70% 90% 80% in 60% 2018 80% 50% 40% 70% 30% 64% in 20% 60% 2008 10% 50% 0% Fixed tariffs Variable tariffs
Variable
Fixed (incl. long term)
Tiered Variable One year fix Bundled
www.cornwall-insight.com 50 Smart thermostats Challenges in smart metering
Battery storage
www.cornwall-insight.com 51 Traditional supply: Feature a single unit rate, but can be expected to gradually move towards TOU as smart meters provide insight into how customers respond to temporal price differences
Adjacent products Where suppliers offer additional EV related services in addition to energy supply. This can include access to a public charging network, a home charger etc
Full service Currently at a formative stage, models typically encompass EVs, onsite generation/storage, possibility for consumers to trade in local electricity market
www.cornwall-insight.com 52 Local supply Expected proportion of market under capped tariffs (PPM, safeguard, SVT)
70%
60%
50%
40%
30% • Two tier market between affluent/disengaged customers? 20% o We still have to recover fixed costs 10% • What’s the impact of a wider price cap on innovation? 0% o PPM market has seen convergence Capped Uncapped o Reduced marketing efforts?
www.cornwall-insight.com 53 Expectations • Increased margin • Reduced churn rates? • Cross selling • Access to non-regulated products in non-price capped markets • Offsetting any significant changes in price
www.cornwall-insight.com 54 • Challenges in innovation have been broadly recognised: o Regulatory sandbox o Licence lite option o Supplier hub consultation o Shift to other markets
• Products become more sophisticated o Likely to create more challenges as well as opportunities
• We should be working now on setting out principles and rules on retail markets of the future o Does Ofgem have the right responsibilities and duties to protect the “prosumer”
www.cornwall-insight.com 55 www.cornwall-insight.com 56 Peer-to-peer: Is it for Real?
David Shipworth [email protected] Professor of Energy and the Built Environment, UCL Energy Institute IEA Demand Side Management TCP Vice-chair and BEIS Industry and Academic Delegate PACE Research group: https://www.ucl.ac.uk/bartlett/energy/PACE UCL CENTRE FOR BLOCKCHAIN TECHNOLOGIES Peer-to-peer in a picture
Imbalances socialised by supplier/aggregator
Smart contracts + IoT control desynchronisation of heavy loads Mixed use developments diversify load profiles DLT + smart contracts = transaction layer for Local DNO transmits balancing & settlement power between peers
Balance group size & Prosumers supply peer- diversity promotes to-peer market load smoothing
Storage buffers variations DSR from IoT adjusts load between scheduled and shape to balance schedule realised demand. Peer-to-peer balance group boundary UCL CENTRE FOR BLOCKCHAIN TECHNOLOGIES EU regulation and peer-to-peer
A. Butenko (2017, forthcoming) "User-centered Innovation in EU Energy Law: Market Access for Electricity Prosumers in the Proposed Electricity Directive” (OGEL, ISSN 1875-418X) October 2017, www.ogel.org UCL CENTRE FOR BLOCKCHAIN TECHNOLOGIES UK regulation and peer-to-peer • Ofgem – “One of the most exciting new business models involves peer to peer trading of energy.” - Dermot Nolan, CEO - Ofgem • Ofgem Sandbox: – EDF: Trialling a peer-to-peer local energy trading platform in Brixton. – Verv: Conducting a live peer-to-peer energy trading field trial on social housing at Hackney's Banister House. – BP: Running an energy trading pilot accessible to retail consumers, using a secure digital platform enabling peer-to-peer trading. • UCL is involved in each of these submissions and projects • Elexon White Paper: ‘Enabling customers to buy power from multiple providers’ April 2018 • Elexon BSC P 362 Electricity Market Sandbox – Assessment Procedure Consultation closed 18 May 2018 – Assessment Report presented to BSC Panel on 14 June 2018. • Elexon BSCP 550 Shared SVA Meter Arrangements • DCC investigating adaptation of gateway to accommodate new business models including multiple suppliers and disintermediation. UCL CENTRE FOR BLOCKCHAIN TECHNOLOGIES Peer-to-peer and Smart Metering
• Smart metering and HH settlement are enablers of P2P • Security: – Distributed ledgers (‘Blockchains’) are ‘secure by design’ - but only as secure as their IoT interfaces. – UK SMIP SMs & DCC are also ‘secure by design’ – The UK SMIP is (probably) the best national scale AMI interface for peer-to-peer globally. • However: – For carbon accounting, need generation asset registration tied to MPAN and written into the BCT. – As blockchains can be deanonymised, to meet UKDPA and GDPR requires permissioned BCTs UCL CENTRE FOR BLOCKCHAIN TECHNOLOGIES CommUNITY project UCL CENTRE FOR BLOCKCHAIN TECHNOLOGIES CommUNITY – Brixton – London • Residents: 62 apartments with pre-pay meters, gas central heating, electric immersion heaters. Paying ~14p/kWh • Generation: 37kWp rooftop PV supplying landlord load (communal lighting + one lift). > 90% of power exported. Payed FITs ~4p/kWh. UCL CENTRE FOR BLOCKCHAIN TECHNOLOGIES CommUNITY: Key benefits • Maximises self-consumption • P2P market floats between import (~14p/kWh) and export (~4p/kWh). • Local benefits: • Saves residents 10-20% on electricity • Pays more to community cooperative that owns PV • Provides local grid balancing services to DSO • Wider benefits through demonstrating: 1. Viability of P2P model for multi occupancy buildings 2. Social value stacking for consumer engagement in local energy 3. Financial value stacking for PV in urban area UCL CENTRE FOR BLOCKCHAIN TECHNOLOGIES CommUNITY: Non-Wire Alternatives • EDF acts as facilitating supplier • CommUNITY participants all EDF customers • P2P trading in parallel with regular EDF tariff. • Traded energy logged separately and rebated from participants’ bills. UCL CENTRE FOR BLOCKCHAIN TECHNOLOGIES CommUNITY – Regulatory Issues Some regulatory issues related to the CommUNITY trial include: ▪ Informed choice principle: How to compute the estimated annual cost? How to compute the relevant alternative cheapest tariff? ▪ Tariffs: single tariff supply contract including CommUNITY rebate or separate contracts? Other issues related to different delivery options may include:
Supplier Metering Billing Tariffs Settlement license • Recording • Multiple-supplier • Balancing • Time of use • Local settlement • Meter ownership billing Settlement Code tariffs for individual • Registering and • Accounting for (BSC) • Network charges consumers maintenance of self-consumption • Distribution code • Policy charges metering asset • Grid code • Meter resolution • Smart energy code • Master registration agreement (MRA) UCL CENTRE FOR BLOCKCHAIN TECHNOLOGIES P2P Challenges: Governance • Policy – Key Opportunities: Green Growth; Industrial Strategy and Smart Metering Implementation Programme – Moving to outcome based policies and metrics – Mitigating distributional impacts (e.g. grid defection) – Mitigating whole energy system impacts (e.g. balancing the legacy grid) – Building trust, salience and social value in the energy system – Avoiding energy data siloing - building open platforms of analysable but encrypted data • Regulatory – Key Opportunities: Ofgem Innovation Link and Regulatory Sandbox – Moving to principles based regulation – Reducing barriers to market entry – Ensuring customer protection to all groups – Balancing economic efficiency and fairness • Energy codes – Key Opportunities: Elexon BSC P 362 Electricity Market Sandbox and BSCP 550 Shared SVA Meter Arrangements – Balancing and Settlement Code alterations – Master Registration Agreement alternations – Evidencing demand response and flexibility services UCL CENTRE FOR BLOCKCHAIN TECHNOLOGIES Key research challenges • Whole energy system architectures and identification of P2P entry points. – [Ref: ESC & IET ‘Future Power Systems Architecture work’] • Designing P2P system architectures to deliver different government, industry and consumer objectives (e.g. grid balancing vs product innovation) • Data privacy and governance in public and permissioned DLT enabled P2P systems (including implications of the GDPR) • Demand Side Response identification and authentication using smart metering and IoT sensing, actuation and control • Designing desynchronization of demand within balance groups • Integrating automated DSR into Building Energy Management systems UCL CENTRE FOR BLOCKCHAIN TECHNOLOGIES Recommended reading • Videos: – ‘Peer-to-peer energy trading on blockchains’ – David Shipworth
James Moore Problem (1): Energy efficiency
8.0% Global electricity generation Global GDP
6.0%
4.0%
2.0%
0.0%
1986 1988 1990 1992 1993 1994 1995 1997 1999 2001 2003 2005 2006 2008 2010 2012 2014 2016 1989 1991 1996 1998 2000 2002 2004 2007 2009 2011 2013 2015 -2.0% 1987
While power demand has consistently grown, the degree of growth has faded in the West relative to economic growth … Problem (1): Energy efficiency
Annual US Electricity Consumption versus US Real GDP (% YoY growth) US Electricity Consumption versus US Real GDP growth difference (%) 15% 10%
10% 5% 5%
0% YoY Growth (%) Growth YoY YoY Growth (%) Growth YoY 0%
-5% -5% 1950 1960 1970 1980 1990 2000 2010 1950 1960 1970 1980 1990 2000 2010 US Real GDP Growth US Electricity End Consumption (KWh) Growth (%) US Electricity Consumption Growth minus Real GDP Growth (%) Source: EIA and BEA Source: EIA and BEA
US Electricity Consumption versus US Real GDP (% YoY growth), decades US Electricity Consumption versus US Real GDP growth difference (%) 10% 10% 8% 5.6% 5% 6% 2.8% 1.4% 4% 0% 2% (%) Growth YoY YoY Growth (%) Growth YoY -0.2% -0.9% -1.1% -1.4% 0% -2.1% -5% -2% 1950s 1960s 1970s 1980s 1990s 2000s 2010-2015 2016-17 1950s 1960s 1970s 1980s 1990s 2000s 2010-2015 2016-17 US Electricity Consumption Growth minus Real GDP Growth (%) US Real GDP Growth US Electricity End Consumption (KWh) Growth (%) Source: EIA and BEA Source: EIA and BEA
Take the USA, post WW2 from 1950 to 1979 electricity demand grew 3.3% per annum above real GDP. Then from 1980 to 1999 it grew more in line and since 2000 it has grown 1.3% below. The negative spread has continued to worsen Problem (1): Energy efficiency
• HVAC, Lighting, Appliances and Machine Drive (Motors) are the principal consuming categories of electricity
• Energy efficiency trends have been meaningful in all four areas Problem (1): Energy efficiency
• Low-voltage (LV) motors roughly 28% of annual global electric energy consumption. IE1 motors still represent a third of sales and this should fall further. 100%40% 36% China 30%80% 27%India 20% Japan 60%Problem (1): Energy efficiency 20% 15% Latin America 40% 10% North America 10% Rest APAC 20% LED Lamp add’sRest, regionalEMEA unit penetration Global LED Lamp additions, unit penetration
0% LED lamp unit penetration (%) penetration unit lamp LED LED lamp unit penetration (%) penetration unit lamp LED Western Europe 0% 2016 100%2017 2018E 2019E 2020E 40% 36% 2016 2017 2018E2019ETotal2020E China 80% India 30% 27% Japan 20% 60% Latin America 20% 15% 40% North America 10% Rest APAC 10% 20% Rest EMEA
0% LED lamp unit penetration (%) penetration unit lamp LED Western Europe (%) penetration unit lamp LED 0% 2016 2017 2018E 2019E 2020E 2016 2017 2018E2019E2020E Total Source: Redburn based on IHS Source: Redburn based on IHS
• LED lighting by volume still only represents 20% of new lighting sales (vs traditional). We still have a long way to go.
• HVAC: Fans, cooling, heating using latest products can save 30% electricity but slow to change
• Appliances: increasingly energy efficient but minimal saving vs lighting and motors Problem (2): Renewables are taking share
Wind Solar Nuclear Hydro Non-renewable sources 100%
80%
60%
40%
20%
New power generation mix generation power New 0% 1990s 2000s 2010s Wind now supplies 20-30% of global power additions
35.0% 32.0% 30.0% 25.0% 21.9% 19.4% 20.0% 16.3% 14.0% 14.7% 15.0% 10.0%
5.0% electricity generation growth generation electricity Wind as a proportion of global global of proportion a as Wind 0.0% 2011 2012 2013 2014 2015 2016 Problem (2): Renewables are taking share 120 100 103 89 80 68 60 55 50 48
40 38 LCOE, $/MWh LCOE, 20 - Nuclear Offshore Wind Coal CCGT - EU Onshore Wind Solar - crystalline CCGT - US Silicon • Solar and wind are now competitive with fossil fuels on an un-subsidized basis • Solar is setting the marginal cost for power
Wind Solar 80
60
40
US$/MWh 20
- Germany Argentina India Chile Mexico France Abu Dhabi Saudi Arabia
Wind and Solar comparable Solar-only Problem (2): Renewables are taking share 4,000 Wind Solar 3,000
2,000 (MW) 1,000
0 UK Wind and Solar Generated Generated Solar and Wind UK 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 Hour of the Day • Solar has enjoyed faster deflation but intermittency, time of day differences (vs wind), ‘sunniness’ vs ‘windiness’, land availability, ownership rights and other factors support a combination of wind and solar as optimal going forward
• Redburn forecasts 8% installed base CAGR for Onshore to 2025 and 20% for Offshore.
Redburn Vestas BNEF 73 73 80 70 68 63 63 63 62 58 59 60 61 57 55 53 57 55 55 56 60 52 49 52 53 50 51 53 52
40
20 Wind installations, GW installations, Wind - 2017 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E Impact on PG: Global Power Generation Capex has declined
Global Fossil Power Generation Utility Capex, Top 539 companies
600,000 Next 477 spenders American Electric Power Co Inc China Shenhua Energy Co Ltd Tokyo Electric Power Co Holdin 500,000 Dominion Energy Inc China Datang Corp
China National Nuclear Corp up of 539 companies 539 of up - 400,000 Duke Energy Corp Engie SA China Guodian Corp Southern Co/The 300,000 Enel SpA Exelon Corp NextEra Energy Inc 200,000 State Power Investment Corp Lt China Energy Investment Corp China Huadian Corp Ltd Iberdrola SA 100,000 China Southern Power Grid Co L Global Power Gen Capex (US$ m), Redburn roll Redburn m), (US$ Capex Gen Power Global China Huaneng Group Beijing State-owned Capital Op 0 Korea Electric Power Corp
China National Offshore Oil Co
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
2020E 2019E 2018E Electricite de France SA
Source: Redburn Proprietary Power Generation Utility Capex Model
• The top 539 Fossil Power Generation Utility Companies saw a 25% global capex decline from 2013 to 2017. Some signs of recovery in 2018. Impact on PG: Fossil Power Generation Manufacturing market has suffered
Big Three Fossil Power Generation players, Orders (GE incl. Alstom) 80,000 • Orders for the ‘Big 3’ fossil power generation 60,000 equipment
€m) manufacturers (GE,
40,000 Siemens and MHI) have Orders ( Orders 20,000 fallen from €65bn in 2011 to €43bn in 2017. 0 1999200020012002200320042005200620072008200920102011201220132014201520162017 • Note GE acquired GE (Power incl. Alstom) Siemens (Power & Gas) Mitsubishi Heavy (Power) Alstom in 2015, prior to Source: Redburn Proprietary Fossil Power Generation Equipment Benchmarking Model this we have added
Average organic order growth (%) of ‘Big 3’ Average organic order growth (%) of ‘Big 3’ Alstom into GE’s Fossil Power Gen. players (incl. Alstom) Fossil Power Gen. players (incl. Alstom) numbers. 40% "Big 3" Average 30% 5% 5% 20% • Like for like organic 10% 0% declines (excl. 0%
1% acquisitions and
-10% - 2% -5% -
-20% currency) have Organic Order Growth (%) Growth Order Organic -30% Avg pa Organic Sales Growth % Growth Sales Organic pa Avg worsened with 2017
1996 1999 2002 2005 2008 2011 2014 2017 -10% 9% - "Big 3" Average 1998-2017 2008-2017 2013-2017 2016-2017 falling 19% and 1Q18 Source: Redburn Proprietary Fossil Power Generation Equipment Source: Redburn Proprietary Fossil Power Generation Equipment another 18% (at Siemens Benchmarking Model Benchmarking Model and GE)
Impact on PG: Margins for Fossil Power Generation Manufacturers have fallen
Power margins, for the ‘Big 3’ (incl. Alstom now part of GE) 30%
20%
10%
EBIT Margin (%) Margin EBIT 0%
-10% 1996 1999 2002 2005 2008 2011 2014 2017 2020E Siemens Alstom GE MHI Source: Siemens, GE, MHI and Alstom
• The average EBIT margin of the ‘Big 3’ has fallen from 14.6% in 2015 to 8.5% in 2017 and we forecast a further fall to 7.9% in 2018 before recovering to 10% in 2020 Impact on PG: Fossil Power Generation Equipment has suffered the most
Global Gas Turbines >100MW, LTM quarterly orders in capacity (MW) • Power divisions of ‘Big 3’
80,000 manufacturers have two businesses: Service and 60,000 Equipment (incl. Turnkey). Here 40,000 we peel the onion and examine Capacity (MW) (MW) Capacity pure equipment.
20,000 Global Gas Turbine Ordered Ordered Turbine Gas Global 0 • On a capacity basis, the global 1Q90 1Q93 1Q96 1Q99 1Q02 1Q05 1Q08 1Q11 1Q14 1Q17 Global Gas Turbine (>100MW) Global Capacity large (>100MW) gas turbine
Source: Redburn Global Gas Turbine model based on McCoys market, which had been hovering between 40GW and 50GW for a
Global Gas Turbines >100MW, LTM quarterly orders in units, by player decade, has fallen 30GW, on a 500 rolling 12-month basis. 400 300 • On a unit basis, the global large 200 (>100MW) gas turbine market has
Orders (Units), LTM (Units), Orders 100 fallen to about 100 units per
Global Gas Turbine (>100MW) (>100MW) Turbine Gas Global 0 annum from 200 a few years ago 1Q90 1Q93 1Q96 1Q99 1Q02 1Q05 1Q08 1Q11 1Q14 1Q17 and >400 back at the 2001 ‘gas GE (incl. Alstom) Siemens Mitsubishi Other bubble’ peak. Source: Redburn Global Gas Turbine model based on McCoys
Impact on PG: Fossil Power Generation Service has been much more stable
Service as a % of Power revenues, ‘Big 3’ Redburn estimated Power Service margins 60% 33% 29% 50% 25% 40% 21% 17% 30%
13% Service as % of PG sales PG of % as Service
20% 9% Power Service EBIT Margin (%) Margin EBIT Service Power 2000 2002 2004 2006 2008 2010 2012 2014 20162018E 2005 2007 2009 2011 2013 2015 2017 2019E GE Power Service Siemens PG Service GE Power Service Siemens PG Service MHI Power Service Alstom Thermal Service MHI Power Service Alstom Thermal Service Source: Redburn based on Siemens, GE, MHI and Alstom comments Source: Redburn based on Siemens, GE, MHI and Alstom comments
• Redburn estimated Power Equipment margins, for the ‘Big 3’ Across the ‘Big 3’, on average, since 2015 16% (to 2018): 12% 8% • Service share of Power sales has 4%
(%) 0% lifted from 42% to 49% -4% -8% • Service margin has fallen from 24% -12% Power Equipment EBIT Margin Margin EBIT Equipment Power -16% to 22% 2000 2004 2008 2012 2016 2020E GE Siemens MHI Alstom • BUT Equipment sales have fallen Source: Redburn based on Siemens, GE, MHI and Alstom comments harder (GTs) and Equipment margin from 8% to -7% Impact on PG: Industry response – to cut headcount and maybe exit
Power Workforce % of Total Power Current Total Company Reduction Headcount Power Margin Target Margin Margin Comment Siemens 6,100 12% 7.1% 11% Not committing on timing but we see as 2020 GE 12,000 18% 8.7% 10% Not committing on timing but we see as 2020 MHI 6,000 24% 7.8% 10% By March 2021
• All the ‘Big 3’ are cutting headcount (from 12% at Siemens to 24% at MHI) and they all have target to raise margins by 2-4% in the next three years.
• According to Bloomberg (13 July), Siemens is considering selling its ‘Gas Turbines’ business and is ‘looking at all possibilities’ whether straight sale or merger. We are not too surprised given Siemens ‘Fleet of Ships’ strategy. We have always believed that Siemens has three core automation divisions (DF, PD and BT). Following the recent partial exit from Healthineers and Siemens Gamesa Wind merger (and with Alstom merger in the pipe), we have previously argue that Power & Gas (PG) and Energy Management (EM) are the next ships to sail. Our best speculation is a deal with the Chinese at a strategic premium once the PG margin has recovered, but German and US government could block. Impact on T&D: Global T&D Capex has declined, but less than power
Global T&D Utility capex for 511 companies
350,000 Next 477 spenders ROSSETI PJSC FirstEnergy Corp 300,000 Marubeni Corp Sempra Energy Tennessee Valley Authority
250,000 PPL Corp up of 511 companies 511 of up - Consolidated Edison Inc Florida Power & Light Co 200,000 American Electric Power Co Inc Eskom Holdings SOC Ltd Power Grid Corp of India Ltd 150,000 National Grid PLC PG&E Corp Dominion Energy Inc 100,000 China Datang Corp Enel SpA TenneT Holding BV 50,000 Exelon Corp
Global T&D Utility Capex (US$ m), Redburn roll Redburn m), (US$ Capex Utility T&D Global China Southern Power Grid Co L Korea Electric Power Corp 0 Saudi Electricity Co
State Grid Corp of China
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
2020E 2019E 2018E Electricite de France SA
Source: Redburn Proprietary Transmission & Distribution Utility Capex Model
• The top 511 Electrical Transmission and Distribution Utilities saw an 8% global capex decline from 2013 to 2017. More signs of recovery in 2018 than in Power Gen. Impact on T&D: Manufacturers have followed T&D Utility Capex
JAEPS (Hitachi) 60,000 Mitsubishi Toshiba • The revenues of the 50,000 Sanbian EMCO T&D Manufacturers SPX (Waukesha) 40,000 Shanghai Siyuan have followed a Baoding Tianwei Crompton Greaves similar path of strong 30,000 Guangdong Macro Henan Pinggao growth from 2004 to XJ Electric 2012 then stagnation. 20,000 Hyundai Heavy Hyosung China XD Group 10,000 Schneider (MV) • Chinese represent GE (Grid Solutions) 16% of the global 0 TBEA 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018E ABB (PG & MV) market versus 6% in Siemens (EM) 2008.
ABB Siemens 21% 15% Others ABB 41% Siemens Others 15% 14% 38% TBEA 7% GE (Alstom) Other Chinese Hyosung 9% GE (Alstom) 7% 2% Schneider 6% Schneider Hyundai Electric 5% Hyundai Electric Hyosung China XD 5% 2% TBEA China XD Other Chinese 2% 2% 3% 2% 2% 2% Impact on T&D: Europe TSO Capex has been better
12,000 • European TSO capex growth has
8,000 averaged 6% per annum over the last five years
4,000 European TSO Capex (€m) Capex TSO European 0 • While both energy efficiency and 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018E Elia EnBW Fingrid National Grid Red Electrica RTE Statnett SSE Terna renewable share take have been bad for power generation equipment makers, T&D (or Grid) equipment markets have only suffered from energy efficiency as 40% 40% 29% renewables have had to be 30% 30% 22% 19% 14% 20% 9% 11% 11% 20% 7% 8% 5% 6% connected to the grid. 10% 1% 4% 2% 3% 3% 10% 0% 0% -10% -4% Capex Growth (%) Growth Capex -20% -13% • The addition of renewables and
-10% -30% European TSO Capex Gr. (%) Gr. Capex TSO European -20% their intermittency has added 2005 2007 2009 2011 2013 2015 2017 2019E complexity and required grid Average Growth (%) Aggregate Growth (%) 2005-2018 2019E-20E reinforcement investment. Impact on T&D: Chinese grid investment has peaked
60% 590 580 580 580 40% 580
570 20% 560 0%
RMBbn 550
542 542
Jun12 Jun13 Jun14 Jun15 Jun16 Jun17
Oct 13 Oct 14 Oct 15 Oct 16 Oct 17 Oct
-20% 12 Oct
Feb 13 Feb 14 Feb 15 Feb 16 Feb 17 Feb 18 Feb Feb 12 Feb 540
-40% 530 520 -60% 2016 2017 2018 2019 2020
60%
40%
20%
0% 2015 H1 2016 FY2016 H1 2017 FY2017 -20%
-40%
-60%
-80% Impact on T&D: ‘Big 4’ margins have recovered, the Chinese have worsened
• GE (Grid Solutions) 30% Siemens (EM) ABB (PG & MV) 20% Schneider (MV) SPX (Waukesha) TBEA 10% Baoding Tianwei Sanbian 0% China XD Group XJ Electric
EBIT Margins (%) Margins EBIT Guangdong Macro -10% Shanghai Siyuan Henan Pinggao -20% NARI Tech. Crompton Greaves • 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 20162018E EMCO
20%
15%
10%
5% EBITA Margins (%) Margins EBITA 0% 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018E • Emerging Market Average Big 4 Average
• 30%
25%
20%
15%
10%
5%
Electric Vehicles – what will it change0%
2011 2012 2013 2015 2016 2018 2019 2020 2022 2023 2024 2026 2027 2029 2030 2014 2017 2021 2025 2028 2010
16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
EU US World ex-China China
Low and Medium Voltage well positioned for Electric Vehicles
•
•
•
25% Schneider (LV) • ABB (LV in EP) 20% Eaton (Elec) Legrand 15% Panasonic Siemens (LV in EM) 10% Chint Cooper (Elec) 5% Rittal Adj. EBIT Margins (%) Margins EBIT Adj. Hubbell (Elec) 0% T&B 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018E Conclusion
40% Power Gen Big 4 Forecasts 30% Organic Sales Gr. 20% T&D Big 4 10% Organic Sales Gr. 0% Global T&D
YoY Growth (%) Growth YoY Utility Capex -10% Global Power Gen -20% Utility Capex 1998 2001 2004 2007 2010 2013 2016 2019E
•
•
Blockchain: How soon and how to engage?
Christoph Burger London | 19 June 2018 ESMT Berlin: A business school with a global reach and a European identity
About ESMT Berlin Founders and benefactors of ESMT Berlin • Founded by 25 leading global companies and institutions • Based in the heart of Europe in Berlin, with a second campus at Schloss Gracht near Cologne • Offers a full-time MBA, an executive MBA, an executive MBA/MPA, a master’s in management as well as open enrollment and customized executive education programs
ESMT Foundation – Board of Trustees Executive Committee Additional members
Daimler AG Robert Bosch GmbH thyssenkrupp AG Chairman Chairman of the Franz Dr. Heinrich Chairman of the Chairman of the Board of Board of Dr. Dieter Zetsche Fehrenbach Supervisory Board Hiesinger Management Management
Deutsche Bank Vice Chairman Joe Siemens AG Peter RWE AG AG President and Chief Chief Executive Officer of Jürgen Fitschen Former Co-Chief Kaeser Executive Officer Terium the Executive Board Executive Officer
101 Research publications in the field of energy and Blockchain
102 Agenda
Chapter 1 Blockchain: What is it? – a short introduction
Chapter 2 Blockchain: How soon? – study results
Chapter 3 Blockchain: How to engage? – sample strategies
103 Blockchain is a distributed ledger technology aiming to reduce the cost of trust …
Source: Blockchainhub, Blockchain A Beginners Guide, Version 1.0, September 30, 2017 … and still at an infant stage
Source: Blockchainhub, Blockchain A Beginners Guide, Version 1.0, September 30, 2017 Agenda
Chapter 1 Blockchain: What is it? – a short introduction
Chapter 2 Blockchain: How soon? – study results
Chapter 3 Blockchain: How to engage? – sample strategies
106 IN 2017, ABOUT 85% OF THE PARTICIPANTS OF EVENTHORIZON THOUGHT THAT WE WILL SEE BUSINESS MODELS IN 2018-2020
In 4 to 7 years In the next 17% year 27%
In 2 to 3 years 56%
EVENEVENTT RESULTS OF SURVEY QUESTIONS 14–15 February 2017, Vienna, Austria
© ESMT Berlin, EventHorizon, Grid Singularity 2017 n=21110 7 85% ESTIMATED A COST CUTTING POTENTIAL FOR PROCESSES IN UTILITIES OF 20-60% 100% potential 90% 10% potential potential 1%
5% 9% 60% 20% potential potential 24% 25%
36% 30%
EVENEVENTT RESULTS OF SURVEY QUESTIONS potential 14–15 February 2017, Vienna, Austria
© ESMT Berlin, EventHorizon, Grid Singularity 2017 n=21410 8 ABOUT 70% ESTIMATED THE ELECTRICITY MARKET SHARE OF P2P- TRADING IN 2025 IN EUROPE <20% > 80%
<70% 2% < 5%
6% 17% < 50% 24% 51% < 20%
EVENEVENTT RESULTS OF SURVEY QUESTIONS 14–15 February 2017, Vienna, Austria
© ESMT Berlin, EventHorizon, Grid Singularity 2017 n=21810 9 50% BELIEVED THAT THE REGULATORS ROLE WILL BE TO CERTIFY SMART CONTRACTS None of Regulators will the above certify smart 28% contracts 48%
Regulators will be replaced by robots 16% Regulators will disappear
EVENEVENTT RESULTS OF SURVEY QUESTIONS 14–15 February 2017, Vienna, Austria 8% © ESMT Berlin, EventHorizon, Grid Singularity 2017 n=20611 0 NO REGIONS WAS SEEN AHEAD IN THE DEPLOYMENT OF THE TECHNOLOGY
Africa EU 21% 22%
Australia 19% USA 24% China EVENEVENTT RESULTS OF SURVEY QUESTIONS 14–15 February 2017, Vienna, Austria 14% © ESMT Berlin, EventHorizon, Grid Singularity 2017 n=58 111 Agenda
Chapter 1 Blockchain: What is it? – a short introduction
Chapter 2 Blockchain: How soon? – study results
Chapter 3 Blockchain: How to engage? – sample strategies
112 Current sample use case: Enerchain with P2P wholesale trading to save settlement costs
Source: Enerchain
113 Current sample use case: Power Ledger with ICO to establish a platform for smart contracts
Blockchain platform for energy services • March 2017: First project Busselton National Lifestyle Village residents with P2P-trading behind the meter − 10 households and 20 people involved − Households could save 600 AUD pa on electricity bills • October 2017 − Origin energy trial before the meter started in October this year − 34 MAUD raised via ICO to develop Blockchain- based P2P energy market place • Applications − P2P trading − Microgrid operator − Wholesale market settlement − Autonomous asset management, etc.
Source: Linked-in, retireved 01.09.2017, PowerLedger
114 Sample strategies to exploit Blockchain technology range from innovation department, over suppliers to consortia
Ripple Customers
Source: http://www.businessinsider.de/bitcoin-price-what-is-a-saft-blockchain-the-crypto-fundraising-craze-shaking-up-venture-capital-2017-11?op=1, retrieved on 31.01.2018; https://ripple.com/solutions/retail-remittances/, retrieved 23.05.2017
115 [email protected] www.esmt.org - Fax - Phone Germany 10178 Berlin Schlossplatz 1 Technologyand GmbH European School ofManagement ESMT +49 +49 30 21231 +49 +49 30 21231 - +49 30 21231 [email protected] SeniorLecturer ChristophBurger 1099 0 8040
thank you Gareth Miller, CEO Cornwall Insight
HELPING YOU MAKE SENSE OF THE ENERGY AND WATER SECTORS www.cornwall-insight.com • Fallacy that work to decarbonise the power sector is somehow complete o huge strides have been made in 15 years • Efforts to decarbonise heat and transport are only just beginning in earnest • Policy clarity is emerging, and it appears that transport will front run heat decarbonisation, potentially closing off the opportunity for a single economy solution • This will mean as electrification increases, power sector will have an even larger role to play
www.cornwall-insight.com 118 Breakdown of UK Greenhouse Gas Change by sector in UK emissions Emissions 2016 400
350
300 Power 250 17% Transport 200 38%
150 26% Heating for buildings 100
19% Other sectors Mt in emissions Gas Greenhouse 50
0 Power Transport Heating for Other sectors buildings 1990 2016 Source: CCC 2017 report to Parliament
www.cornwall-insight.com 119 • An integrated whole system approach to all sectors would be the cost effective and logical path
• In the absence of carbon budgets, this system would be waiting for development
www.cornwall-insight.com 120 • Given the need for deep cuts in transport before 2030, the more likely option is electrification of transport for decarbonisation which is prioritised over heat
• Current policy has not addressed this whole system approach
• By accident or design, the combination of short term potential focus and readiness of EVs will see decarbonisation prioritised over consumer cost
www.cornwall-insight.com 121 Proportion of emissions cuts per sector
• CCC advocates broader emission cuts, whereas CGS goes for more ambitious cuts in power and categorises heating and other sectors differently to the CCC, making comparison harder Source: CCC 2017 report to Parliament/Clean Growth Strategy
www.cornwall-insight.com 122 • Alternative option might not be to radically decarbonise heat at all and focus on other sectors 2016 (GHG 2050 2050 2050? emissions in Mt) (No action taken on (2030 action taken on (Major action taken on heat, ambitious action in heat, limits of action heat, limits of action all other areas) taken on agriculture and taken on agriculture and industry) industry) Power 78 0 0 0 Transport 121 0 0 0 Heating 89 89 70 5 Industry 100 32 27 27 Agriculture 49 47 38 38 Waste 17 0 0 0 F gases 16 0 0 0 TOTAL 466 168* 135** 70*** *Falls just short of Climate Change Act 80% target **Reaches Climate Change Act 80% ***Reaches 90% target currently under consideration Source: CCC UK Climate Action Following the Paris Agreement
www.cornwall-insight.com 123 Emissions abatement potential of • Deep reductions can be policies in the transport sector (2016-2030) made in transport emissions in the shorter term to 2030
58 • EVs can make a big cut
4 (26Mt) in emissions towards 4 7 2030 and on a wide scale
22 Megatonnes (Mt) of GHG emissions GHG of (Mt) Megatonnes 26 • EVs are a viable solution
Policy immediately ULEVs Efficiency Biofuels Smarter transport Freight Remaining emissions
Source: CCC Sectoral Scenarios for the Fifth Carbon Budget
www.cornwall-insight.com 124 • The above costs in the Clean Growth Strategy do not take into account network and power costs
• This is an addition, but not outside historical norms, to grid reinforcement infrastructure Source: Clean Growth Strategy/National Infrastructure Commission
www.cornwall-insight.com 125 Source: CCC 2017 report to Parliament
www.cornwall-insight.com 126 Emissions abatement potential of policies in the heating sector • RHI and energy efficiency (2016-2030) policies remain insufficient for deep cuts in the sector
• Deeper cuts in the sector through widespread 70.34 electrification and/or hydrogen heat are less deliverable and longer term 3.9 Megatonnes (Mt) of GHG emissions GHG of (Mt) Megatonnes 4.86 in nature, especially when 4.86 1.3 3.74 Policy compared to transport Remaining emissions Non-domestic energy efficiency options Domestic energy efficiency District heating New build low carbon heating Retrofitted low carbon heating
Source: CCC Sectoral Scenarios for the Fifth Carbon Budget
www.cornwall-insight.com 127 • Table shows short term strategies for heat decarbonisation before 2030 Cumulative costs of electrification and hydrogen heating systems • Longer term Electrification Hydrogen options are National £140-250bn £100-160bn forecast below – Infrastructure Commission despite uncertainty it KPMG £274-318bn £104-122bn appears hydrogen Element Energy £180-450bn £110-160bn is consistently the Source: Clean Growth Strategy/National Infrastructure Commission, KPMG, and Element Energy lowest cost option
www.cornwall-insight.com 128 Source: CCC 2017 report to Parliament
www.cornwall-insight.com 129 CCC's emissions reduction Costs of policies pledged in CGS in £mns potential of transport and heat Low carbon heating systems research technologies to 2030 New insulation materials research 80 Energy efficiency research Heating innovation investment: RHI (2016-21) 60 ECO energy efficiency policy
40 of GHG emissions GHGof Low carbon aviation and HGV research Innovation research 20 Lower carbon buses
Local areas taxi programme Megatoones 0 Taxi plug in programme Transport Heating Hydrogen fuel, fuel cells and… Non-domestic energy efficiency Domestic energy efficiency Highways England Infrastructure District heating New build low carbon heating Additional charging infrastructure Charging infrastructure (government… Retrofitted low carbon heating Freight Charging infrastructure (HM Treasury) Go Ultra Low Cities Smarter transport Biofuels ULEV uptake overall (including Plug… Efficiency ULEVs 0 2000 4000 6000 • Transport easily delivers greater emissions reductions at a much lower price than heat policies and options do – consumers are getting greater value Source: CCC Sectoral Scenarios for the Fifth Carbon Budget/Clean Growth Strategy
www.cornwall-insight.com 130 • Much deeper emission cuts can be made in the transport sector to 2030 than for heating • Transport has competitive free market solutions in the form of EVs and later hydrogen vehicles, whereas electrification of heat will require very invasive large scale upgrades to home installations • Historical energy efficiency scheme uptake indicates enthusiasm for upgrading home heating will be low among the public • Transport is also cheaper to decarbonise, as EVs will soon be cost competitive with conventional vehicles, however post 2030 how to meet the extraordinary expense of decarbonising heat remains a challenge • Therefore, transport can deliver deeper and easier emission cuts than the heating sector
www.cornwall-insight.com 131 Electric vehicles Hydrogen vehicles Heat pumps Hydrogen heating • Increase in demand, with • Via electrolysis will require • Larger increase in • Via electrolysis will require large variations depending large but flexible amounts demand than EVs, and large but flexible amounts. Impact on power on charging habits • Via steam methane with less flexible patterns • Via steam methane reforming, sector • Will require grid reforming, impacts will be impacts will be minimal reinforcement minimal
• Relatively inexpensive post • Moderately expensive with • Extremely expensive with • Moderately expensive with Cost cost parity, due to existing potential cost reductions limited cost reductions potential cost reductions electrical infrastructure • Upfront cost parity in 2022, • Later cost parity (2030s) and • Permanently more • Price differences and gas grid so long as charging greater issues with expensive than alternative conversion, otherwise minimal infrastructure is sufficient, refuelling infrastructure – options, disruptive to disruption Consumer impact impacts are minimal after otherwise minimal impacts homes this date • Greater similarity to current vehicles • Can spread to all cars and • Can be used across all • Can be installed in all • Can be utilised in all gas grid vans, potential but not vehicles, and also aviation homes and buildings, systems Reach in system unbreakable limits to HGVs and shipping fuels including those off the gas and buses grid • Tied in with low carbon • Potential for deep but not • Deep decarbonisation • Decarbonisation potential electricity, potential for total total decarbonisation, but potential of down to 5Mt down to 15-25Mt, depending Decarbonisation decarbonisation of cars and will depend on CCS • Not total but strongest on type of hydrogen used potential vans, with HGVs and buses utilisation, gas leakage and option in heating sector and uncertainties involved if technology allows many other factors
• Cost of subsidy and grid • Long timescales, • Consistently expensive • Less but still expensive, outages unpredictable technology, and massively disruptive safety concerns, long term Policy risk large amounts of R&D timescale, unpredictable investment
www.cornwall-insight.com 132 2016 emissions by sector compared • Electric vehicles are a to cuts required for 2030 compulsory to meet 2030 emission targets – power sector cannot make the cuts 177 alone and heating and other sectors are unlikely to have advanced or deep enough 121 120 solutions to plug the gap 89 78.00 • This however inevitably puts the power sector on the front
line again for emissions (GHGs) emissions Gas Greenhouse of Megatonnes
reductions Power Transport Heating Other Cuts required for 2030
www.cornwall-insight.com 133 • Ideally, a whole system approach with hydrogen would be the optimal decarbonisation pathway – but hydrogen on a large scale is unlikely to emerge before the 2030s • However, given the need to decarbonise transport before 2030 and the already high penetration of renewables in the power sector, it is likely a more costly alternative with hydrogen heating alongside renewable power and predominantly electric vehicles will emerge • This will result in power sector impacts of increased demand and the need for flexibility • This also adds additional costs and enormous complexity to the existing power system
www.cornwall-insight.com 134 • Even without heat and transport decarbonisation the power sector requires significant investment over coming decade or more, and managing additional demand, system constraints and providing flexibility will all be managed within the power sector o end of subsidy – how to call forward new generation at all scales o coal closure – what’s replacing it? o smart markets – great expectations that improved metering and communications can unlock opportunities to reduce future network and generation costs
www.cornwall-insight.com 135 www.cornwall-insight.com 136 The wholesale/retail disconnect
Malcolm Keay
Oxford Institute for Energy Studies What leads to the disconnect? Broken markets and broken policies
• Wholesale electricity markets are broken – current solutions basically add new instruments upstream and ignore downstream. • Government policies are focused on production; they are nervous about trying to change consumer behaviour. • But both situations are unsustainable. Starting points
1. The electricity industry is turning upside down.
2. It is not about an isolated problem (eg missing money for investment in reliable plants). A systemic overhaul is needed.
3. But we should not try to second guess the future of the industry; we should be aiming to let it emerge in response to appropriate price signals. The electricity industry is “turning upside down”
NOW FUTURE Cost structure Mainly marginal Mainly capital Generation structure Mainly centralised Decentralised Pricing kWh ? Planning and operation Flex supply to match Flex demand to match demand supply Control and dispatch From centre Throughout system (cf internet) Role of demand-side Passive Interactive Role of grids Neutral conduit Smart player Symptoms of broken markets
1.Declining wholesale market prices across Europe • Supported renewables depress wholesale price • Costs are loaded onto consumers, widening gap between wholesale and retail prices 2.Low spark spreads; plant closures; poor utility results • Deterioration of utilities financials • Unprofitable plants closure often forbidden by Regulator • But utilities are expected to massively invest in new power system 3.Flattening of the intraday price curve • Because of increased renewables (esp. PV) penetration • Disincentivizes demand response 4.Frequent occurrence of zero or negative prices • Needed to balance the system; but inconsistent with remunerating renewable generation underlying them Taxes account for most of price in many countries The only growth area is renewables: policy drives investment Policy decisions drive prices Policy decisions drive trade flows Policy drives operation - UK The direction of travel in wholesale markets – away from consumers
• More upstream interventions
• More price components (ancillary services, flexibility, reliability, capacity, green certificates etc) - making up an increasing proportion of cost and adding to complexity
• More reliance on centralised mechanisms (auctions, contracts) etc for the delivery of these services - with the consequence that consumers are increasingly left out of any decision-making The process is self-reinforcing - eg growth in renewables leads to a need for market reforms like Capacity Mechanisms
• Zero marginal cost renewables reduce wholesale prices inhibiting investment • Many countries introducing capacity markets to incentivise investment in reliable capacity • But the problem also affects renewables themselves, which receive prices even lower than average because they tend to be correlated • So there is no exit strategy and the need for intervention continues. Other proposed market changes Why consumer focus matters
• Technology creates greater capacity for consumer control and system coordination of millions of users. • Potential for reducing the cost of decarbonisation for nation and individual consumers by harnessing demand response • Decarbonisation of heat and transport will inevitably mean engaging with consumer behaviour – governments can’t continue to hide policies upstream • Consumers need to be engaged with decarbonisation, rather than see it as imposed on them, for it to be sustainable Broken policies
• Main focus on promoting renewables upstream.
• Consumers don’t need to change behaviour or equipment; costs are lost in overall price and confusion over levelised cost.
• Less visible than a carbon tax - even when renewables are much more expensive, cost can be socialised.
• But governments will have to bite the bullet when they move on to heat and transport. Demand side policies?
‘Energy efficiency has a fundamental role to play in the transition towards a more competitive, secure and sustainable energy system with an internal energy market at its core.’ [COM 2014] But: • 70 % of the intervention total goes to generation • 8% to energy efficiency • Negligible amount to demand response • Most demand side support is in the form of tax reliefs of one sort or another (eg lower carbon taxes; lower VAT for residential consumers) [Ecofys 2014]
Overall, demand side intervention probably promotes unsustainable consumption. The core problem
‘The core problem is that we need consumers to act, and it is difficult to imagine that the actions required can be triggered through modest market price signals. If we assume that more extreme price signals will not be politically acceptable, this will mean that there will need to be a change in the way consumers make choices about their energy consumption. The ability to “do nothing” must become the most difficult course of action rather than the easiest. And this inevitably means a bigger role for regulation in retail markets.’
Simon Skillings in Energy Spectrum 30 April 2018 How to escape both impasses?
Market reform, in particular to incentivize flexible demand: • Gives intermittent power value • Remunerates investment in all sources • Provides an exit strategy • Creates genuine consumer empowerment • Allows consumers to guide the development of an optimal (welfare- maximising) low carbon system The two market approach Why two markets?
• Need to get away from price contamination (pecuniary externalities) and provide an exit strategy at wholesale level.
• Need a market at retail level which gives strong, reasonably predictable price signals which:
- provide the right incentives to consumers and generators - easy to understand and respond to - are ‘packageable’ with equipment - offer consumers benefits and control Conclusions
• Electricity wholesale markets are no longer fit for purpose. • Government decarbonisation policies have focused on the demand side because of nervousness about consumer reaction. • Neither approach is sustainable. If we are to avoid increasing intervention at both ends, markets, at both wholesale and retail level, need fundamental reform. • Consumers, not governments and system operators, need to be what drives electricity markets – even if it means fundamental change Community energy in a post-subsidy world Nigel Cornwall Cornwall Insight/Pixie Energy What we will cover …
• Pixie programme, including review of community energy on behalf of EST/LES • Feast followed by famine with cessation of FiTs • Probability of five year “interregnum” • Two things we are doing to try to help redress the balance − need for route to market to replace FiTs − scope and test multi-supplier model • Both highlight need for joined up strategy to stimulate innovation at the local level What is Pixie Energy?
• Pixie Energy - an advisory and services company established to develop mplement regional energy market ideas and initiatives • Initial focus was Local Supply Communities Project The project takes national − structure of local tariffs and relative costs compared with national knowledge and offerings, especially through involvement of LAs as own supplier relationships and − supporting local stakeholders on understanding access options, will apply them industry costs and valuation optimisation for the benefit of the local regions ▪ The East Anglian Energy Market Innovation Project is now scoping and establishing innovation projects with local partners to yield “learning by doing”, smarter, low-carbon solutions ▪ Sponsors include UKPN, Plutus, Haven Power, Flow Energy/Coop, Greenstar Energy and Local Partnerships
EST case studies
• 17 projects, with technology and structural spread • 10 in Scotland • International experience • All subsidised • How to transpose learnings into a subsidy free world? Factors driving change Negative Positive Removal of LECs Falling technology costs Smart meters with HH Wind down of triad payments settlement using time of use tariffs Pull through of EVs and End of FiTs batteries Constraints and emergence of National market bias DSO model Increasing imbalance volatility Emerging flexibility markets Phase out of net metering? Sandbox environments Possibility of a five year interregnum Solar, East
Value of Embedded Generation - Eastern LVHH 12
10
8
6 p/kWh
4
2
0 2016-17 2018-19 2021-22 Year
Wholesale Embedded benefits FiT generation FiT export Who will invest?
22 Value>LCOE 20
18
16
14
12
10 p/kWhvalue/ LCOE 8
6
4 100% 95% 90% 85% 80% 75% 70% 65% 60% 55% 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Self-consumption factor
Import tariff + generation subsidy 14 Import tariff + generation subsidy 12 Import tariff + generation subsidy 10 PV LCOE Low PV LCOE High Status quo @ 12p/kWh + 50% deemed exports
165 Here comes the cavalry
Domestic electricity wholesale and TPC costs - Eastern region 16
14
12
10
8 p/kWh 6
4
2
0 2016-17 2018-19 2021-22 Year
Wholesale Transmission Distribution System balancing (BSUoS) AAHEDC (HDCA) Renewables Obligation (RO) Feed-in Tariffs (FiT) Contracts for Difference (CfDs) Capacity Market (CM) Warm Home Discount (WHD) Energy Company Obligation (ECO) Smart DCC Fit for purpose
• Guaranteed route FiT Export and Wholesale price to market 6.00 • Continuation of 5.50 posted export rate for 5.00 4.52 4.50 4.29
sites with export p/kWh 4.07 meter 4.00 • Price tied to avg. 3.50 wholesale price 3.00 • Time of export Power price Annual average power price banding FiT export higher FiT export lower Unfit for purpose
• Recognised that multi-supplier models not presently possible • Pixie is looking to conduct a pilot within a community supply model - NVEC − 15 prosumer developments, with addition of Greenstar local customers − actively soliciting social housing participation − licence exempt supplier behind the meter at discounted tariff to regional benchark − dedicated supply to EV charge points − potentially share of community battery − volume allocation algorithm using NFPA procedure − dry run for customer notification agent through Elexon sandbox − Greenstar offering balancing tariff and issuing bills
168 Getting fitter
• Deploy solar and storage assets by October • Apply for sandbox treatment thereafter and identify necessary work- arounds • Switch on new commercial arrangements from 1 April 2019 for at least a year
169 Known unknowns
170 Panel discussion: Policy impacts and implications
Moderator: Nigel Cornwall