Many comments made during European Utility Week in Barcelona this week would make a gas producer’s blood run cold.
The utility sector no longer sees a world of scarce resources and ever rising energy costs. It sees a future of abundance, of falling costs for everything from electricity generation to battery storage, power controls and data management.
This is a world in which wholesale electricity prices fall to zero and the key challenge is not securing supply, but the distribution and efficient management of a complex surfeit of electrons as generation and load occur anywhere, any time on the grid.
Speakers on various platforms predicted that utilization of conventional thermal generation capacity in Europe will fall. One suggested from 40% to just 22% over the next ten years.
It is a very different message to that conveyed by the current lack of nuclear availability in France, which is driving electricity prices higher in all interconnected markets. In the next few years, the amount of conventional thermal capacity is expected to decline, eating into reserve margins and exposing European electricity systems to the vagaries of wind and solar generation. Hardly a vision of abundance.
But what this really represents is a critical juncture in the green transition.
The market cannot sustain investment in new nuclear or fossil fuel generating capacity because the wholesale market no longer provides adequate returns, the result of competition from zero fuel cost generation from renewables. Nor can it sustain the maintenance of old thermal plant that is used increasingly infrequently. It doesn’t matter that gas prices are low; any fuel cost is too much in a world of wind and solar.
As the old world implodes, the question becomes whether the technology, regulations and market structures are in place to manage the next step in renewables’ market penetration – the move from infant terrible to dominant technology. The risk is that fossil fuel generation collapses too quickly before sufficient flexibility has been developed to deal with the complexities of a low carbon system.
It is a choice of a hard versus a soft transition.
What is not in question, at least in Barcelona, is the direction of travel. The flexibility gap will be resolved by falling costs in new areas of technology: big data, in which transmission line sensors play a key role and in the home with smart meters; through battery storage at utility-scale and again in the home, resolving local imbalances in the low voltage distribution grid.
Along with more interconnectors and demand side management, growing complexity will be met with increased flexibility; the smart grid will balance the variability of both supply and demand.
The consumer will have a choice of much closer integration or disconnection. This choice, with its clear menace, means the utilities now want to be more “consumer-centric”. The consumer will have a more powerful role in this new world. There seems to be little space for the traditional utility — and no place at all for business models built on fossil fuels.