The future of energy: Decarbonisation in power and utilities

The power, utilities and renewables (PU&R) sector has a significant role to play in the transition to clean energy--and for good reason: decarbonising power production will allow other industries to decarbonise by electrifying their operations. Most power utilities are embracing decarbonisation and have committed to moving it forward. But current commitments may not be enough.

It’s becoming increasingly likely that the sector may need to move more quickly if they want to meet both regulatory and societal expectations. What can help accelerate the pace is a better understanding of how decarbonisation can add value in the long run—and how more concrete steps in the near-term can achieve that.  Taking this kind of action will not only speed up the sector’s rate of decarbonisation but also the energy transition as a whole.

The impetus to do more

Deloitte’s recent energy transition survey, the results of which are featured in Utility decarbonisation strategies, indicates that the PUR sector understands its role and is poised to continue leading the energy transition. For instance, more than half of US power sector respondents in the energy transition survey reported having board or executive-level commitments and accountability in implementing their low-carbon strategies.

As leaders in the energy transition, power, utilities and renewables organisations are moving faster to decarbonise than many other sectors. This is due partially to policy but principally to economics. As explained in Deloitte’s global report, The 2030 decarbonisation challenge: The path to the future of energy, low-cost natural gas has displaced coal, reducing sector emissions significantly; wind and solar are among the cheapest resources available in most areas; and battery storage costs have plummeted. Technological advances have also improved energy efficiency across generation, transmission and distribution, and paved the way for new models of distributed generation such as microgrids, community solar, and peer-to-peer energy trading.

But there is still much work to be done. The European Union, which leads the world in phasing out fossil fuels, relies on carbon-emitting sources for about 34% of its electricity generation.^[i] Meanwhile, the U.S. relies on carbon-emitting fossil fuels for 63% of its electricity generation, even though many companies are setting long-term net-zero emissions targets.^[ii] And, China remains almost entirely dependent on fossil fuels, with its state-owned utilities poised to expand their fleets of coal-fired power plants by 10% by 2025—despite the country’s commitment to the Paris Agreement.^[iii] This collectively indicates a gap exists between where many power and utilities companies are and where they intend to be.

As detailed in Utility decarbonisation strategies, three trends have already started shaping companies’ ability to close this gap while creating value.

First, a fossil fuel fade is underway, as all fossil fuel emissions will need to be phased out if the power sector is to completely decarbonise, allowing organisations to reach their stated goal of net-zero emissions by 2050, or sooner.

Second, a solar and wind sweep is rapidly increasing the share of variable renewable resources on the grid.

Third, infrastructural innovation is helping to enhance the electric and gas system’s ability to support decarbonisation by providing the flexibility needed to integrate intermittent renewables, distributed energy resources and new fuels, such as biomass gas and green hydrogen.

Near-term actions

While these long-term trends are unfolding, there are some near-term actions power and utilities companies can take to capitalise on the opportunities presented by the energy transition.

In the retail power segment, companies could consider:

• Leveraging data analytics to gain a deep understanding of residential, commercial and industrial customers; using this insight to develop attractive offerings and to insert them at the right point in the customer life cycle
• Broadening innovation programmes and expanding product and service offerings to compete with a multitude of new market entrants and new business models
• Building ecosystems with third parties to accelerate adoption of new products and services and facilitate new channels of communication
• Focussing on service delivery excellence
• Pursuing greater digitalisation to help reduce operational costs.

In generation and grid transmission and distribution, companies should think about:

• Making necessary upgrades, such as deploying smart technologies, to handle more connections with intermittent renewables
• Tying investments to customer value and satisfaction, resiliency and better performance in terms of uptime and reliability
• Working proactively with regulators about incentives for developing solutions that balance the grid and facilitate the two-way flow of electricity
• Looking into the opportunities hydrogen may bring for storing energy and integrating higher levels of variable renewables onto the grid
• Finding ways to reduce or offset value-chain emissions across fuel producers, equipment manufacturers and third-party logistics and service providers.

A healthy perspective

Without adequate preparation, the future of power and utilities companies could very well be one of disruption. The good news is that the current energy transition presents unprecedented opportunities for organisations to develop new business models and to reinvent themselves in valuable ways.

[i] Ember, “Renewables beat fossil fuels: A half yearly analysis of Europe’s electricity transition,” July 22, 2020.

[ii] U.S. Energy Information Administration, “FAQs: What is U.S. electricity generation by energy source?,” February 27, 2020.

[iii] Institute for Energy Research, “China’s economy is based on fossil fuels,” January 8, 2021.