The utilities industry needs to adapt to a “decentralized” system

The rise of new technologies in “smart energy” and customer behavioral changes is reshaping the utility industry, posing a possible threat to the centralized utility model, the World Energy Congress heard on 17 October.

Instead, the utilities business may be moving towards a decentralized energy system, which can put power sources closer to the consumer, foster the more optimal use of renewables, and increase eco-efficiency, said William D’haeseleer, Chair of the Belgian National Member Committee of the World Energy Council. “Is the decentralized model the natural way to go?” D’haeseleer asked. “When we talk about the new model, are we only talking about the context of sustainability, or can we still play with oil and gas systems?” He also asked if traditional utilities can survive the coming market shifts.

Participants offered differing forecasts for the utilities industry, ranging from complete decentralization to partial decentralization with homes and products that still interact mainly with a centralized grid. They agreed, however, that the centralized model may be breaking down, and that the utilities market is moving towards decentralization.

The discussants also agreed that the changes offer hope rather than perils. “This is an opportunity to address energy poverty,” said Charles-Emmanuel Chosson, the Paris-based Global Assurance Power and Utilities Leader for EY. “Smart energy” can improve efficiency and capacity. At the same time, technology can allay environmental concerns and address the “intermittency problem” that erodes the efficiency of renewables, he said.

“In terms of the power system, in generation, delivery and for consumers of electricity, there has been a tremendous amount of change,” said Michael Howard, President & CEO of the Electric Power Research Institute (EPRI) in the US. It is “critical” that the various parts of the power system work together, he said. He used the example of microchips inside products such as refrigerators, which could detect peak usage, communicate with the electricity grid, and adjust the timing of processes like defrosting. That prospect would cut down waste, offering a new level of energy efficiency that still requires a centralized utilities system.

Others identified the coming challenges. Colin Calder, Founder & CEO of PassivSystems, a maker of smart home products in the UK, said that energy companies have a “weak” understanding of information communication and technology (ICT) and consumer behavior. “Consumers are being empowered to generate their own power for less money and a fixed cost,” he said. “The more we empower consumers, the better we will be as a nation.”

This news story is based on the Game Changer session, “Creating Utilities 2.0: New business models for smart energy”, at the 2013 World Energy Congress.