Gartner: 'Energy 2:0: The Rise of the Empowered Consumer'
Keith Harrison, Research Director at Gartner details the changing relationship between the supplier and its consumer…
The business of producing and supplying electrical power has evolved considerably during the past 30 years. During this period, utilities have undergone many disruptive developments. Throughout these changes, one thing remained the same, power flowed from the utility to the consumer. However, the convergence of a number of different technology trends is ushering in the largest disruption in the energy market since national grids arrived on the scene — the ability for power to flow in multiple directions.
Advances in Technology
The Internet of Things (IoT) and 4/5G networks enable many new devices to connect to the electricity network. These devices range from smart meters to electric vehicles, and from rooftop photovoltaic (PV) solar panels — typically in the range of 2 to 10 kilowatts (kW) —to energy storage battery solutions.
Additionally, artificial intelligence (AI) and digital twins — a digital representation of a real-world entity or system — will make real-time models of generation and network assets possible. This will help network operators cope with a rise in the number of connected devices and the need to maintain a reliable supply.
Rise of the Empowered Consumer
Technology has empowered consumers across a number of industries and the energy sector is no exception to this. Now, electric vehicles provide a ready-made mechanism for the storage of energy; IoT-enabled devices can measure and track the flow of energy more closely and efficiently; and the cost of home-based renewable energy has fallen significantly. In Germany for instance, the deployment of PV rooftop systems is the highest in the European Union (EU), with the installation price dropping from approximately €4,700 per kW in 2006 to around €1200 per kW in 2016.
The blend of domestic power generation and energy storage technologies, such as rooftop PV and battery-based storage units (the size of a small fridge, but half as deep) in the garage, provides energy consumers with a degree of independence from the grid. It also provides them with the ability to trade the power they generate.
However, this change brings big questions to the table. Questions about who owns and pays for the power grid of the future. Decentralisation of the energy sector is becoming a very real possibility — as a single household, or small business, can be a player in the energy market, and as many consumers become producers of energy.
Rise of the Prosumer
In this scenario, utilities will no longer be at the centre of the relationship between the producer, the consumer and the regulator of electricity. In practice, these energy “prosumers” will work with an aggregator — an intermediary that brings together the generation, storage assets and capabilities for many prosumers — to store and sell energy to others.
This growing number of prosumers could have political implications in the coming years. Utilities may experience a drop in traditional commodity sale revenue, as less of the energy they produce is consumed by prosumers. The normal consumer, without access to generation facilities of their own, could find their utility bills intensifying considerably in order to meet the utilities’ operating costs and national subsidies.
Undeniably, this could lead to new regulations, as well as to the renationalisation of the electricity distribution infrastructure in certain regions, in order to drive the investment required to upgrade networks.
How Should Utilities Respond?
In these changing circumstances, utilities should respond with a new operating model: one that effectively integrates and orchestrates the contribution of prosumer-owned distributed energy sources into new energy markets.
In terms of energy technology, utilities need to recognise the operational benefits of energy storage to improve network performance and reliability, to buffer renewable intermittency and to enable prosumer market arbitration.
Over the years, a moderate number of large power producers and buyers have participated in wholesale power markets. While it’s unlikely that a single household will participate directly in the established centralised power markets, they may do so indirectly through a third party or aggregator. This aggregator could be a utility, or a new entrant.
In the longer term, this process could be managed and optimised by AI. Certain regions are also already utilising blockchain technology to create and operate new local energy trading markets, on top of existing physical networks. For example, Brooklyn Microgrid is developing a community-powered microgrid where participants can engage in a sustainable energy network and choose their preferred energy sources, locally. And in the Netherlands, Powerpeers, launched by Vattenfall, is a marketplace where customers can decide who they receive their energy from, and who they supply with their self-generated energy.
This disruption is currently in its early stages, but the impact on the existing traditional and centralised electricity markets could be significant in the coming years.