2020 power and utilities industry outlook - Deloitte
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2020 power and utilities industry outlook
Power and utilities industry
seeks growth by leading
clean energy transition
In 2019, the multiyear pattern of record-breaking utility electrification, especially in the transportation sector as
capital expenditures amid stagnant load growth continued electric vehicle (EV) adoption rises.
in the power industry. And it shows few signs of changing
as the need to upgrade aging infrastructure, digitize, and In our 2019 outlook, we explored how the US power and
secure the grid against natural and manmade disasters utilities industry is continuing on its path to transformation
such as cyberattacks continues. But while this generally and experimenting with new technologies and business
creates upward pressure on prices, once again in 2019 models, while the traditional utility regulatory structure
retail electricity customers saw only modest increases. struggles to catch up. As we move into a new decade, many
This is due in part to low natural gas prices and declining power and utility companies are not only boosting their
costs of wind and solar power continuing to dampen own decarbonization commitments and efforts, but they’re
wholesale electricity prices. also taking on the mantle of leadership in the economy-
wide clean energy transition. In 2020, we expect to see
Natural gas continued to dominate the US power these efforts intensify and bring new opportunities for
generation mix, at more than 44 percent of generation customer engagement and growth.
capacity.1 Wind and solar capacity also continued its rise,
to nearly 12 percent of capacity, driven largely by growing In the recent Deloitte survey about the transition to 100
corporate commitment to renewables, declining prices, percent renewables, 4 responding organizations across
supportive policies such as renewable portfolio standards the private and public sectors identified “coordination
(RPS), and improved performance. Renewables as a whole, with our electric utility” as the top external enabler for
including hydroelectric, reached nearly 22 percent of US their progress in moving to cleaner energy sources. This
capacity, surpassing coal-fired plants’ share for the first underscores the electric power sector’s unique role as a
time. And the rush to deploy battery storage at grid-scale
2 leader in the clean energy transition. And many are ready
and behind-the-meter surged as battery costs fell sharply. to embrace that role.
Other significant trends in 2019 were the federal While some may have hesitated a decade ago, today most
government’s continuing efforts to roll back environmental power companies see rapidly expanding opportunities
rules such as the Clean Power Plan, while many state
3 to address their customers’ increasing interest in clean
and local governments reinforced their support for clean energy and new ways to manage and control their energy
energy with steps such as increased renewable portfolio use and costs. From building grid-scale wind and solar
standards. Natural disasters such as hurricanes and plants to providing distributed solar, storage, and EV
wildfires hit particularly hard in 2019, continuing a pattern charging infrastructure—2020 will likely bring increasing
that may signal the need for increased utility planning and opportunities for power companies to create value as
even more investment in transmission and distribution a catalyst in the clean energy transition. We’ll start by
systems. At the same time, cyberattacks on the electric discussing power companies’ increasing commitments
grid have increased and become more targeted in recent to decarbonization and follow with key trends and
years, requiring power companies to continue fortifying opportunities for them to help customers transition to
their defenses. Bright spots were increasing flexibility cleaner energy while creating value and managing risk for
and resilience achieved through grid modernization themselves and their customers.
and opportunities to boost long-term revenue through
2020
Oil, power
gas andand
chemicals
utilities outlook
industryfor 2020 | 2
outlook
1
Sustainability
Power and utility companies likely to raise
the bar on climate change goals in 2020
In December 2018, Xcel Energy became the first US utility to commit to
going 100 percent carbon-free by 2050, and 80 percent by 2030.5 Similar
power company announcements became a regular occurrence throughout
2019, with nearly 50 companies committing to significant carbon reduction
goals by November.6 And it’s likely to continue in 2020. Why? Largely due to
technological improvements, customer demand for cleaner energy sources,
and a commitment to keep customer bills low. Some are also driven by
climate science.
But that’s not all. Capital markets are organizing around climate change issues,
and we’ll be watching to see if a growing number of companies across the
electric power and other industries assess evolving risks and take further
action in 2020. Consider:
•• Investors are increasingly asking companies to analyze the impact on their
business of policies consistent with limiting the global average temperature
rise to no more than 2 degrees Celsius.7
•• Investors increasingly view companies’ response to climate change as
important in deciding which shares to buy.8 “Climate change/carbon” was
reportedly “the top ESG [environmental, social, and governance] criterion for
money managers representing $3 trillion in assets and the third-biggest issue
for institutional investors with a collective $2.24 trillion in assets.” 9
•• Credit rating agencies are signaling that they may increasingly incorporate
climate risk into credit assessments.10
•• Climate-related shareholder resolutions are more frequently leading to deals
with company management, as they increasingly agree to steps like cutting
emissions or buying clean power.11
•• A US insurer will no longer underwrite construction of coal-fired power plants
and is phasing out existing coverage for companies that generate more than
30 percent of their revenue from coal mining or production.12
To promote more transparency on ESG issues such as climate change,
Edison Electric Institute (EEI), an industry trade association, provides an ESG/
sustainability reporting template for its investor-owned electric and gas utility
members. The association is also advocating for policies to boost research and
development into technologies needed to achieve the industry’s clean energy
goals. These include energy efficiency; energy storage; renewable energy; next-
generation nuclear technology; and carbon capture, utilization, and storage.13
2020 power and utilities industry outlook | 3
2
Portfolio modernization
The new year brings new opportunities
to create value from distributed energy
resource (DER) strategies
Surveys tell us electricity customers across residential, commercial, and
industrial segments increasingly seek to save money, use cleaner energy
sources, ensure resiliency, and gain more control over their energy use.14
And utilities, especially those facing rising state renewable portfolio
standards (RPS) and corporate carbon reduction goals, seek more flexible
resources to help balance the growing supply of variable resources such as
wind and solar. They also seek to shave peak demand, avoid costs of building
new generation and transmission, and further engage customers.
DER strategies address many of these issues. Hawaiian Electric plans to meet
Hawaii’s 100 percent RPS mandate by 2045 (and its own carbon neutrality
goal) in part by relying on customers to provide a portion of the renewable
energy through distributed resources.15 Utility planners across the sector
are planning how best to use DER. Most are exploring questions such as:
•• How to manage DER while maintaining system reliability?
•• Who will own them?
•• How can they use them in emergencies?
•• How can they aggregate them and value them across time and location
so DER owners can be compensated for the grid services they provide?
•• How can they be secured?
In one survey, two-thirds of utilities said they wanted to be able to own
and rate-base DERs.16 We’ll be watching whether state regulators pave the
way for regulated utilities to do so in 2020. Regardless of who owns them,
advanced analytics, automation, and other smart technologies can help
utilities value and optimize these assets. Since DER can provide so many
benefits for utilities, customers, and the grid, utilities should support them,
proactively plan for them, and educate customers about them. They should
also consider selling, installing, and maintaining DER as a potential revenue
source. At the same time, since DER growth can increase vulnerability to
cyberattacks, utilities should build robust cyber risk management into their
DER strategies.
2020 power and utilities industry outlook | 4
3
Business model transformation
Power companies are exploring growth
through new business models
New technologies, evolving customer preferences, and the changing
competitive landscape are leading many power companies to explore new
business models. Some models may help utilities further enable the clean
energy transition, and some may also provide new revenue sources.
For example, Sacramento Municipal Utility District (SMUD) is offering program
design and implementation for Community Choice Aggregation (CCA)
programs. CCAs allow communities to choose their electricity and natural gas
sources and aggregate procurement. By late 2019, eight states had approved
CCA programs and several more were considering them.17 Many CCAs focus
on reducing greenhouse gas emissions, boosting renewable energy, and/
or creating local jobs—and most also aim to cut electricity costs for their
customers.18 The SMUD services include design research, data, energy
acquisition and transportation, customer service, billing, and assistance with
contracting. The utility views this offering as a way to help its customers save
money and reduce carbon emissions.19
Some utilities are exploring transactive energy models using technologies
such as blockchain to enable customers to create value through rooftop solar,
storage, managed EV charging, and eventually vehicle-to-grid transactions.
Many see such markets as key to the industry’s future as they can incentivize
customer participation and boost grid flexibility. But they typically require
further development of regulatory and market structures. One model that
may provide lessons for the future is being developed on Isle au Haut, off
the coast of Maine. Developers are building a microgrid that includes solar
panels, supercapacitors for long-term battery storage, smart inverters, and a
transactive energy system that allows neighbors to sell power peer-to-peer
and participate in a demand response program that can help automatically
balance the grid.20 The question in 2020 and beyond is whether evolving
market and regulatory structures can enable replication and scaling of pilots
like these. Can New York, California, Hawaii, or another state that’s been
exploring these options make it happen?
2020 power and utilities industry outlook | 5
Core growth
4
Utilities are seizing opportunities
to help build cleaner, smarter cities
Most large US cities, and more than 35 percent of midsize cities surveyed, are
implementing smart city projects.21 Many utilities are already deeply involved in
these projects and learning that they can increasingly create value by becoming
the center of smart city initiatives. In 2020, we would not be surprised to see
utilities boost their involvement in smart cities for the following reasons:
•• Utilities are a foundational player with connections to every home and
business; their equipment and devices can be harnessed for other
purposes, such as detecting water leaks, hosting air quality sensors or
security cameras, or powering smart streetlight systems.
•• Utilities have vast databases of energy customer data, and they understand
the potential costs and benefits of many smart city decisions.
•• Utilities can help cities incorporate their clean energy goals into smart
city plans.
•• Utilities can also help cities boost resiliency to natural and manmade
disasters through digitization and automation (with effective cyber risk
protection), deploying backup power sources, battery storage, microgrids,
and more.
•• Cities may not be able to achieve their goals without collaborating with
their utilities and, conversely, if utilities are not involved, they could lose
opportunities to nontraditional suppliers.
Not all utilities are actively involved in smart city initiatives, which means
opportunities may be left on the table. According to one survey, nearly 33
percent of utilities are playing only support roles in smart city initiatives, and
more than 23 percent have no role.22 Utilities in many cities have already
installed smart grid infrastructure such as connected and automated devices
and technologies for meter reading, system monitoring, and predictive
and preventive maintenance. The logical next step is to use their expertise,
experience, and technology investments to advance their community’s smart
city initiatives. Whether it’s smart, connected EV charging stations, solar
parking canopies, smart street lighting, or sophisticated security monitoring—
utilities can seize opportunities to create value for their customers,
communities, and shareholders by participating in smart city programs.
2020 power and utilities industry outlook | 6
5 Strategic planning Utilities are preparing for EV growth and opportunities Power companies are helping customers cut carbon emissions not just by greening their energy supply, but by electrifying additional end uses and powering them with clean energy. Heating and cooling and industrial processes are key segments for conversion, and the spotlight is recently trained on the transportation sector, as EVs become increasingly attractive to car buyers and fleet operators. The power industry sees significant potential in the transportation sector, as it accounted for 28 percent of US energy use in 2018, while it was less than 3 percent electrified.23 The 1.1 million electric vehicles on US roads today is expected to rise to 20 million by 2030,24 and 63 percent of organizations recently surveyed by Deloitte have transportation fleet electrification plans.25 And it’s not just cars. Orders for electric delivery trucks, transit buses, and school buses are growing fast too. Amazon recently ordered 100,000 electric delivery vans to ship between 2021 and 2024.26 And one report predicts 40,000 electric heavy-duty vehicles will be on the roads in the United States and Europe by 2025.27 Some utilities are actively supporting e-bus purchases, such as by offering to develop charging infrastructure and pay the cost difference between diesel and electric buses for diesel bus replacements in their service territories.28 These growing fleets of trucks and buses promise both load growth and additional flexible resources to provide demand response and grid services. Utilities are exploring new ways to support charging depots for fleets and coordinating with fleet operators to manage charging to benefit the grid. They see opportunities for growth in building, maintaining, and operating charging depots with distributed generation and on-site storage to provide resiliency— which could require billions of dollars of investment throughout the 2020s.29 In 2020, look for many utilities to continue to invest in charging infrastructure and to accelerate plans to manage EV load in areas of high adoption. Some posit that utilities could build out EV infrastructure on major US highways within a year given the right policies and incentives.30 But while some state regulators already allow utilities to recover costs for charging infrastructure investment, others are still considering it. As for managing growing EV load, utilities are increasingly developing strategies, and several state regulatory commissions have ordered such plans. The imperative is to shift EV charging away from peak electricity demand periods to avoid adding costly new capacity. Utilities are using or planning to use communications and control technologies combined with real-time pricing to incentivize charging during off-peak demand hours and/or periods of peak solar and wind output. 2020 power and utilities industry outlook | 7
2020: Clean energy transition brings
opportunities in the new year
The new year brings significant opportunities for the power and utilities industry to
grow into its role as leader of the clean energy transition. Many power and utility
companies are raising the bar by setting their own clean energy goals as they seize
opportunities to help customers transition. Some of the industry’s most significant
challenges follow them into the new decade: managing growing cyber risk, justifying
new investments to regulators (up 10 points to 55 percent in a 2019 industry
survey),31 and preparing for or responding to natural disasters. Improving the
customer experience is also a key priority. Doing all of the above while keeping costs
low may seem like a high-wire act in more ways than one. But strategic planning,
risk management, and ongoing digital transformation can help the industry
maintain its balance and grow in the coming year.
2020
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outlookEndnotes
1. Federal Energy Regulatory Commission, Office of Energy Projects Energy 16. Gavin Bade, State of the Electric Utility survey 2019, Utility Dive, February
Infrastructure Update for July 2019, “Total available installed generating 26, 2019, pp. 49, 51, https://www.utilitydive.com/news/seu-2019-survey-
capacity,” September 18, 2019, p. 4, https://www.ferc.gov/legal/staff- uncertainty-mounts-in-the-clean-energy-transition/549214/.
reports/2019/july-energy-infrastructure.pdf. 17. Lean Energy US, “CCA by State,” https://leanenergyus.org/cca-by-state/,
2. Ibid. accessed October 2019; Eric O’Shaughnessy, Jenny Heeter, Julien Gattaciecca,
3. Nadja Popovich, Livia Albeck-Ripka, and Kendra Pierre-Louis, “85 Jenny Sauer, Kelly Trumbull, and Emily Chen, Community choice aggregation:
Environmental Rules Being Rolled Back under Trump,” New York Times, Challenges, opportunities, and impacts on renewable energy markets, National
September 12, 2019, https://www.nytimes.com/interactive/2019/climate/ Renewable Energy Laboratory (NREL), February 2019, pp. iv–v, https://www.
trump-environment-rollbacks.html. nrel.gov/docs/fy19osti/72195.pdf.
4. Marlene Motyka, Kristen B. Sullivan, Suzanna Sanborn, and Jaya Nagdeo, 18. Rob Nikolewski, “Why SDG&E wants to get out of the business of buying
Moving organizational energy use toward 100 percent renewables—aspiration or electricity,” San Diego Union-Tribune, January 13, 2019, https://www.
destination? Insights from the Deloitte 100 Percent Renewable Transition Survey, sandiegouniontribune.com/business/energy-green/sd-fi-sdge-wants-out-of-
Deloitte Insights, October 2019, p. 21, https://www2.deloitte.com/content/ buying-power-procurement-20190113-story.html.
dam/insights/us/articles/6387_100-Percent-Renewables/DI_100-Percent- 19. SMUD, “SMUD expands services to Silicon Valley Clean Energy,” June 25, 2019,
Renewables.pdf. press release, https://www.smud.org/en/Corporate/About-us/News-and-
5. David Roberts, “A major US utility is moving toward 100% clean energy faster Media/2019/2019/SMUD-expands-services-to-Silicon-Valley-Clean-Energy.
than expected,” Vox, updated May 29, 2019, https://www.vox.com/energy-and- 20. Robert Walton, “Dynamic Grid Systems will rebuild a small Maine utility from
environment/2018/12/5/18126920/xcel-energy-100-percent-clean-carbon- the ground up,” Utility Dive, June 27, 2018, https://www.utilitydive.com/news/
free. dynamic-grid-systems-will-rebuild-a-small-maine-utility-from-the-ground-
6. Smart Electric Power Alliance (SEPA), “Utility carbon reduction tracker,” https:// up/526693/.
sepapower.org/utility-carbon-reduction-tracker/, accessed October 2019. 21. Noman Akhtar, US smart cities – 2018, US Conference of Mayors and IHS Markit,
7. Amy Myers Jaffe, A framework for 2 degrees scenario analysis: A guide for oil and June 2018, p. 9, http://www.usmayors.org/wp-content/uploads/2018/06/2018-
gas companies and investors for navigating the energy transition, Ceres, 2016, Smart-Cities-Report.pdf.
p. 3, https://www.ceres.org/sites/default/files/reports/2017-03/Framework_ 22. Black & Veatch, 2019 Black & Veatch Strategic Directions: Smart utilities report,
Jan%2010%2017.pdf. 2019, p. 35, https://pages.bv.com/SDR-SmartUtilities-Download.html.
8. Transition Pathway Initiative, “Overview of the TPI,” www.lse.ac.uk/ 23. US Energy Information Administration (EIA), “Share of total US energy used
GranthamInstitute/tpi/about/. for transportation, 2018” pie chart, from “Use of energy explained: Energy use
9. Hazel Bradford, “Climate change moves to top of investors’ list of ESG issues,” for transportation” web page, https://www.eia.gov/energyexplained/index.
Pensions & Investments, September 16, 2019, https://www.pionline.com/esg/ php?page=us_energy_transportation, last updated May 10, 2019.
climate-change-moves-top-investors-list-esg-issues. 24. Herman K. Trabish, “The rise of EVs could overwhelm the grid, but PG&E has a
10. Kristoffer Tigue, “Climate change becomes an issue for ratings agencies,” better plan,” Utility Dive, June 13, 2019, https://www.utilitydive.com/news/the-
InsideClimate News, August 5, 2019, https://insideclimatenews.org/ rise-of-evs-could-overwhelm-the-grid-but-pge-has-a-better-plan/555984/.
news/04082019/climate-change-ratings-agencies-financial-risk-cities- 25. Marlene Motyka, Kristen B. Sullivan, Suzanna Sanborn, and Jaya Nagdeo,
companies. Moving organizational energy use toward 100 percent renewables—aspiration or
11. Ross Kerber, “Climate activists find warmer reception at shareholder destination?, p. 15.
meetings,” Reuters, July 11, 2019, https://www.reuters.com/article/us-usa- 26. Ben Kellison, “4 Takeaways from Amazon’s huge electric delivery van order,”
climate-investors/climate-activists-find-warmer-reception-at-shareholder- Greentech Media, September 26, 2019, https://www.greentechmedia.com/
meetings-idUSKCN1U62FY. articles/read/4-takeaways-from-amazons-huge-electric-delivery-van-order-
12. Chris D’Angelo, “First major US insurance company moves away from coal,” with-rivian#gs.96jtgj.
Grist, July 7, 2019, https://grist.org/article/first-major-u-s-insurance-company- 27. Timotej Gavrilovic, “Global electric bus adoption to triple by 2025,” Greentech
moves-away-from-coal/. Media, September 16, 2019, https://www.greentechmedia.com/articles/read/
13. Edison Electric Institute, “Delivering America’s Energy Future,” prepared global-electric-bus-adoption-is-set-to-triple-by-2025#gs.91ysyo.
remarks from EEI President Thomas R. Kuhn at the EEI Wall St. Briefing in New 28. Ibid.
York City, February 6, 2019, p. 2, https://www.eei.org/issuesandpolicy/finance/ 29. Ben Kellison, “4 Takeaways from Amazon’s huge electric delivery van order,”
wsb/Pages/default.aspx. Greentech Media.
14. Marlene Motyka, Stanley E. Porter, Suzanna Sanborn, Andrew Slaughter, 30. Mark Webb, Dominion Energy, speaking at SEPA Grid Evolution Summit,
and Scott Smith, Deloitte Resources 2019 Study, Energy management: Balancing Washington, DC, July 31, 2019.
climate, cost, and choice, Deloitte Insights, June 2019, pp. 2–3, https://www2.
deloitte.com/content/dam/insights/us/articles/5065_Global-resources-study/ 31. Gavin Bade, State of the Electric Utility survey 2019, Utility Dive, February 26,
DI_Global-resources-study.pdf. 2019, p. 30.
15. Marc Asano, Hawaiian Electric Companies, speaking at 2019 SEPA Grid
Evolution Summit, July 31, 2019, and The Hawaiian Electric Companies’ 2016
Power Supply Improvement Plan (PSIP) Update report – Executive Summary,
Hawaiian Electric, December 2016, p. ES-1, https://www.hawaiianelectric.
com/documents/clean_energy_hawaii/grid_modernization/psip_executive_
summary_20161223.pdf.
2020 power and utilities industry outlook | 9Let’s talk
Scott Smith
Vice Chairman
US Power & Utilities Leader
Deloitte LLP
ssmith@deloitte.com
+1 619 237 6989
Scott serves as the vice chairman, US Power & Utilities leader for Deloitte LLP, as well as the Audit
Industries leader for Deloitte & Touche LLP. He is an Audit partner with more than 29 years of public
accounting experience working with power and utility clients throughout the United States, South
America, and Europe. Scott serves on the Global Power leadership team, and he also serves as lead
client service partner, advisory partner, and concurring review partner on several of our largest power
and utility clients.
2020 power and utilities industry outlook | 10About this publication This publication contains general information only and Deloitte is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. This publication is solely for educational purposes. This publication should not be deemed or construed to be for the purpose of soliciting business for any of the companies/organizations included in this publication, nor does Deloitte advocate or endorse the services or products provided by these companies/organizations. Deloitte shall not be responsible for any loss sustained by any person who relies on this publication. About the Deloitte Research Center for Energy & Industrials Deloitte’s Research Center for Energy & Industrials combines rigorous research with industry-specific knowledge and practice-led experience to deliver compelling insights that can drive business impact. The Energy, Resources, and Industrials industry is the nexus for building, powering, and securing the smart, connected world of tomorrow. To excel, leaders need actionable insights on the latest technologies and trends shaping the future. Through curated research delivered through a variety of mediums, we uncover the opportunities that can help businesses move ahead of their peers. About Deloitte Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee (“DTTL”), its network of member firms, and their related entities. DTTL and each of its member firms are legally separate and independent entities. DTTL (also referred to as “Deloitte Global”) does not provide services to clients. In the United States, Deloitte refers to one or more of the US member firms of DTTL, their related entities that operate using the “Deloitte” name in the United States and their respective affiliates. Certain services may not be available to attest clients under the rules and regulations of public accounting. Please see www.deloitte.com/about to learn more about our global network of member firms. Copyright © 2019 Deloitte Development LLC. All rights reserved.
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