2021 power and utilities industry outlook - Deloitte
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2021 power and utilities industry outlook
2021 power and utilities industry outlook
Accelerating energy
industry convergence
In 2020, the US power and utilities industry led the clean The broader energy industry could start to converge
energy transition despite federal policy headwinds. in the coming year, as many players seek to serve a
Pressure coming from stakeholders ranging from growing clean power market in an economy increasingly
citizens to shareholders intensified in the past year, moving toward electrification. Within the energy
hewing closely to the recommendations of the Paris industry, the oil majors’ diversification strategies will
Climate Accord. Many utilities, their host cities and likely increase their investment across the power
states, and their business customers announced plans sector’s value chain. Automakers’ increased shift
to fully decarbonize over the next three decades—and toward electric vehicles (EVs) could also help enhance
continued to do so in the aftermath of pandemic-driven the electric grid via charging infrastructure and battery
shocks to the electricity load. In fact, as intermittent storage development. They might even seek to become
renewables recorded record-high penetration and renewable and electric service providers, as Tesla is
peak oil demand came into focus, COVID-19 helped to doing.1 Technology companies may do the same as
crystallize the urgency of the energy transition and the they enable vehicles, homes, and businesses to both
industry convergence it entails. be served by and serve as distributed energy resources
(DER). The convergence of the electric, transportation,
In 2021, a new administration could usher in an and building sectors may witness companies with
acceleration of this energy transition and convergence. varying levels of regulatory, technological, and capital
Biden’s campaign platform called for a national net- constraints and opportunities partnering and/or
zero greenhouse gas emissions target by 2050 and a competing with power and utility companies. All these
$2 trillion investment to help equitably achieve this companies are looking to establish a strategic foothold
target. The power and utilities industry is expected to in a new energy landscape characterized by five trends:
lead this transition, as the Biden plan envisions the consolidation, new economies, new battery business
industry achieving an even more ambitious target of models, increased scale, and heightened disaster
zero emissions by 2035. While a Republican-led Senate readiness. Our 2021 renewable energy outlook explores
may narrow the scope and/or extend the timeline of variations on these same five trends.
these plans, agreement on an infrastructural stimulus
could serve as a vehicle to advance the energy transition,
as could executive authority over emissions.
About the study : Deloitte postelection survey
To understand the outlook and perspectives of organizations across the energy, resources, and industrials industries,
Deloitte fielded a survey of more than 350 US executives and other senior leaders in November 2020 following the
2020 US presidential election. The survey captured insights from respondents in five specific industry groups: chemicals
and specialty materials, engineering and construction, industrial products, oil and gas, and power and utilities.
1
Consolidate: Regulatory landscape
FERC enables competition through regulation
The Federal Energy Regulatory Commission (FERC) issued a landmark ruling
in September 2020 that could help consolidate the competitive landscape
for the energy industry’s convergence in 2021. By leveling the playing
field for DER to participate in wholesale capacity, energy, and ancillary
services markets, Order 22222 could help spur innovative technologies
and aggregations of rooftop solar arrays, EVs, and smart building devices.
The order is unlikely to be challenged given that, several months prior, the
US Court of Appeals for the D.C. Circuit upheld a similar order applying
to storage.3 As a result, regional transmission organizations (RTOs) and
independent system operators (ISOs) could revise their tariffs over the next
year to establish minimum DER aggregations no larger than 100 KW, in
addition to technical and operational terms regarding location, metering,
and bids.4 This ruling is significant given that, in a Deloitte postelection
poll (see “About the study”), surveyed power and utility executives ranked
regulatory hurdles as the single greatest obstacle to greater integration of
DER into the grid.
In another move that may further consolidate the competitive landscape in
favor of clean energy, FERC recently took a position of being open to carbon
pricing. More specifically, FERC clarified its jurisdiction over and support
for wholesale electric market rules on carbon pricing. This may encourage
additional states in 2021 to join the 11 states that currently have carbon In 2021, the new administration may have an
pricing.5 opportunity to choose two Democratic nominees to fill
FERC’s current vacancies and to appoint a new chair.
A key area to watch is whether FERC will dampen some of the momentum Flipping the agency to a Democratic majority could
from these actions that enhance the competitiveness of clean energy yield FERC decisions that are more supportive of clean
sources by handicapping their ability to clear capacity markets. In addition energy targets.
to its order requiring the Pennsylvania New Jersey Maryland (PJM)
Interconnection RTO to apply a minimum-offer price rule, FERC recently
undercut a New York ISO (NYISO) pro–clean energy provision by upholding
rules that artificially place a price floor on these resources’ market bids. As
a result, storage and renewables are unlikely to be able to clear the capacity
market, depriving DER of a key revenue stream.
Another challenge to the reach of Order 2222 is states’ ability to opt out
if DER aggregations include third-party demand response programs. A
demand response provider recently petitioned FERC to close this loophole
and enable greater market competition.6
2021 power and utilities industry outlook 3
Create: New economies
2
Emerging DER aggregation platforms expand
digital utility infrastructure
DER integration into the grid would require a new digital infrastructure to
aggregate and manage these resources in grid-enhancing ways. The issue
is pressing: Wood Mackenzie projects that cumulative US DER capacity may
reach 387 GW by 2025, with DER installations between 2016 and 2025
accounting for more than a fifth of all generation and storage installations.
Following a pandemic-related dip in DER capacity additions this year,
growth is poised to recover in 2021, with a mix that is shifting from mostly
nonresidential to mostly residential, solar, and EV load management.7
The big question is to what extent utilities, third parties, and customers can
cost-effectively manage this DER digital infrastructure. Indeed, Deloitte’s
postelection poll of various power and utility executives found that close to
a quarter of respondents believe insufficient or low value streams are the
single greatest obstacle to greater integration of DER into the grid. More
than a fifth of respondents believe the greatest obstacle is the inability
to include DER-related investments in the rate base. At one end of the
spectrum, utilities could actively deploy DER in strategic locations as nonwire
alternatives to distribution infrastructure upgrades and orchestrate them
to help balance the grid. Alternatively, utilities could allow customers’ DER
Southern California Edison (SCE) partnered with rooftop
to operate autonomously. Another option is for a third party to manage the
solar developer Sunrun to manage a network of 300
DER fleet, balancing utility and customer interests. Finally, customers could
residential batteries as a virtual power plant. Customers
respond to real-time wholesale price signals. This latter scenario raises
pay for the batteries out of pocket, and Sunrun commits
competitive issues for power and utility executives, 60% of whom, among
to operating them to the customer’s financial benefit.9
Deloitte’s survey respondents, consider self-generating customers to be
In other instances, Sunrun sells backup power to
utilities’ greatest competitor in providing power to customers.
customers. SCE is also piloting automated customer
DER responses to real-time pricing in partnership with a
Each of these configurations will be tested in 2021, and best practices may
transactive energy company.10
emerge. For example, one utility that can own and rate-base customer-sited
DER works with a software partner to manage a network of more than
DER aggregation platforms can integrate both
2,000 residential batteries. The utility saves on payments to ISO-New
stationary and vehicular battery storage to help
England by discharging during peak demand and passes those savings
integrate renewables.
onto customers. Customers can choose a decade-long battery lease from
the utility or bring their own devices and receive payments from the utility
based on the capacity they allow the utility to use.8 Taking a different tack,
2021 power and utilities industry outlook 4
Reinvent: Battery business models
Mobile battery business models develop around
3
EVs and charging infrastructure
The electrification of transportation and charging infrastructure is also
poised to experience unprecedented growth in 2021, opening a significant
opportunity for utilities to grow earnings. In terms of market developments,
while US auto sales fell 9% between the third quarter of 2019 and the
third quarter of 2020 amid the pandemic, Tesla sales increased 22%.11 In
2021, we may see the introduction of new, longer-range batteries in truck
and SUV models from Tesla, other startups, and established automakers,
which may further bump EV sales and accelerate their timeline to parity
with gasoline-powered vehicles. New EV manufacturers such as Canoo
and Polestar could also attract attention to the EV marketplace overall and
provide expanded opportunities to potential customers.
Policy game-changers could also boost EV market prospects in 2021. At the
federal level, a new administration could reinstate EV tax rebates and higher
fuel efficiency standards and more than quintuple the number of charging
stations. And in September, the governor of California (the country’s largest
state automotive market) issued an executive order to end the sale of new
gasoline cars in 2035.
can most rapidly and cost-effectively expand its network
The governor’s announcement, in the context of California’s rolling blackouts,
to assuage the range anxiety constraining suburban
provided a stark reminder of the stakes of EV load growth management and
EV adoption and to fill the charging deserts hampering
highlighted the role of utilities in EV infrastructure development. Evening
urban EV adoption.
charge surges, fast charging, and EV clustering could all burden the grid and
require significant infrastructural upgrades without time-of-use and other
Regulators are increasingly coming around to the idea
dedicated EV charging rates, customer engagement, and utility involvement
of a leading utility role in EV charging infrastructure
in charging infrastructure siting decisions. Conversely, grid interactive
development, portending a wave of charging program
EV charging could help support the grid and absorb excess renewables
approvals in 2021 that could help grow utility revenue.
production, complementing the similar role of utility and residential
Regulators have already approved $2.6 billion in utility
stationary battery storage.
investment in transportation electrification, mostly
in California, which recently approved a record $436
Here again, utility involvement ranges from siting, owning, and operating
million charging program.13 Other players eyeing
charging stations to providing EV charging tariffs and rebates. In Deloitte’s
charging infrastructure investments include oil
postelection poll, 98% of power and utility executives surveyed believe
companies.
that utilities should play a primary or secondary role in EV infrastructure
development. In other cases, automakers are developing exclusive
fast-charging networks (e.g., Tesla) or partnering to develop public charging
networks (e.g,. GM/EVGo). And independent EV charging network operators
are attracting private equity investment.12 The big question is which model
2021 power and utilities industry outlook 5
Scale up: New entrants and frontiers
Oil companies are investing in the power sector
4
The growth in renewables and clean technologies has engendered
interest in the sector from new entrants, including some of the larger oil
companies. Over the past several years, oil company investments in storage
technologies, transport electrification, and renewable energy have increased
noticeably.14 This trend is expected to continue in the longer term as oil
companies move beyond the immediate impact of the oil price drop and
COVID-19–related demand decline. In fact, the companies that had already
invested substantially in new business models, such as renewable energy,
found that even as oil price volatility increased in 2020, the comparatively
stable returns on renewable investments were a welcome addition.15 As
the US offshore wind industry takes off next year, US oil majors could be
positioned to transpose their offshore drilling expertise to the nascent
industry. They could similarly play a leading role in advancing a US green
hydrogen economy. Consequently, the power and utilities industry may find
itself increasingly partnering with, and in some cases competing with, oil
companies in such areas.
2021 power and utilities industry outlook 6
Fortify: Disaster readiness
Digital strategies to help address wildfires,
5
COVID-19, and cyberattacks
Several disasters buffeted the power and utilities industry in 2020, bringing
disaster readiness to the forefront going into 2021. Utilities may increasingly
deploy some digital tools to address the “twindemic” of COVID-19 and
extreme weather events such as wildfires.
The first set of solutions revolves around a remote workforce. Utilities are
using digital tools to enable remote work for safety purposes. To prevent
exposure to the coronavirus, utilities are equipping workers with virtual
reality in lieu of in-person training, with digital contract management tools
to avoid physical meetings, cloud-based solutions to enable work outside of
the office or any specific location, and digital customer engagement options
to avoid the need for in-person interaction. Postpandemic, these tools may
continue to provide a return on investment by offering additional flexibility,
elevated customer experiences, and emergency contingencies.
The second set of digital solutions pertains to a remote workplace. The
idea is to prevent unsafe conditions from occurring in the field. To protect
equipment from succumbing to an extreme weather event, utilities are using
artificial intelligence (AI) to model extreme weather events, identify where
the infrastructure might be hit, and how to best mitigate the risk. Next, to
Digital strategies for disaster readiness could take
prevent equipment from sparking a disaster, utilities are deploying Internet
center stage in the coming year, as COVID-19 is likely to
of Things sensors to enable predictive maintenance, drones to identify faulty
remain a risk for at least part of 2021, weather events
equipment, computer vision to classify the resulting data, and machine
continue to become more common and more extreme,
learning to preliminarily analyze it.16 Again, these tools can provide a return
and utilities conduct cyberattack postmortems. Chief
on investment above and beyond fortifying disaster readiness. They can
among these digital strategies is AI, which most power
also help cut costs, facilitate remote work, and allow workers to focus on
and utility executives surveyed (55%) in our postelection
higher-value tasks.
poll think is, by far, the most important digital
technology for utilities right now.
Alongside their investments in digital solutions, utilities can be expected
to reassess and upgrade their cyber defenses after the US Department of
Homeland Security warned of an increase in cyberattacks right before the
elections from foreign groups specifically targeting the energy sector.
2021 power and utilities industry outlook 7
2021 power and utilities industry outlook
Decarbonization and digital
strategies to drive industry
convergence in 2021
In the coming year, the evolving energy landscape which this uptake can translate into market participation.
is expected to be characterized by five trends: These trends in turn would expedite the process
consolidation, new economies, new battery business of convergence we are seeing as new entrants and
models, increased scale, and heightened disaster incumbents position to serve a growing clean power
readiness. In this context, our postelection poll showed market in an economy gradually electrifying. The
that most power and utility executives surveyed think recent uptick in antitrust activity around big technology
that utilities should primarily focus on decarbonization companies may also alter the competitive landscape by
strategy (33%) and digital strategy (29%) over the next limiting their penetration of the energy sector. Expanding
year. Key areas to watch with a change of administration to the international market, carbon taxes could be a
include the uptake of distributed energy resources, game-changer in both the energy and trade sectors.
EVs, and hydrogen. Meanwhile, pending FERC decisions
and new FERC appointments could shape the extent to
Let’s talk
Jim Thomson
Vice Chairman
US Power, Utilities & Renewables Leader
Deloitte LLP
jamthomson@deloitte.com
+1 813 230 3714
Jim serves as the vice chairman, US Power, Utilities &
Renewables leader, as well as a lead client service partner
for Deloitte Consulting LLP. A consulting principal based in
Tampa, Jim has more than 30 years of consulting experience
working with global power and utility and renewable energy
clients. He is focused on helping clients with complex and
critical challenges within the power and utility industry and
brings a strong passion for making a difference with some
of our largest power and utility and renewable energy
businesses and their customers.
2021 power and utilities industry outlook 9Endnotes
1. 1 Ed Clowes and Olivia Rudgard, “Tesla applies for UK electricity provider 8. Green Mountain Power, “Tesla Powerwall,” https://greenmountainpower.
license,” Telegraph, May 2, 2020, https://www.telegraph.co.uk/busi- com/rebates-programs/home-energy-storage/powerwall, accessed
ness/2020/05/02/tesla-applies-uk-electricity-provider-licence, accessed October 2020.
October 2020.
9. Sunrun, “SCE Bill Too High? Get Peace of Mind with Solar Panels and
2. Federal Energy Regulatory Commission (FERC), “FERC opens whole- Solar Battery Storage Today,” https://www.sunrun.com/utility/ca/sce,
sale markets to distributed resources: landmark action breaks down accessed October 2020.
barriers to emerging technologies, boosts competition,” https://www.
ferc.gov/news-events/news/ferc-opens-wholesale-markets-distribut- 10. Opus One Solutions, “Opus One Solutions deploys first transactive
ed-resources-landmark-action-breaks-down#:~:text=The%20Federal%20 energy management software at Southern California Edison for a DOE
Energy%20Regulatory%20Commission,regional%20organized%20whole- demonstration project,” June 23, 2020, https://www.opusonesolutions.
sale%20electric%20markets, accessed October 2020. com/news/opus-one-solutions-deploys-first-transactive-energy-man-
agement-software-at-southern-california-edison-for-a-doe-demonstra-
3. Note that Order 841 removed barriers to storage participation in tion-project, accessed October 2020.
wholesale markets and their compensation for capacity, energy, and
ancillary services across all ISOs, even if the storage is connected at the 11. Zachary Shahan, “US Tesla sales up 22% in 3rd quarter, US auto sales
distribution level and providing services in retail markets. down 9%,” Cleantechnica, October 12, 2020, https://cleantechnica.
com/2020/10/12/us-tesla-sales-up-22-in-3rd-quarter-us-auto-sales-
Catherine Morehouse, “DC Circuit upholds landmark FERC storage or- down-9, accessed October 2020.
der, rejecting claims it violates state authority,” Utility Dive, July 13, 2020,
https://www.utilitydive.com/news/dc-circuit-upholds-landmark-ferc-stor- 12. Bethany Villarreal, “SemaConnect Secures Investment from Trilantic
age-order-rejecting-claims-it-violate/581436, accessed October 2020. North America,” https://semaconnect.com/blog/semaconnect-se-
cures-investment-from-trilantic-north-america, accessed October 2020.
4. FERC, “Staff presentation item E-1,” https://www.ferc.gov/staff-presenta-
tion-item-e-1, accessed October 2020. 13. Rebecca Elliott, “Spread of electric cars sparks fights for control over
charging,” Wall Street Journal, October 17, 2020, https://www.wsj.
5. “US FERC says it has jurisdiction over power market carbon market price com/articles/spread-of-electric-cars-sparks-fights-for-control-over-
plans,” Reuters, October 15, 2020, https://www.reuters.com/article/us- charging-11602927000, accessed October 2020.
usa-ferc-carbon-price-idUSKBN2702Q7, accessed October 2020.
14. Richard Stubbe, “Oil & gas majors pivoting to renewables in pandemic:
6. Earthjustice, Complaint of Voltus, Inc. requesting fast track process- Q&A,” Bloomberg New Energy Finance, August 4, 2020, https://about.
ing, October 20, 2020, https://earthjustice.org/sites/default/files/ bnef.com/blog/oil-gas-majors-pivoting-to-renewables-in-pandemic-qa,
files/2020-10-20_voltus_complaint.pdf, accessed October 2020. accessed November 2020.
7. Ben Kellison and Fei Wang, “What the coming wave of distributed energy 15. Nasdaq, “Oil price crash opens a window of opportunity for renewables,”
resources means for the US grid,” Greentech Media, June 18, 2020, Oilprice.com, March 27, 2020, https://www.nasdaq.com/articles/oil-
https://www.greentechmedia.com/articles/read/coming-wave-of-der- price-crash-opens-a-window-of-opportunity-for-renewables-2020-03-27,
investments-in-us, accessed October 2020; Wood Mackenzie, “United accessed November 2020.
States Distributed Energy Resources Outlook,” July 2020, accessed
October 2020. 16. John McCormick, “California utilities hope drones, AI will lower risk of
future wildfires,” September 11, 2020, Wall Street Journal, https://www.
wsj.com/articles/california-utilities-hope-drones-ai-will-lower-risk-of-fu-
ture-wildfires-11599816601, accessed October 2020.
2021 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 adviser. 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 © 2020 Deloitte Development LLC. All rights reserved.
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