The days of separately managed generation, transmission and distribution are over, writes Lisa Davis, Member of the Managing Board of Siemens AG. According to Davis, the energy systems of the future will need to integrate the entire value chain from generation to consumption. The key to managing these increasingly complex systems is balance and flexibility.
As the historic Paris climate agreement moves forward and the future of the Clean Power Plan in the United States is still being determined, energy leaders gathered at the annual Edison Electric Institute Convention in Chicago recently to discuss how developed and developing nations can reduce greenhouse gas emissions.
It was a well-timed conversation. Looking at energy systems around the world, I’ve never seen a market with so much change happening all at once. We’re witnessing a global energy transition that is enormous and also deeply complex.
Affordable and abundant natural gas is reshaping energy systems
My suggestion to senior executives and policy-makers attending the conference was simple: think differently.
The days of separately managed generation, transmission and distribution are over. Today, the only truly successful energy systems are those that manage the entire energy value chain – from generation to consumption – as one system.
Magnitude of change
Global demand for electricity is growing by about two percent annually. That’s not just because population is rising by approximately 90 million people each year. It’s also the result of increased urbanization and electrification. There are more and more electric cars on the road, as well as a growing number of electric trains on railways.
As the appetite for electricity grows, we’re simultaneously seeing a tectonic shift in the global energy mix. While coal had long been the world’s fossil fuel of choice, today that’s changing – with natural gas and renewables leading the way.
Affordable and abundant natural gas – unlocked by unconventional drilling techniques in the United States – is reshaping energy systems. Liquefied Natural Gas (LNG) is becoming much more transportable, creating more global demand for low-cost natural gas as countries seek lower carbon energy sources.
Wind and solar are also growing, buoyed by dramatic reductions in price. For example, the price per kilowatt hour of onshore and offshore wind generated power has come down by about 30 percent over the past ten years. In many places, onshore wind is able to compete on cost with natural gas-fired power plants; the price of offshore is coming down dramatically as well.
Complexity grows
Beyond the magnitude of change in the energy marketplace, advances in technology are adding to the complexity of energy systems.
Given the certainty that systems will become even more complex, and even more challenging to manage, policy-makers and regulators will need to think long-term as they contemplate the path ahead
We’re seeing digitalization make power generation much more efficient, maximizing the performance of turbines while optimizing service. And software is playing a bigger role in balancing energy systems. For example, with software it’s possible to create a ‘virtual power plant,’ bringing together a number of smaller point sources of generation to leverage those in a utility system. New battery technology also stands to be a game changer in storage.
One thing is for certain: technology will be a driving force in transforming the energy landscape as we know it today.
Path ahead
With all of these dynamic yet interconnected forces at play, a central question emerges: how can governments and power investors chart a course that reduces carbon while also ensuring reliability?
What we see a need for is balance and flexibility to manage increasingly complex energy systems. As more renewables are integrated into the grid, and the rapid trend toward distributed energy continues, there will be a need to focus on new technologies that enable systems to be more flexible, manage resiliency, and allow for bidirectional flow – technologies such as microgrids and smart grids, as well as new forms of transmission.
Given the certainty that systems will become even more complex, and even more challenging to manage, policy-makers and regulators will need to think long-term as they contemplate the path ahead. As our energy future is determined, engagement between the public sector and technology providers will be essential – sharing experience and expertise that helps create the conditions for lower-carbon solutions to flourish while meeting society’s demands.
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Bas Gresnigt says
“The days of separately managed generation, transmission and distribution are over. Today, the only truly successful energy systems are those that manage the entire energy value chain … as one system.”
This suggest a return towards the expensive monopoly structures, while the trend in more advanced countries (NW-EU) is clearly opposite. As in the telecom world, the separation of different parts of the value chain brought major advances and costs benefits.
It stimulated sharp competition and new models. As you stated, the latest being VPP’s, such as this one.
There is no reason to assume that this trend is over.
Opposite. Especially since grid management is becoming more easy nowadays*).
All thanks to the digitization & automation and the fact that most new generators (wind & solar) react extremely fast when ordered to produce less or shut down.
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*) Don’t know where your idea of the opposite comes from? Is it in the interest of Siemens?
Dennis Heidner says
Bas, I think the point she was trying to say – is the that the days of a vertically integrated utilities are numbered. And companies that do not try to maintain their hold on the vertical integration supply chain (generation, transmission, distribution, and some loads) will have a clear advantage. The ability to digitally interconnect nearly all elements of the grid with software that is now on the market (GE/Alstom DERM) for example means that the whole grid – including the customer owned roof top PV can be used for an effective grid.
Utility execs just need to understand the world has changed and the technology exists today – from many different companies – Siemens, GE, etc. (1Energy Systems just recently purchased by Doosan GridTech – is another example).
Lisa is also hinting strongly that the next major market for companies such as GE / Siemens will be the consulting and integration services for the utilities that are looking to move forward.
Eric Blume says
Advances in technology do add complexity. But the advances in a technology’s efficiencies are married today with rapidly decreasing costs and unpredicted customer adoption. You can see that in the PV revolution, where efficiency zoomed up the mountain and costs fell off a cliff; in the incredible influx of LEDs, which did the same thing and whose efficiency and affordability are having a relatively unanticipated effect on utility revenues; and in storage, whose commodity costs and capacity are following the same pattern. All of which is to say that that end use–natural gas and electrification in the industrial sector, and highly controlled power usage (brought about by any number of efficient lighting/HVAC technologies and their management systems) by commercial and residential customers–will be the least predictable component of an “integrated system.”
Whether the public sector can keep up with that, I don’t know. The answer may be less that the public sector and technology providers talk and more that larger industrial companies (like utilities) get closer to innovative energy technologies at their inception.