The role of utilities in enabling prosumers and flexible distributed energy resources

Daniel Quiggin, Chatham House

This paper explores how utilities could transform as the electricity system undergoes a second phase of transformations and the business models they could develop. The main focus will be on the role existing power companies could play in enabling distributed energy resources (DERs) and prosumers to participate in an increasingly flexible electricity system, via energy service platforms.

The electricity sector is experiencing a deep and profound disruptive shock, the effect is most obvious in Australia, the EU-28 and parts of North America, where once powerful utility companies are struggling in the current market and many are restructuring to survive. Three major factors define this phase of transformational changes: renewable deployment, slower than expected demand growth and in many jurisdictions, market reform.

Whilst many utilities are now beginning to respond to the structural shifts embedded within the electricity systems they operate, it is becoming apparent that a second phase of transformational shifts is around the corner. This second phase is intimately linked to the first phase and is likely to have greater transformational impacts, amplifying the impacts of the first phase. Utilities will increasingly need to offer greater service-based packages to consumers, creating new value as their traditional business model evaporates.

The second phase can also be categorised into three discrete but interlinked factors. The first two are clearly definable and related to specific technologies: electric vehicles (EVs) and battery storage. The third, digitalisation and flexibility, is a much broader and complex set of technologies, from fridges connected to the internet, the smart charging of EVs and intelligently controlled DERs. Enabling and incentivising system flexibility within this second phase will be key to ensuring low cost renewable generators continue to be integrated without incurring rising system integration costs.

There are a bourgeoning number of potential prosumers, who could sell power and flexibility services from their DERs back to the grid, but are currently locked out of the market. It is the rise of DERs within the distribution grid that is creating the need and opportunity to create a new layer of energy service platforms. Such platforms could enable the connection of flexible DERs, benefiting prosumers whilst requiring utilities that specialise in networks to provide the infrastructural backbone and technical expertise. In doing so, network operators and power companies would not only militate other market actors doing the same, but provide them with the opportunity to lead the market and create new value.

Power companies and network operators, governments and regulators can learn valuable lessons from international experiences of creating such platforms, as well as the opportunities, risks and implications for the wider electricity system, future prosumers and utilities themselves. Lessons are drawn from New York’s Reforming the Energy Vision as well as pilot projects such as the Decentralized Energy Exchange in Australia.

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