Changes in political priorities and regulation have continued to have a major bearing on the Power & Utilities sector globally through 2017. Along with technological changes, it is changes in regulation that are driving some of the most important trends we are witnessing, like the falling costs of renewable technologies.
With this constant change in mind, moderator Simon Virley, Head of Power and Utilities, KPMG in the UK, led a panel of senior energy executives through a discussion of the regulatory and political trends and events impacting energy today, and the developments they expect throughout the coming year. The participants included Samuel Leopold, former CEO of wind energy at Danish utility Orsted (formerly DONG); Julio Castro, Executive Vice President Regulation at Spain-based Iberdrola Group; and Aram Wood, Vice President, Strategic Market Analysis at Statkraft in Norway.
The discussion that followed was wide-ranging. But the key points are highlighted by the following eight observations:
1) Renewables are standing up on their own
The falling cost of renewables around the world is a game changer. Renewables are increasingly competing against fossil fuels on their own merits and without subsidies – for example, in solar in India, onshore wind in Chile, or offshore wind in Germany.
2) Power markets need a redesign
Going forward, renewables will increasingly be required to offer ‘firm’ power. Governments and regulators will need to redesign power markets so that renewables offer firm, clean and (increasingly) cheap power. Capacity and balancing markets are likely to become more prevalent as a result.
3) Traditional energy sources remain an important part of the global power mix
The flexibility of gas can complement renewables, buying time while governments endeavour to shift away from coal to help reduce global emissions. Even nuclear may have a role to play in some countries, if the costs challenges can be managed. In emerging economies, energy demand continues to grow rapidly, with fossil fuels still on the rise.
4) The US administration’s pro-fossil fuels stance hasn’t had much impact, yet
Despite the announced withdrawal of the US from the Paris climate accord and the administration’s support for coal, energy companies on the ground in the United States haven’t experienced much change. State governments have stepped in to continue to drive sustainable energy sources, supported by falling renewable energy costs.
5) Asia is the energy industry’s 'land of opportunity'
Energy demand continues to rise rapidly in the India and China. This represents huge opportunities for energy investors – both in fossil fuels and low carbon sources of power.
6) The impact of China’s clean energy efforts will ripple around the world
China’s five-year plan for a cleaner environment promises global ramifications as Chinese industries and the billions of people they serve change behaviours. The government has prioritized clean technology, including vehicle electrification. Watch this space!
7) Renewables could provide European customers much-needed energy cost relief
Europe now needs to take advantage of the falling costs of renewables to deliver lower bills for energy users - for businesses and domestic consumers alike.
8) Brexit may impact energy investment in the UK
While electricity and gas will continue to flow between Great Britain and European Union markets, Brexit has created some regulatory uncertainty for UK investors e.g. those who are considering future interconnectors.