Utilities See Future Profits in Microgrids: Survey

Nov. 8, 2018
Utility executives see microgrids and related technologies as future revenue opportunities to help counter dampened profits from their traditional services, according to a new study from Accenture.

Utilities see microgrids and related technologies as future revenue opportunities to help counter dampened profits from their traditional services, according to a new study from Accenture.

The finding came from a survey of 150 utility executives across more than 25 countries, part of Accenture’s Digitally Enabled Grid research program, now in its fifth year.

Forty percent of those surveyed listed services related to microgrids, energy storage and data as top drivers of earnings growth beyond 2025.

They also cited as new revenue sources: improved efficiency from core processes (54 percent); improved network performance from smarter grids (50 percent); core distribution services, such as contracting (43 percent); and new asset plays (40 percent).

The study indicates that what ails utilities today could cure them later.

Nine in 10 utilities now labor under severe earnings pressure caused by disruptive market conditions brought on by growth in distributed generation, shifting consumer dynamics and weaker demand for electricity, according to the study.

But that begins to change in 2025 as utilities adapt to the new environment and make the disruptors work in their favor.

Those that adapt will become “intelligent grid optimizers” in the words of Stephanie Jamison, a managing director at Accenture who leads its Transmission and Distribution. Such utilities will “accommodate, operate and navigate a fast-changing ecosystem of energy devices being adopted for homes and businesses.”

To stay competitive utilities need to transform and grow their core, making reinforcements to support microgrids, electric vehicles and energy storage. At the same time, they need to “scale the new” by taking ownership of distributed energy within “the regulatory fence” or by creating competitive spin-offs. Either way, microgrids offer utilities opportunity, according to the study.

But for utilities to realize the opportunity, regulatory change must occur. Utility compensation models need to move away from today’s approach that relies on electricity sales and construction of large-scale projects. Regulators instead must move toward greater use of performance-based models.

“As those distributors collaborate with regulators and other stakeholders to develop a performance-based distribution model, they will have the potential to increase profits beyond the limits of regulated asset growth,” said the study. The model will push utilities to adopt “a more customer-centric approach so that evolving customer expectations on areas such as service quality, distributed generation deployment opportunities, EV charging capacity and tariff structures are satisfied.”

Executives surveyed see 75 percent of utility investment going into utility distribution systems from 2016 to 2040. This may mean, among other things, reinforcing infrastructure to support distributed energy.

Once that’s done, utilities should focus on scaling the new opportunities. Again, looking at microgrids, utilities may pursue them within the “regulatory fence” as new assets or develop spin-off businesses outside the regulatory fence, said the study.

Accenture noted that new opportunity could arise out of smart city or urban energy systems. “Distribution companies could also build and operate microgrids as part of smart city solutions,” said the study.

Over the long term, Accenture sees “reason for optimism” noting that 97 percent of the utilities surveyed expect earnings in their distribution business to grow beyond 2025.

“Distribution companies are well-placed to help accelerate the transformation process to create a more-distributed, low-carbon and customer-centric electricity system,” Jamison said.

Accenture surveyed executives from 25 countries: Argentina, Australia, Brazil, Canada, China (including Macau and Hong Kong), Denmark, France, Germany, Indonesia, Ireland, Italy, Japan, Malaysia, the Netherlands, Norway, the Philippines, Poland, Portugal, Singapore, Spain, Sweden, Switzerland, Thailand, the United Kingdom and the United States. The survey was conducted in February and March 2018. 

The study is available on Accenture’s website.

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About the Author

Elisa Wood | Editor-in-Chief

Elisa Wood is an award-winning writer and editor who specializes in the energy industry. She is chief editor and co-founder of Microgrid Knowledge and serves as co-host of the publication’s popular conference series. She also co-founded RealEnergyWriters.com, where she continues to lead a team of energy writers who produce content for energy companies and advocacy organizations.

She has been writing about energy for more than two decades and is published widely. Her work can be found in prominent energy business journals as well as mainstream publications. She has been quoted by NPR, the Wall Street Journal and other notable media outlets.

“For an especially readable voice in the industry, the most consistent interpreter across these years has been the energy journalist Elisa Wood, whose Microgrid Knowledge (and conference) has aggregated more stories better than any other feed of its time,” wrote Malcolm McCullough, in the book, Downtime on the Microgrid, published by MIT Press in 2020.

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