In the U.S. power sector, 65 percent of customer accounts are served by utilities with publicly stated decarbonization or emission reduction goals. According to a recent Deloitte report, Navigating the energy transition from disruption to growth, this is primarily driven by digital technologies, regulatory mandates and incentives, and consumer support for carbon reduction.
The report explores how energy and industrial companies are positioning themselves for a lower carbon future. While it discusses the energy transition across three broad sectors: power and utilities; oil, gas and chemicals; and industrial products and construction; this article will focus on one sector — power and utilities.
The power and utilities sector has made significant progress in the energy transition and appears likely to continue prioritizing it despite the current economic downturn, according to Deloitte research and analysis. We fielded an energy transition survey in March 2020 (see “About the study”), and results suggest that power and utility companies will likely continue to prioritize energy transition progress.
Consider these key findings:
- Plans for a lower carbon future are well-established across the industry — Ninety-two percent of power and utility respondents said their company either has a long-term strategy for a sustainable, low-carbon future (31 percent) or is in the process of developing and implementing a plan (61 percent)
- Power and utility companies reap multiple benefits from advancing the energy transition Survey respondents most frequently cited improving the environment (62 percent) and reducing energy and overhead costs (57 percent) as benefits of the energy transition —but targeting new markets and customers (46 percent) and gaining a competitive advantage (45 percent) were also important.
- Consumer preferences, technology, and policy are driving the transition — Power and utility company respondents reported the top drivers of their progress as: consumer support for reducing carbon emissions, digital technologies that support sustainability and energy efficiency, and regulatory mandates and incentives, all selected by 58 percent of respondents.
Deloitte’s analysis measures progress in the energy transition across six channels:
- Decarbonizing energy sources
- Increasing operational efficiency
- Identifying new investment priorities
- Deploying new technologies
- Adjusting to new policy mandates
- Managing consumer and shareholder expectations
Of these six channels, power and utility companies appear to have advanced the energy transition the most through decarbonization and energy efficiency — and that progress is expected to continue even in the current economic downturn.
Decarbonization is well underway in the US power sector, with the majority of customer accounts served by utilities with publicly stated decarbonization or emission reduction goals, as noted above. While power sector survey respondents credited technology, regulatory incentives, consumer support, and new business models for decarbonization efforts, relative economics has also played a role.
In recent years, low cost shale gas has increasingly replaced coal in the U.S. generation mix. While coal-fired generation met 45 percent of US power demand in 2010, its share fell to 23 percent by 2019, according to the EIA. This shift was largely behind a 25 percent drop in the power sector’s carbon emissions from 2010 to 2019 (figure 1).
Renewable energy has also played an important role in decarbonizing the power sector. Rapidly declining costs of wind, solar, and lithium-ion batteries, which can make renewables more dispatchable, helped US renewable generation grow by 77 percent over the last decade.
According to the EIA, in the United States, renewables currently account for about 18 percent of the generation mix and are expected to rise to 38 percent by 2050. In the European Union (EU), renewables already account for 32 percent of power generation, a share that is expected to expand as the EU pursues its goal to become carbon neutral by 2050. In addition, renewable energy sources now account for 22.9 percent of US total installed generating capacity, continuing to expand their lead over coal, at 20.3 percent.
Electrification of additional energy end-uses can also speed decarbonization in the transportation, industrial, and building sectors (note carbon emissions by sector in figure 1). And more than 70 percent of power and utility executives surveyed said their company is working to help customers electrify additional end-uses, particularly in the transportation sector.
Electric utilities are advancing the energy transition by promoting energy efficiency across the economy. In the power sector, energy efficiency is seen as the least expensive energy source because if a utility can reduce customers’ electricity usage, it may be able to avoid building new generation, transmission or distribution. Energy savings from customer energy efficiency programs are typically achieved at one third the cost of new generation resources. In addition, almost half of U.S. states require utilities to achieve a certain reduction in electricity use as a percentage of sales, through energy efficiency resource standards. U.S. utilities spent about $8 billion on energy efficiency programs in 2018, helping customers save 27.1 million megawatt hours of electricity. Such programs have helped the US decouple economic growth from electricity consumption (figure 2). In the current economic downturn, energy efficiency investments may be more difficult to make, but programs will likely continue because they help customers save money.
Beyond decarbonization and energy efficiency, the energy transition is also advancing in the power and utilities sector through the other four channels: investment, technologies, policies, and consumer and shareholder expectations.
Investment plans may be in flux due to the pandemic and recession but utility capital expenditures are projected to rise to a record high of $141 billion in 2020. And some of that spending is slated for technologies likely to advance the energy transition, such as renewables, energy storage, and smart grid technology.
Battery storage is a key technology enabling the energy transition, as it helps smoothly integrate intermittent renewables onto the grid. As of December 2019, 982.3 megawatts (MW) of large-scale battery storage capacity were in operation and about 3616 MW of capacity were planned by 2023.
Utilities and governments are also exploring longer-duration storage technologies that meet cost and performance targets to achieve increasingly ambitious clean energy goals. Some of these promising technologies are flow batteries, compressed air systems, flywheels, thermal storage, and stacked blocks. Storage deployment growth may slow in 2020 due to the pandemic and recession, but the long-term trajectory is expected to trend higher.
In the policy arena, both state and federal initiatives have helped advance the clean energy transition. In the US, federal wind and solar tax credits have incentivized renewable energy deployment. At the state level, renewable portfolio standards, energy efficiency resource standards, and net metering policies have been some of the most supportive policies. In response to the current recession, the European Union has proposed a plan that includes clean energy stimulus spending and some countries may follow suit. And finally, as in many other industries, consumers and shareholders are increasingly playing a role. As noted, 55 percent of the power and utility industry respondents to Deloitte’s energy transition survey said consumer support for reducing carbon emissions was driving their industry’s transition towards a sustainable, low-carbon future.
Given power companies’ long-term plans for a low carbon future, the multiple benefits they’re reaping, and the strong drivers propelling them forward, as revealed in the survey, the sector will likely continue advancing the energy transition through all six channels, despite the current economic downturn.