The rate of change in global energy and utility markets since the early 2000s has been subdued. But this period of calm is unlikely to last much longer. As economies evolve, new technologies emerge and environmental concerns grow, a new wave of market reform is on its way.
In the West, stressed economies are facing static or declining demand for electricity and need to improve efficiencies within the system. In both the US and Western Australia, for example, there are concerns about the efficiency of capacity markets and the costs that inefficiencies impose on consumers.
Meanwhile, in the rapidly developing and resource-rich countries, falling resource revenues and growing domestic demand mean that governments can no longer afford to be complacent about how their economies use energy.
Around the world, conventional thinking on the regulation and funding of electricity supply infrastructure is being challenged by the emergence of distributed generation (notably roof-top solar) and storage, concerns about the environmental footprint of traditional large-scale power stations, and changing demand patterns (e.g. electric vehicles).
These wide-ranging changes mean that current market and regulatory systems for energy and utilities can no longer be considered fit for purpose. Markets and systems need to evolve considerably over the remainder of this decade, bringing significant challenges and opportunities for the government and private sector alike.
Governments and regulators
Governments and regulators need to re-formulate their policy settings so that the regulatory infrastructure keeps pace with the changing technological and commercial landscape.
This is already beginning to happen in the US, for example. In 2014, the state of New York announced that it is revising the state’s energy policy objectives with its ‘Reforming the Energy Vision’ initiative and will ultimately be transforming its energy markets.
Similarly, the UK is making far-reaching changes to reflect changing technology by regulating to ensure smart grid investments are treated on an equal footing with other network investments. Also in the UK, initiatives are underway to replicate the gains seen from electricity market reform in the water supply and reticulation industries. The aim is to make the country’s economic infrastructure more competitive.
In the Middle East, both Saudi Arabia and Oman are embracing the competitive electricity market model as a means of using their natural resources more efficiently.
Energy and water utilities
Utilities need to develop strategies to explore new regulatory and competitive scenarios and be ready to transform and adapt. To that end, we are already seeing a lot of interest from utilities in scenario planning exploring different possible future worlds for their business.
Traditional infrastructure investors
Traditional infrastructure investors need to review the impact of flattening demand, new distributed technologies and evolving regulatory structures and re-think the value of their traditional supply side investments. As a consequence, market simulation modeling is now developing to include a much more sophisticated representation of how the growth of distributed PV might influence grid-connected load, both in terms of its absolute levels and loadshape.
Entrepreneurs have opportunities to exploit new business niches not seen since the first wave of market reforms in the mid to late 1990s. As was the case in the 1990s, we expect new players to challenge conventional thinking and business models.