The way we produce and use electricity is changing and it is essential for electrical utilities, policy makers and consumers to navigate this change effectively in order to provide what is known as the energy trilemma – clean, affordable, and reliable electricity.
Changes in the way electricity is generated, transported and consumed are presenting a diverse range of serious challenges and opportunities for Australia’s electricity grid. By 2050, the electricity system will transition from one in which electricity is largely sourced from large-scale transmission-connected generators, to a system in which up to 50% of electricity is provided by distributed energy resources (DERs) such as solar and energy storage.
Deloitte Australia, with support from Energy Networks Australia, has conducted a study to assess the state of innovation within the Australian electricity network businesses.
Why is it important for energy businesses to innovate?
- Demand growth has stalled and faces external threats
Network businesses are acutely aware that alternatives to grid electricity which were an abstract concept a decade ago, are now becoming more affordable. The majority of network businesses see the threat of substitute technologies as one of the top three threats facing their organisation.
Growth in demand for electricity has stalled due to Australia’s changing economy, including declining manufacturing and heavy industries, more energy-efficient appliances and the rapid take up of solar Photo Voltaic (PV). While connections to the network are growing rapidly with increasingly diverse uses, the actual energy flow on the networks of Australia’s largest states (New South Wales and Victoria) is forecast to grow by just 0.2% annually over the next 20 years.
On the upside, demand for energy services will grow with population, household construction and new technologies like electric vehicles.
- A challenge to the traditional network assets
In 2017, 20% of consumers have solar panels and an additional 19% say they are likely to install solar panels in the next two years.
Balancing supply and demand pose a challenge as the penetration of the distributed and variable energy, like solar and wind increases. This variability can be managed with increased penetration of battery storage. In addition, with increased use of innovative communication and predictive technologies, visibility of generation and accuracy of forecasting will improve enabling network business to manage supply and demand challenge.
Grid-connected solar PV systems in Australia are currently limited in providing real-time generation information back to the grid operator or network businesses. This makes it difficult for a network operator to balance multiple flows of energy in and out of different parts of the network during the day. In the future, the innovative use of communication technologies will improve this visibility and the ability to operate the network reliably with high shares of solar power and manage variability.
- Enhancing value and remaining relevant to consumers
Consumers are deciding which energy products work for them, and those businesses that offer consumers value and reliability will maintain the confidence of consumers and social licence to operate in the long run. Consumers around Australia have been facing rising costs in electricity, outpacing inflation year-on-year.
Consumers are looking for options to take control of their energy costs. Surveys reveal that willingness to adopt solar panels is 8% higher than in previous years while adoption of batteries is 5% to 9% higher. There is some evidence consumers are being offered more varied products and better price deals. Other research from Energy Consumers Australia suggests that customers perceive they do not receive value for money for electricity services and products provided, compared to other industries and are looking for better choice and products.
If prices rise, consumption will decrease. In 2017, the top reason for switching energy providers was price. As the cost of installing solar PV and battery storage falls, consumers will see the value in purchasing electricity products which offer them more affordable energy.
Yet technologies like smart meters, smart appliances, payments for system support services and demand response also provide network businesses with the opportunity to offer consumers value, enabled by grid connection. Bringing consumers the benefit of their grid connection will be essential.
- Cyber-attacks on the radar
As our electricity system fills with more smart technologies connected to the internet, protecting the power system from cyber threats will become increasingly important for network businesses.
Results revealed that 15% of Executive survey respondents believe cyber-attacks are one of the top three threats to their organisation. Attempts to subvert and impact Australia’s energy infrastructure are increasingly a concern for grid operators as attacks become more organised and sophisticated. Energy has been identified as the most targeted sector for malicious attacks which may compromise cyber security.
10 recommendations towards excellent innovation
- Review your innovation strategy to ensure it sets a clear ambition.
- Establish a stronger ‘sensing’ function that enables the business to anticipate market trends, and place higher priority on outside-in innovation (consumer and stakeholder driven) vs inside-out (business improvements driven).
- Establish a well-defined approach to innovation, including management of the innovation pipeline and process.
- Leadership must actively break down barriers, make tough decisions that may be perceived as risky in support of transformational innovation, and empower people to make decisions and take action – establishing two pathways for core vs transformational innovation which enable optimisation and tailoring of metrics, funding and decision-making.
- Take time to understand the concerns of managers, provide incentives, give them room to imagine and get them motivated for change.
- Improve the organisation’s ability to fund innovation out of opex, and establish dedicated funding for more Transformational innovation –businesses need to establish optimal approaches for funding of transformational vs core innovation.
- Provide teams with the right skills and tools to move innovation forward – capturing, testing, building and commercialising ideas.
- Provide people with incentives to innovate and reward them through mechanisms such as awards, rotation programs and fast track promotion opportunities when working on transformational initiatives.
- Establish leading and lagging metrics that support the innovation ambition and strategy, and measure them regularly. In the case of transformational innovation, leading metrics are behavior based vs financials focused.
- Reflect metrics in operational metrics for core innovation in current products and markets.