COP26: The beginning of a new era for Utilities
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The United Nations brought together almost every country in the world to discuss the state of the planet, in early November 2021.
The 26th annual summit of the Conference of the Parties (COP26) hosted tens of thousands of global leaders, government and business representatives, and citizens, who discussed strategies to tackle climate change. The international conference garnered attention and significance because of the urgency of the task at hand: containing global average temperature rise to below 2°C. The run-up to 2030 is crucial in determining where we are in achieving our climate action goals.
Concerted effort towards mass decarbonization and electrification will drive governments and industries to meet net-zero emissions targets. At the center of this transformation is the utilities sector, which plays a pivotal role in clean energy generation and transmission. The industry has been instrumental in the progress we have achieved so far—lowering emissions, reducing the dependence on coal, and transitioning towards renewable energy sources. In this context, agreements made in COP26, and the future climate agenda set in the summit present phenomenal opportunities for the sector. Utilities are at a pivotal juncture embracing new business models and complying with evolving regulations. This paper discusses the impacts of COP26 on utilities and the new opportunities and implications for the industry.
Key outcomes for Utilities from COP26
The prime intention behind COP26 was to nudge the parties involved to commit to ambitious emissions-reduction targets.
Before the COP26 event, in August 2021, the Intergovernmental Panel on Climate Change (IPCC) released the sixth assessment report (AR6) on the current status and impact of climate change. The report highlighted that the climate change status continues to be precarious, with a 50-50 chance of average global temperature increasing by 1.5°C over the next 20 years. This was a focal point of discussion at COP26 and influenced many of the decisions to mitigate climate change. These decisions are likely to impact almost every industry, in particular the utilities sector - a major contributor towards greenhouse gas (GHG) emissions. Multiple outcomes of COP26 have a direct bearing on the utilities vertical as shown in Figure 1:
Digital investments: Opening up new opportunities for Utilities
The outcomes of COP26 indicate that there will be an exponential growth of emission-reduction technologies and related investments to accelerate the energy transition.
Building the right digital capabilities and the supporting IT infrastructure will help utilities keep pace with changing market dynamics. Some of the digital investment avenues are:
Digitally enabled carbon capture and storage (CCS): This process helps in capturing carbon dioxide and storing it so that the gas is not emitted back into the atmosphere. Geographic information systems (GIS), 3D reservoir modeling, and imaging technologies can assist in appraising storage sites, and enabling automatic data collection, integration and analysis. In addition, businesses can leverage data insights, 4D seismic surveys, remote sensors, and centralized data platforms for real-time performance monitoring, evaluation and risk management. In this context, UK-based oil and gas company Neptune Energy announced in January 2022 that it has developed digital twins of two platforms in the Dutch North Sea to support its carbon capture and storage project.
Managing the energy system with higher efficiency and lower costs: Smart power management systems can help optimize engine operations of drilling rigs, facilitating peak shaving of drilling loads and ensuring steadiness. Unmanned equipment, such as robot and leak detection sensors, can improve the surveillance frequency and provide predictive maintenance services at lower costs. Energy management systems can improve energy efficiency and help deploy hybrid power systems with distributed energy and storage infrastructure. Asset performance management systems can enable a better understanding of assets and reduce unplanned downtime costs.
Automating carbon footprint tracking along the value chain: With 5G, remote sensors and drones, operators can monitor carbon emissions along the value chain. Centralized data management, big data, artificial intelligence (AI), machine learning, and cloud computing can help energy firms turn sensing data into contextual insights. This will support businesses in quantifying the climate impact in every step of energy consumption.
Monetizing data in a low-carbon economy: Big-data-empowered modeling capability will allow operators to run scenarios and select the best decarbonizing route while unleashing efficiency gains. In addition, software-as-a-service (SaaS) platforms will help firms streamline the carbon footprint reporting process, simplifying disclosures to investors and regulators.
Decarbonization in power generation: Green power generation will enable other industries to implement low-carbon strategies and help them achieve decarbonization with electrified operations. The following IT opportunities are identified in this regard:
Improved grid reliability through electric vehicles (EVs): Utility organizations across the globe are investing to create a network of smart chargers (by using software, intelligence and systems) to increase grid resilience. Going a step further with vehicle-to-grid (V2G) technology, which allows bidirectional power flow, EVs will act as grid resources rather than loads. For example, the Snohomish County Public Utility District (SnoPUD) installed USA’s first grid-integrated V2G charging stations in February 2021. The microgrid went live in July 2021.
Maintaining system stability: To deal with the asynchronous nature of renewable energy sources, businesses can implement IT interventions including design development and improved AI-based grid inertia predicting tools. A digital twin approach can help in simulation and in predicting weather scenarios to estimate generation volumes.
Developing whole electricity systems: Many utilities have committed significant investments for whole electricity system innovation, enabling distributed system operation and close collaboration with industry partners. Some examples in the U.K. are Distributed ReStart, Power Potential and the RecorDER project. In some Western European countries, widespread activity across regulators has started to support delivery of whole electricity system outcomes.
Can growth and net-zero goals co-exist?
COP26 was unique in the way that it addressed the ‘elephant in the room’ by calling out coal, unlike any of the other preceding international climate discussions.
This implies the growing consensus among global economies on the need to act now to save the planet. In California, as the role of climate change on the increasing number of wildfires became apparent, Edison International realized the need to implement transformative policies to decarbonize the entire Californian economy. Southern California Edison is working towards increasing grid reliability to tackle extreme weather conditions by adding 535 megawatts of battery storage, to be used during periods of peak demand and reduce the electric grid’s reliance on natural gas.
For Utilities, neglecting the clean energy necessity could lead to increased volatility in energy prices, high carbon taxes, and potential penalties. The players must examine their key emitting processes, detail decarbonizing plans, and improve business sustainability to thrive in the energy transition. However, will carbon-emission reduction goals come in the way of business growth? Utilities must make massive investments in the coming years to implement suitable technologies to improve energy efficiency and reduce costs. In addition, they must also invest in decarbonization and sustainability reporting technologies. The International Energy Agency (IEA) projects the need for a surge in annual investments for clean energy projects and infrastructure to the tune of USD 4 trillion by 2030. The utilities sector must foot a large chunk of the investments. This will help accelerate sustainability initiatives and assist in exploring new growth opportunities. Furthermore, they must collaborate with technology suppliers to accelerate energy transition along the value chain.