Pricing mechanisms needed to secure renewable energy acceleration, report finds
Falling costs in renewable energy technologies has put the UK on course to meet its 2030 renewables development objective, but a higher carbon price market is needed to spur acceleration, a new report from global IT consultancy Capgemini has found.
Capgemini’s nineteenth World Energy Markets Observatory report examines global electricity and gas markets. This iteration of the report notes that the energy transition has accelerated globally, with falling technology costs and consumer demands placing new challenges on utility firms as the market destabilises and evolves.
Notably, the report warns that utility firms need to match the pace of change, or risk financial loses. Global onshore and offshore energy costs are expected to fall by 26% and 35% respectively by 2025. If no pricing reform is introduced, utility companies could be damaged if they fail to capture new markets and consumer demands.
Capgemini’s energy and utilities senior advisor Colette Lewiner said: “Efforts in R&D and industrialisation are boosting renewable energy development, even when considering extra network investments linked to intermittence and energy generation distribution.
“Today, their intermittency coupled with the absence of pricing reforms, mean the impact of renewable energy on the wholesale markets prices threatens electricity supply and impacts negatively utilities’ finances.”
At a global level, the report claims that the evolution of generation and storage technologies makes the growth of renewables “unstoppable”, even though feed-in tariffs have been cut across key European markets.
The cost of solar is expected to decrease by a further 59% by 2025, following an 85% reduction in costs between 2009 and 2016. Falling costs will make it easier for nations to meet national energy targets, including the UK’s target to source 27% of energy need from renewables by 2030, a target set by the European Union.
The report found that the UK is actually a laggard in comparison to the rest of the EU in terms of the share of renewables in the energy mix of gross final energy consumption. Only 10% of final energy consumption came from renewables in 2015, almost half the EU average.
To promote the growth of renewables further, the report highlights the need for carbon pricing to be “combined with policies to promote energy efficiency, renewable energies, and innovation”.
The UK adopted a Climate Change Levy with a target price of £30 per tonne of carbon dioxide for 2020, but this has since been capped as a floor price of £18 per tonne. Separate analysis suggests that a carbon price of £40 per tonne may be required to shut down all remaining coal plants by 2025.
The report does list the UK for the highest number of suppliers in the EU, noting that the market is extremely competitive. The UK was also listed as a market leader for adopting major changes regarding customer expectations, with utility firms offering new services, price comparisons, local energy groups, new suppliers and “green energy appetite”.
But with more consumers choosing to generate their own energy, nations have been urged to embed new business models and services that cater for this change in relationship. The report lists smart homes, smart buildings and smart cities as an example of how digital transformations were changing how consumers would view energy and utility firms.
Capgemini’s head of energy and utilities Perry Stoneman added: “We observe many Utilities creating new customer divisions that are focused on chasing the Holy Grail: the differentiating services valued by the customer, allowing the development of new revenue streams with better margins. With variations from one country to another, the vast majority of players are moving in that direction, but very few, for the moment, have found the appropriate recipe. Innovation capabilities and agility for a rapid and successful go to market are generally missing.”