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Resilience in the clean energy industry

May 19, 2021

Jurian Goei
Power & Utilities
Advisory Senior Manager, PwC US
Richard Perry
Power & Utilities
Advisory Associate, PwC US

The verdict is in. Solar and wind energy are here to stay. These once moonshot, expensive and politically controversial technologies are now common, cheap and bipartisan. The global desire for economies to switch to renewable energy is accelerating demand and rewarding asset holders. The gradual spread of healthy environmental credit markets globally is shifting utilities toward the clean energy transition. With hydropower considered a “fully mature technology” in 159 countries and territories, variable renewables seem to be the primary solution to further decarbonizing the electricity grid.

But adding large variable energy positions to the supply stack can pose significant operational and financial challenges.

Electricity market participants must advance their capabilities in-stride with variable renewables to ensure reliability. At PwC we can accelerate your transformation, and help you thrive through the energy transition.

Market-based regulations are incentivizing more renewables

State governments are leading the push towards new energy technologies through regulation. Renewable portfolio standards (RPS) are now present in 33 states, requiring utilities to meet a certain threshold of renewable technologies in their energy mix. Depending on the state, these thresholds can apply to renewable sources, energy efficiency and energy waste reduction, distributed generation and more. Utilities under RPS regulation must purchase Renewable Energy Credits (RECs) to subsidize clean generation until they meet the percentage of renewables in their energy mix specified under their state’s RPS.

Carbon markets are growing despite COVID-19. Since its inception in 2009, mandatory market-based CO2 emissions reduction programs now encompass 12 states, with pending policies in Washington and Pennsylvania. Specific to fossil-fuel-fired electric power generators, covered entities are required to hold carbon offsets equal to their CO2 emissions, as part of the Regional Greenhouse Gas Initiative (RGGI). Moreover, clients are setting decarbonization goals of their own, adopting net-zero targets to meet their environmental responsibilities.

Variable renewables disrupt business as usual

Utilities are adding variable renewables to the supply stack, prompting operators and traders to navigate a new level of uncertainty and opportunity. Day-to-day variable generation, increasingly steep variable energy ramps and decreased grid responsiveness all need to be addressed to ensure grid reliability. The increased frequency of extreme weather events across the United States have exposed vulnerabilities in electricity infrastructure and energy market models. Grid resilience is expected to take a more urgent and central role in infrastructure planning, regulation and market dynamics for years to come.

Innovative strategies solve new challenges

Market leaders are responding to the variable renewables challenge by investing in new technologies and changing business models. At the generation level, lithium-ion batteries, renewable natural gas, hydrogen and other forms of utility-scale energy storage have made “decarbonized electrons” more flexible, adding resilience to the grid. Advanced metering infrastructure (AMI) data from IoT technology has increased data availability to a granular level along the value chain. Innovative utility programs have placed smart meters and appliances, electric vehicles and distributed energy resources at customer sites. Paired with artificial intelligence, robust energy use data can improve demand forecasting accuracy. AMI enables “virtual power plants” that can reduce load and add energy assets to the grid within minutes when demand is at-peak. Technology already exists to meet these challenges. However, to harness this data to its potential you may require upgrades and integrations in meter data management systems, customer information systems, billing systems and others. 

On the commercial side, traders can take advantage of price volatility, environmental credits and new power market dynamics to drive higher returns. Increased price volatility from variable renewables and the threat of extreme weather add a new importance to weather derivatives and predictive modeling in your hedging strategy. REC and carbon offset markets have challenged utilities to decarbonize their energy purchasing while managing new market variables. COVID-19 has changed power price trends across the board, which may have you considering restructuring your power purchase agreements (PPAs). PwC can assist you in navigating new and traditional financial arrangements to help increase return.