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Utilities Must Quickly Adapt Their Business Models & Embrace Innovation

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Utilities Must Quickly Adapt Their Business Models & Embrace Innovation

The European Energy Markets Observatory (EEMO) report, the eighteenth edition of an annual study by Capgemini, a global leader in consulting, technology and outsourcing services has been published, in partnership with the I4CE and Vaasa ETT teams.

The study reveals that a rapid increase in the share of renewables has destabilised the wholesale electricity markets. As a result, they remain very unsettled and their low prices (sometimes below generation costs) challenge the health of Utilities. Utilities must therefore quickly adapt their business models to these new realities and accelerate digital transformation efforts focused on productivity, agility and innovation, in order to grow profitable revenue streams, finds today’s report.

As highlighted at COP21 in Paris, the urgent focus for world governments is to limit the rise in the planet’s temperature to 2°C (or less) by reducing greenhouse gas emissions. The European Union has set a target of a 40% reduction in Greenhouse Gases by 2030, this has subsequently given rise to large investments into renewable energies. The increase of renewables in the electricity mix has caused electricity market destabilisation. This raises a number of questions on alternative ways that could have been chosen, leading to the same results, but that might have mitigated the impact on utilities.

Perry Stoneman, Global Head of Energy & Utilities sector at Capgemini, said:

“The rhythm of development of renewable energy has long been dictated by regional objectives, rather than where the investment was most needed to service infrastructure and consumers. We now need to maximise advances in technology to establish competitive storage, using batteries, for example, that can optimise the use of energy that is being produced.”

Three main findings of the new edition of the European Energy Markets Observatory report are:

1. The fall in renewable energy prices has continued with further to go

During the past 12 months, the costs of renewable energies have continued to fall:[1] onshore wind costs are becoming competitive, while offshore wind costs have fallen for the first time, reaching a lower threshold of €87/MWh. Additionally, a fall in the cost of photovoltaic solar installations is continuing, with a further drop of 20% expected in the next three years.

Since 2004, Europe has shown a willingness to research, develop and deploy these technologies with investments in renewables in Europe reaching 750 billion euros, accounting for a quarter of the total global investment, despite making up only 7% of the global population. This demonstrates the European determination to quickly deploy, in some cases too quickly, these technologies before they are competitive.

This proactive policy has resulted in costs to purchase being significantly higher than the Utilities’ generation costs. These subsidies are financed by the end consumer through special taxes resulting in high retail prices. Germany, for example, one of the most dynamic European countries[2]: German end consumer will pay 20 billion euros in extra taxes in 2016 with more than 25% of the bill going towards renewable energy subsidies[3].

According to Colette Lewiner, Energy and Utilities expert at Capgemini, “Additional efforts in R&D and industrialization are necessary to take advantage of the fall in renewable energy costs. Reform of the current system of subsidies is also urgent; it is expensive and not justified for energies that are maturing. In parallel, the European carbon market must be reformed, for example imposing floor prices or taxes to incentivize de-carbonized investments.”

2. The wholesale electricity markets remain very unsettled and their low prices challenge the health of Utilities, which must accelerate their transformation to grow profitable revenue streams

The growth in renewables in a market experiencing overcapacity, combined with the low oil and gas prices, has resulted in a fall in electricity wholesale market prices, which reached a low point at the beginning of 2016 of €22/MWh compared to €40/MWh on average in 2015.

With priority given to renewables in order of merit, Utilities, like in previous years, are closing gas or coal power stations, which operate for too little time to be profitable. As a result, 7GW in capacity should be withdrawn from the market this year, in addition to the 10.7MW in 2015, resulting in depreciation on electricity company accounts. The closing of these capacities, used to meet peak demand, weakens the security of supply.

To add to the instability, Brexit has made the financing of new infrastructure much more complex adding to the factors impacting the already worrying British security of electricity supply.

With the deregulation of the markets, a large part of Utilities’ turnover is exposed to low wholesale market prices and as such their financial situation has continued to deteriorate. Utilities are urgently seeking solutions to overcome these challenges with two major German electricity companies, splitting in two: carbon-based production on one side, and renewables, nuclear, networks, marketing and services on the other. It remains to be seen whether this solution will be a success.

According to Perry Stoneman:

“It is essential that Utilities adapt their business models to the fundamental changes in the markets, including decentralisation of production, an increase in renewables, new requests from consumers (in particular energy services), and the arrival of new players. They must simplify their organisation and accelerate digital transformation, which will enable them to make productivity gains, grow profitable revenue streams, and become more innovative and agile.”

3. Through the energy transitions, new decentralised production and consumption models are emerging and creating challenges for network managers

Network managers must balance production, which has become more uncertain due to the growing proportion of renewables, with consumption (which is variable by nature). In time, with closer decentralised production and consumption combined with electricity savings, the electricity networks could convey less electricity. Prior to this network operators need to invest in smart grids.

Network managers look to storage technologies to help balance demand and production on the network. One such form of storage is batteries; while they remain expensive, the price of Lithium-Ion batteries is falling and will continue to do so, therefore offering a genuine solution for storage.

This data, which contains interesting information on consumer behaviours, could, under certain conditions, be made available to consumers themselves as well as industry players.

Another way of achieving supply-demand balance is to make consumption more flexible, with price signals reflecting the low production costs when renewables produce a large amount of electricity. Perry Stoneman continued:

“Distribution network managers have an increasingly central role in market operations. They face high activity with the connection of renewable plants, the deployment of smart meters, and the exploitation of the large volume of data coming from these meters. This data, which contains interesting information on consumer behaviours, could, under certain conditions, be made available to consumers themselves as well as industry players: distributors would then become data suppliers too.”

The Observatory concludes, while it is essential that the European Union accelerates putting in place the necessary reforms, in particular in the carbon market and the financing of renewable energies, the report also demonstrates the need for transformation amongst major utility players, notably embracing innovation and inventing new business models to grow profitable revenue streams .

The European Energy Markets Observatory is an annual publication by Capgemini that monitors the main indicators of the electricity and gas markets in Europe and reports on the developments and transformations in these sectors. This 18th edition, which is drafted mainly from public data combined with Capgemini’s expertise in the energy sector, refers to data from 2015 and winter 2015/2016. Special expertise on climate challenges and customer behaviour is given respectively by the I4CE – Institute for Climate Economics – and VaasaETT research teams.

For more information and to download a full copy of the report go to: https://www.capgemini.com/experts/thought-leadership/european-energy-markets-observatory-18th-edition

 

Energy

Is Wood Burning Sustainable For Your Home?

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sustainable wood burning ideas

Wood is a classic heat source, whether we think about people gathered around a campfire or wood stoves in old cabins, but is it a sustainable source of heat in modern society? The answer is an ambivalent one. In certain settings, wood heat is an ideal solution, but for the majority of homes, it isn’t especially suitable. So what’s the tipping point?

Wood heat is ideal for small homes on large properties, for individuals who can gather their own wood, and who have modern wood burning ovens. A green approach to wood heat is one of biofuel on the smallest of scales.

Is Biofuel Green?

One of the reasons that wood heat is a source of so much divide in the eco-friendly community is that it’s a renewable resource and renewable has become synonymous with green. What wood heat isn’t, though, is clean or healthy. It lets off a significant amount of carbon and particulates, and trees certainly don’t grow as quickly as it’s consumed for heat.

Of course, wood is a much less harmful source of heat than coal, but for scientists interested in developing green energy sources, it makes more sense to focus on solar and wind power. Why, then, would they invest in improved wood burning technology?

Homegrown Technology

Solar and wind technology are good large-scale energy solutions, but when it comes to small-space heating, wood has its own advantages. First, wood heat is in keeping with the DIY spirit of homesteaders and tiny house enthusiasts. These individuals are more likely to be driven to gather their own wood and live in small spaces that can be effectively heated as such.

Wood heat is also very effective on an individual scale because it requires very little infrastructure. Modern wood stoves made of steel rather than cast iron are built to EPA specifications, and the only additional necessary tools include a quality axe, somewhere to store the wood, and an appropriate covering to keep it dry. And all the wood can come from your own land.

Wood heat is also ideal for people living off the grid or in cold areas prone to frequent power outages, as it’s constantly reliable. Even if the power goes out, you know that you’ll be able to turn up the heat. That’s important if you live somewhere like Maine where the winters can get exceedingly cold. People have even successfully heated a 40’x34’ home with a single stove.

Benefits Of Biomass

The ultimate question regarding wood heat is whether any energy source that’s dangerous on the large scale is acceptable on a smaller one. For now, the best answer is that with a growing population and limited progress towards “pure” green energy, wood should remain a viable option, specifically because it’s used on a limited scale. Biomass heat is even included in the UK’s Renewable Heat Initiative and minor modifications can make it even more sustainable.

Wood stoves, when embraced in conjunction with pellet stoves, geothermal heating, and masonry heaters, all more efficient forms of sustainable heat, should be part of a modern energy strategy. Ultimately, we’re headed in the direction of diversified energy – all of it cleaner – and wood has a place in the big picture, serving small homes and off-the-grid structures, while solar, wind, and other large-scale initiatives fuel our cities.

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Energy

7 Benefits You Should Consider Giving Your Energy Employees

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As an energy startup, you’re always looking to offer the most competitive packages to entice top-tier talent. This can be tough, especially when trying to put something together that’s both affordable but also has perks that employees are after.

After all, this is an incredibly competitive field and one that’s constantly doing what it can to stay ahead. However, that’s why I’m bringing you a few helpful benefits that could be what bolsters you ahead of your competition. Check them out below:

Financial Advising

One benefit commonly overlooked by companies is offering your employees financial advising services, which could help them tremendously in planning for their long-term goals with your firm. This includes anything from budgeting and savings plans to recommendations for credit repair services and investments. Try to take a look at if your energy company could bring on an extra person or two specifically for this role, as it will pay off tremendously regarding retention and employee happiness.

Life Insurance

While often included in a lot of health benefits packages, offering your employees life insurance could be an excellent addition to your current perks. Although seldom used, life insurance is a small sign that shows you care about the life of their family beyond just office hours. Additionally, at such a low cost, this is a pretty simple aspect to add to your packages. Try contacting some brokers or insurance agents to see if you can find a policy that’s right for your firm.

Dedicated Time To Enjoy Their Hobbies

Although something seen more often in startups in Silicon Valley, having dedicated office time for employees to enjoy their passions is something that has shown great results. Whether it be learning the piano or taking on building a video game, having your team spend some time on the things they truly enjoy can translate to increased productivity. Why? Because giving them the ability to better themselves, they’ll in turn bring that to their work as well.

The Ability To Work Remotely

It’s no secret that a lot of employers despise the idea of letting their employees work remotely. However, it’s actually proven to hold some amazing benefits. According to Global Workplace Analytics, 95% of employers that allow their employees to telework reported an increased rate of retention, saving on both turnover and sick days. Depending on the needs of each individual role, this can be a strategy to implement either whenever your team wants or on assigned days. Either way, this is one perk almost everyone will love.

Health Insurance

Even though it’s mandated for companies with over 50 employees, offering health insurance regardless is arguably a benefit well received across the board. In fact, as noted in research compiled by KFF, 28.6% of employers with less than 50 people still offered health care. Why is that the case? Because it shows you care about their well-being, and know that a healthy employee is one that doesn’t have to worry about astronomical medical bills.

Unlimited Time Off

This is a perk that almost no employer offers but should be regarded as something to consider. According to The Washington Post, only 1-2% of companies offer unlimited vacation, which it’s easy to see why. A true “unlimited vacation” program could be a firm’s worse nightmare, with employees skipping out every other week to enjoy themselves. However, with the right model in place that rewards hard work with days off, your employees will absolutely adore this policy.

A Full Pantry

Finally, having a pantry full of food can be one perk that’s not only relatively inexpensive but also adds to the value of the workplace. As noted by USA Today, when surveying employees who had snacks versus those who didn’t, 67% of those who did reported they were “very happy” with their work life. You’d be surprised at how much of a difference this could make, especially when considering the price point. Consider adding a kitchen to your office if you haven’t already, and always keep the snacks and drinks everyone wants fully stocked. Doing so will increase morale tremendously.

Final Thoughts

Compiling a great package for your energy company is going to take some time in looking at what you can afford versus what’s the most you can offer. While it might mean cutting back in other areas, having a workforce that feels like you genuinely want to take care of them can take you far. And with so many different benefits to include in your energy company’s package, which one is your favorite? Comment with your answers below!

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