Oxford Energy Forum – Issue, 104

Transformation of the Electricity Sector: Technology, Policy and Business Models

Electricity is in ferment – an unusual state for an industry which has traditionally been used to enjoying the stability of long term assets, steadily growing demand and secure revenues.  But these secure foundations are now coming into question as the industry faces major technological, economic and institutional change.  Perhaps most visible are the developments in electricity generation – the growing penetration of intermittent renewable generation, driven both by technological advances and by the policy commitment to decarbonisation.  Significant changes are also taking place elsewhere in the system, with the rapid development of information and control technology, which is opening the way for new approaches to system management and more flexible demand.  It is likely that we are only seeing the beginnings of these changes – they raise wider questions about the very nature of the industry’s product and its relationship with its customers.

The technological developments have been accompanied by major policy and economic changes, notably: falling electricity demand, greater use of on-site generation leading to lower network income, governments rather than markets driving investment in both renewable and fossil generation.  However, the institutional frameworks surrounding the industry are struggling to keep up. For about two decades after 1990, governments across the world focused on liberalisation and the extension of market forces; now there is a new emphasis on decarbonisation, with governments rather than markets driving investment decisions.  The institutional frameworks surrounding the industry are struggling to keep up.  Governments have not yet worked out whether decarbonisation and liberalisation can go hand in hand or whether there is a fundamental conflict.  Markets have also been slow to adapt to the new era – the industry has traditionally relied on marginal cost (kWh) pricing, although a large proportion of its costs have always been fixed. With a growing penetration of zero marginal cost plants, the marginal cost approach looks increasingly outdated, whether at wholesale or retail level.  Regulation too needs to respond to the changes, including the increasing decentralisation of the system.  New control and coordination methods may be required to manage the rapid growth of intermittent generation, particularly wind.   Indeed the whole basis of the industry’s workings are coming into question: what ultimately are its products? How should it price them? What business models should the industry be developing? What are its resources and how do storage and demand response fit in?

By: OIES

Download Publication
Categories:

Tags:

Latest Tweets from @OxfordEnergy

  • New OIES study on Russian LNG: A 12-year tax holiday + no export tax on LNG improved project economics for Yamal LN… https://t.co/HZej1LYRny

    March 24th

  • Novatek will be Russia's LNG leader while Gazprom will focus on pipeline projects, OIES via @AAEnergyNews https://t.co/JOB85QXAyc

    March 23rd

  • With Algerian oil & gas revenues declining, state is entitled to look into how #Sonatrach operates - @thierry_bros https://t.co/kBH39V03o3

    March 23rd

Sign up for our Newsletter

Register your email address here and we will send you notification of new publications, comment, articles etc. automatically.