Industry-disruptive technologies like solar storage, as well as electricity trading and 3D modeling, are transforming the value chains of power utilities.

When Conergy built the Lakeland Solar and Storage project in Australia, one of the largest grid-connected utility-scale solar and storage plants in Asia Pacific, it served as a showcase to the world how utilities can make the big shift towards a reliable clean energy business model.

Industry-disruptive technologies like solar storage, as well as electricity trading and 3D modeling, are transforming the value chains of power utilities that for a long time have been structured around the traditional commodity-based model. “With the availability of utility-scale solar-plus-storage solutions, energy can be stored and used at a later time, intermittency is smoothened out, providing a dependable and stable power supply that is capable of dispatching energy 24/7. The implications of this concept, of solar as a baseload solution are tremendous and even disruptive,” said Alexander Lenz, CEO of Conergy.

“Not only can solar now replace some traditional baseload technologies but with the supply of more predictable and dependable energy blocks during the day and night, solar energy has now become an even more tradeable asset, allowing solar investors to achieve a premium in energy markets for their power output and increasing their returns,” he added. Lenz recounted that storage systems have come a long way.

Previously, these were limited to small households in undeveloped areas, where batteries served to increase the reliability of small solar systems. But recent advances in solar-plus-storage systems are bringing exciting new options for utilities, especially in making solar energy more reliable and accessible in a region
where energy demand is expected to climb 2.1% annually. “Innovations in power-sector technology, such as new storage battery options and smart-phone based thermostat apps, are advancing at a pace that has surprised developers and adopters alike,” said Tom Flaherty, advisor at Strategy&, PwC’s strategy consulting group.

Stiffening competition, rising environmental regulations, and ballooning operational and resource costs have been instrumental in pushing power utilities towards diversification of their technology choices, reckoned Masaki Sox Konno, managing director, Asia Pacific at South Dassault Systemes.

“Utility companies will need to operate efficiently and run on lean resources tapping on technology. They will need to tap on innovations like 3D modelling and simulation to better plan projects to cut down on costly outages and shutdowns,” he said. Konno added that utility companies should take advantage of modern connectivity to share business critical information in real-time across their multi-disciplinary teams, which then enables them to make better informed decisions.

Connectivity in energy

The importance of connectivity in shaping the energy sector cannot be underestimated, said Bundit Sapianchai, president of BPCG Public Company Limited, which is developing a pilot online trading platform to be used in a rooftop solar-powered community. “The most important trend that we find impact our business today is Internet of Energy which will greatly change the way the world consumes energy.

The increasing interconnectivity and possibility to generate electricity from renewable energy at a small scale means that anybody can become a producer,” he said. “We recognise that electricity trading via the Internet trading system will certainly happen,” he added. “It’s just a matter of time that electricity will become a branded product - when it will be part of a daily lifestyle of consumers with online sales platforms.”

Flaherty said amidst this torrent of emerging technologies and shifting customer attitudes towards smarter energy consumption, utilities will need to move beyond the old commodity-based model that focused on cost-effective supply acquisition, modernisation of industrial process equipment and total bill reduction. “Cost management and basic service will still be important, but they will no longer be central,” he said. “Power utilities will now need to provide alternative generation sources, energy storage, equipment replacement, sensor-based energy monitoring systems, facilities management services, and the infrastructure to back it all up.” 

Hacking incidents rose from 1,179 to 7,391.

When electric utilies in Ukraine were hacked in December 2015, the industry was shaken. Two large power distribution companies were the targets of the cyber attack and the power of more than 80,000 people were cut. Even operation workstations were sabotaged by the hackers, making it harder to restore electricity to customers. It took hours to recuperate the grid, and workers even travelled to substations to manually close breakers the hackers had remotely opened.

"The energy industry has become one of the most highly targeted industries when it comes to cyber attacks," says Dieter Klein, managing director of KEYMILE Asia.

According to Aon’s Global State of Information Security Survey, the number of cyber incidents reported globally in power & utilities industries increased from 1,179 in 2013 to 7,391 in 2014. A recent survey of 625 IT executives in the U.S., U.K., France, and Germany also revealed that 48 percent think it is likely that there will be a cyber attack on critical infrastructure in the next three years. "These alarming statistics highlight the urgent need to ensure our utility operations are well secured," Klein adds.

The sector has become a vulnerable victim despite energy suppliers and utilities being well-protected against cyber attacks. This is because of one simple reason: cyber attacks could cause large damages. The consequences of cyber attacks in the power sector range from the disruption of public and industrial power provision to business disruptions, information loss, revenue loss or damage to assets.

"Sophisticated attackers have the skills to manipulate equipment, destroy important data, and steal sensitive information from networks, plants and infrastructure. It can even cause the failure of plants and consecutive physical damage. The critical networks within the power sector are of national interest and attacks can have an effect on a country’s prosperity, public safety and national defence," Klein says.

He adds that the infrastructure of energy suppliers has been secure and enclosed on the outside. Yet, the integration of new applications and the development and decentralization of networks is making the infrastructure more susceptible. New packet-based devices in the networks for remote monitoring are more vulnerable for cyber attacks because they are connected through the internet. "These IP-based applications are selectable through their IP addresses and are potentially unsecured at a point of attack. Attackers can hack the packet-based data transmission between the applications and steal and manipulate data," Klein explains.

Old turbines with sub-500kW capacities in high potential sites will be refurbished.

When the Narendra Modi government revealed a new policy for the repowering of wind power projects, wind turbine supplier, Suzlon was among the first firms that started to pop the champagne. Repowering means that ageing wind turbines will be replaced with more powerful, more advanced and modern units to hike up generation figures at refurbished wind sites.

Most of India's wind turbines installed until 2000 have sub-500kW capacities and are located at sites with impressive wind energy potential. The Ministry of New & Renewable Energy (MNRE) estimates that over 3000MW capacity installation are from turbines of around 500kW or below. Suzlon is the custodian of ~30% wind assets of the 3000MW repowering potential identified by MNRE. “We have the existing infrastructure and the latest technology to repower the older fleet. Repowering enables utilising the same land parcel to generate double the energy by deploying next generation wind turbines which give a higher Plant Load Factor (PLF),” explains Tulsi Tanti, chairman and managing director, Suzlon Group.

Manoj Singh, renewable energy expert at India Power Corporation, adds that the repowering might boost investment in wind sectors. “This is especially so in the states of Tamil Nadu, Karnataka, Gujarat and Andhra Pradesh where good wind sites are available but are not being utilised at full potential due to the installation of low capacity wind turbines,” he adds.

Fresh air for the sector

The policy was unveiled in hopes of giving India's wind energy sector some fresh air, given that the policy can potentially turn around a big chunk of the 27,000MW of existing installed wind generation capacity in India. “It also enables the early investors in wind energy to come forward to leverage this opportunity and contribute towards India's energy security,” Tanti says.

The approval on the repowering policy by the government is a step in the right direction. Tanti says that Suzlon is glad that the MNRE has directed the state nodal agencies to extend their support especially for infrastructure augmentation of pooling stations wherever required and land acquisition. “However, creating a facilitative framework for repowering is only the first step,” he warns. “With the initial implementation experience, we are confident other challenges will be addressed in the subsequent revisions of the policy.”

Hitting the target

FY16 was a historic year for the Indian renewable industry according to Tanti. Wind energy has surpassed all its previous records with ~3300MW installation. The previous highest installation was ~3196MW in 2011. India's wind energy sector has witnessed unprecedented acceleration last year, propelled by technology and conducive policy environment for renewables, by central and state governments.

The growth was way higher than the industry estimates of 30-40%. The 50% growth in installation vis-à-vis the previous year (~2311 MW in FY15) demonstrates the industry's preparedness to achieve 60GW wind by 2022, which is part of the Indian government's target of 175GW renewables by 2022.

“The implementation of the repowering policy will only serve as a catalyst to achieving these commitments. In our view, the industry will grow by 30% for the next 3-5 years. With improved technology, wind turbines delivering fossil fuel competitive PLF (eg: Suzlon S97 120 metre hybrid tower turbine delivered 35% PLF and latest turbine, S111 120 metre turbine expected to deliver 45% PLF), improved cost competitiveness of renewables and conducive policy environment, we are confident that all sources of renewable energy will continue to witness exponential growth,” Tanti says.
 

Banks are not keen to lend to smaller players.

If Singapore's solar power dreams don't push through, its banks have some explaining to do. Singapore is aggressively ramping up its solar energy capacity, but inadequate access to funding for solar generation companies might prove to be a significant roadblock for the city-state’s renewable energy agenda.

“The main challenge for solar financing in Singapore is the familiarity of some financial institutions to the solar PV renewable business model and that unfamiliarity tends to heighten the risk aversion and lessen competitive financing terms,” said Camillus Yang, vice president, corporate development and finance at Sunseap, a local clean energy provider.

Jacqueline Tao, energy analyst at the Energy Studies Institute (ESI), noted that solar PV SMEs typically face higher financing costs compared to conventional power generation players. For instance, larger energy players have a debt-to-equity ratio of 50/50, much lower compared with 70/30 for solar PV SMEs.

“Meanwhile, the cost of equity for traditional players is just 6%, while that for SMEs ranges from 9% to 15%. Banks also charge an interest rate of 4% for conventional players with a credit rating of Baa, but SMEs need to grapple with interest rates as high as 5.6%. Larger firms can also tap bond markets, which are off-limits to solar PV SMEs due to size restrictions,” she noted.

Matthew Peloso, CEO of solar energy generation company Sun Electric, said that they usually have to come equipped with a detailed explanation about their unique business model whenever they approach bankers for loans.

“Our model requires explanation and understanding on the part of the financial institutions. In addition, there is a relatively low supply of capital toward new innovations which are riskier but offer higher returns,” he explained. Sun Electric’s business model involves connecting rooftop owners with clean energy customers.

Peloso added that the potentially higher cost for solar firms is partly balanced by good support from Singapore's various public and private grants, as well as interest in supporting the development of technology, which can bridge a part of the initial funding gap.

“Another point that can be made is in regard the asset size and cost to the financial institutions. Due to their fixed costs, institutions wish to fund large projects. Given that solar is new and growing, investments are in the low range of capital financings. This is a temporary situation,” he said.

Despite existing difficulties, Peloso noted that the industry is making progress when it comes to improving access to funding for solar SMEs.

“A local bank has been working hard to provide us with a pretty cost effective package. However, as we are new it has taken time to analyse this. I cannot disclose full details but the facility would be pretty close to the cost of a conventional utility. We are making progress," he said.

Meanwhile, Sunseap’s Yang shared that solar PV SMEs should explore new ways of clinching funding in order to lower costs.

“For financing of solar in Singapore and the region, Sunseap is working towards a more sustainable financial ecosystem of asset-backed securitisation for completed projects or long term portfolio project financing coupled with the concept of a revolving credit facility for in-construction projects. This ecosystem assists in lowering LCOE, allows capital recycling, and drives scalability for greater solar PV adoption into the region. We look forward to launching this soon in second half of 2016,” he said.
 

Will electricity costs be suppressed soon?

With Japan having fully liberalised its electricity retail market since the start of April 2016, the country will be just one step away from unbundling its transmission and distribution sector.

Takuya Yamazaki of the Ministry of Economy, Trade and Industry's Agency for Natural Resources and Energy (ANRE) says there are factors that led Japan to realise liberalisation. He noted that while Japan’s electricity market has been partially liberalised since 2000, ten big EPCOs still dominate the market.

"The Great East Japan Earthquake on March 11, 2011, revealed negative aspects of regional monopoly system with ten big and vertically integrated EPCOs," said Yamazaki, the director of the agency's Electricity Market Division.

He said these downsides are the lack of system which transmits electricity beyond regions, little competition and strong price control, and little flexibility in changing the existing energy mix making it hard to increase the ratio of renewable energy.

More choices for consumers

Toyokazu Misono, managing executive officer at Kansai Electric Power (KEPCO), says the purpose of the electricity system reform is firstly to secure stable supply.

"Electricity suppliers are not the issue per se, we have enough players in the industry," he clarified. "However, the issue is the transmission of the energy supply along the way. A lot of demand comes from Japan's central area, but our big suppliers are in the far coasts."

Another goal of the liberalisation is to suppress the electricity costs as much as possible. "Costs in Japan are already heavy on the wallet as it is, and the government wants to make sure that electrification won't be an issue in the long term," Misono explained.

Lastly, on a more customer-related stance, Misono said that ultimately, liberalisation aims to expand the choices of consumers and business opportunities of operators.

"Power of Japan is power of both the people and the players. Household customers can easily modify how much electricity they'll need. For instance, we in KEPCO actually have a tariff system which brings more benefits of discount rates to households which consume more electricity," Misono said.

According to Agency for Natural Resources and Energy, deregulation allows customers to provide more options to select a power company. “TEPCO Group will provide varieties of services and plans to their customers. Therefore, from customers’ standpoint of view, they can select their contract base on their lifestyles and sense of value. This would be one of the advantages of market deregulation,” Tatsu Yamagishi, a TEPCO spokesperson, added.

Supply, mix, and competition

In light of the liberalisation, Japan can also secure stable supply and achieve a desirable low-carbon energy mix while facilitating competition through policy improvements. "Plans to improve policy are to strengthen the Organisation for Cross-regional Coordination of Transmission Operators' (OCCTO) influence over nine transmission system operators to promote risk/cost sharing and coordination for more cross-regional transmission and grid reinforcement," he said.

He also mentioned the preparation of a scheme for neutralising the risks of nuclear investments, as well as a review of the FIT system.

“Since the liberalization just started, it is difficult to predict what will the market going to be like in the future. But as for TEPCO Group, TEPCO sees the deregulation as a great opportunity to transform from “utility expert” to “general energy provider,””Yamagishi from TEPCO commented on the impact.

It was a year ago when Japan revealed the OCCTO to assist in the country's electricity liberalisation. Since then, it has been the organisation's goal to expand nationwide coordination of all transmission
operators.

The second phase was the full liberalisation of the retail market, noted as a big paradigm shift in Japan's electricity scheme. The last phase is the further security of neutralisation among transmission and distribution sectors.