Power market outlook for 2019... and beyond

Power markets around the globe are evolving in line with fundamental trends such as decarbonization, as well as local challenges including regulations and business conditions.

Coupled with technological advances, these changes lead to important shifts in how we produce, deliver and consume energy resources throughout the world.

Understanding what lies ahead is the first step toward ensuring that our power infrastructure is green, flexible and reliable. Having this knowledge will allow us to adapt and invest wisely in order to ensure that our networks will be able to support our needs for years to come.

To better understand what to expect in the years ahead, we spoke with our power and energy leaders about the trends, challenges and other developments that keep our clients awake at night. The discussions were driven by three main themes: decarbonization, grid flexibility and grid reliability – three interconnected themes that influence each other.

Greening the Grid, or Decarbonization

The push for decarbonization has been an overarching theme in power markets across the world. The last few years have seen a steady and constant shift from conventional power sources to renewable or alternative sources such as solar, wind, hydro and bioenergy.


Regulation and business forces are also at play, with governments – national, provincial and municipal- setting up targets to limit CO2 emissions. Today, many jurisdictions have legal requirements in place designed to meet specific greenhouse gas (GHG) targets, and those that don’t comply will be penalized.


Reducing CO2 emissions drives increased renewable production and potentially, higher numbers of electric vehicles. But what will be the impact of injecting more and more renewable energy into the grid? What impact will electric vehicles (EV) -and the electrification of transport- have on the power grid?


And how does it translate for companies producing electricity? “From their perspective, it’s a stay-in-business issue. They have to change, they must invest in renewables,” says Frazer MacKay, director of power for WSP in the UK.


Brexit or not, the UK’s objective is clear: by 2030, 50 per cent of the UK’s electricity must come from renewable sources. In the US, national goals may be less ambitious. Despite the current presidential administration’s attempts to halt the decline in coal production, the push for renewables remains active.


“New build of thermal power generation is out, and all utilities are investing in renewables. At the end of the day, there is demand for renewable energy, and utilities and producers are investing to meet that demand,” explains Jesse Kropelnicki, director of power for WSP in the USA.


The greening of the power grid is a complex challenge, consideration of local market economics is crucial and the affordability of power must be taken into account in generation planning. In Asia, for example, around 70% of the grid is thermal with investment in new build thermal generation over the past decade or so almost exclusively being in coal fired plants, attractive because of the low cost of power these plants produce. 


Significant investments are now being made in renewable production and also in important thermal projects, which in future will be far more dependent on imported LNG as Asia looks to dramatically decrease its dependence on coal to power new generating plants. 


“The story is that of maintaining economic growth in Asia, renewables are a growing aspect of the new build environment, however, development of thermal capacity additions will continue to take the largest share of new build investment explains Stephen Green, director of power for WSP in Asia.


Nevertheless, growth in renewables is impressive, with numbers indicating that the cumulative installed capacity in renewables (wind, solar, geothermal, biopower and small hydro) will grow from 437 GW in 2010 to an estimated 1,734 GW in 2020.


Existing players, and new ones, are investing to meet what appears to be insatiable demand. It has touched all corners of the globe, but its effects have been felt most acutely in urban centres. Successfully implementing new strategies to satisfy growing energy demand, while meeting the challenges of resiliency, reliability and security, requires creativity and technical innovation. It also requires committed leadership and effective policy-making.

Repowering: Existing Power Assets and Energy Transition

Changing how we produce, distribute and consume electricity is a long-term process. 

It involves working with existing assets in this transitional journey, which means analyzing how existing projects can be leveraged and transformed into alternative opportunities, investing in the integration of new technologies and optimizing processes in order to gain efficiencies.


“In this push to redefine the power mix, the most sustainable assets will be prioritized. Investing in current projects to extend their operating life is a win-win solution for everyone,” says Paul Dollin COO of WSP, and leader of the global energy group.


Throughout the world, older, but still solid power infrastructure can profit from strategic upgrades. In Canada, for instance, hydro dams are in need of major rehabilitation investments.


“Most hydro plants are 40-50 years old. They are good to last another half-century, and now is the perfect time to think of reinvestment in order to optimize these assets,” says Sebastien Fecteau, Vice President of Power for WSP in Canada.


That same logic applies to older wind farms. After 20-30 years, these projects must undergo important maintenance and, in some cases, it may prove beneficial to review the project as a whole. Owners, developers and financiers will always seek out opportunities that maximize the life of their assets.


“It’s a business decision. It is important to keep in mind that power contracts last for 20-30 years, which means that assets are often paid for in full by that point. And, when you think of how wind turbines have evolved over the past 25 years, it might be a good long-term business decision to upgrade,” says Sebastien Fecteau.


However, repowering is not only about power generation assets; it’s also about ensuring that power networks can support an expanding and ever-changing power mix.


And that is all about grid flexibility.

More Storage Means More Grid Flexibility

The flexibility of the power grid is another major global theme. The issue: electricity is a product that can’t yet be stored safely in large quantities, or in cost-effective ways. The ability to safely and cost effectively store power also stands in the way of more rapid growth of renewable energy technologies, which produce power at variable rates.  Currently, supply and demand for electricity must be matched, or balanced to a certain degree.


However, thanks to innovation in energy storage and investments in power interconnectivity, things are changing fast to enable greater connectivity between power systems.


“Today, the cost of energy is relatively low and the reliability is good. People in the UK take energy for granted,” says Frazer Mackay, who believes that cost-effective storage is a real game changer. “It will revolutionize the sector. A power grid based on renewables needs to have cheap and massive amounts of storage capacity. Otherwise, it doesn’t make sense.”


For him, the lack of energy policy is also holding the country back, when compared with Germany’s approach which has been very clear. In fact, innovation in regulation and tariffs (variable tariffs) are both is necessary to better manage power networks running on renewable energy.


Indeed, times are changing. Not surprisingly, storage changes the standard business model of the past 100 years. In Canada, Ontario Power Generation is teaming up with a U.S. energy-storage company to provide a battery-based system to reduce electricity costs for industrial customers. The system stores electricity when prices are lowest, and uses it during peak hours.


With battery storage, industries can better manage their electricity bills, while utilities can optimize their networks. However, despite the enthusiasm, important issues relating to the mounting environmental impacts associated with battery storage remain.


“When the batteries are done, how are we going to manage the waste and environmental issues?” asks Paul Williams, director of power for WSP in Australia.


Nonetheless, new flexibility unleashed by greater storage capacity is one of the driving forces behind a push for energy decentralization, where behind-the-meter systems provide greater flexibility and accountability to end users.


The development of microgrids, mixing power production, storage and smart energy management are on the rise because they make sense, particularly within larger and/or mission-critical facilities, such as hospitals, university campuses or large residential complexes.


“Our microgrid project on Robben Island is a great example of the benefits microgrids provide,” says Paul Grota, who leads power for WSP in South Africa. “The microgrid system will save Robben Island approximately 280,000 litres of diesel per year. And the payback period is on the order of five years.”


These smart grids can rely on different sources of power to maximize reliability overtime, including renewables, but also other low-carbon solutions such as natural gas and small-scale liquefied natural gas (LNG). In longer and transitional periods, containerized LNG can easily be transported to a smaller and decentralized power plant.


Green Power at the Right Time

In Sweden, the flexibility of the power grid is a top priority due to the country’s ambitious goals in regards to decarbonization, with a target of being carbon-neutral by 2045, while divesting from nuclear, which currently represents approximately 40% of power supply.


However, this national repowering effort will need adjustment and long-term planning, considering that the transition is occurring while demand for power in Sweden is expected to grow by at least 30%. So, how can you support such a rise in demand, while simultaneously reducing power production by 40%?


“People don’t talk about it very much because 2045 seems far away. But behind the scenes, energy experts are working hard because this is a huge challenge. We’re preparing tomorrow,” says Anna Nordling, director of power for WSP in Sweden.


Nordling adds that the process must embrace an important concept relating to “power at the right time”, which involves taking measures to optimize power availability. “We need to develop power strategies that will allow all users to have access to electricity at a reasonable cost when they really need it,” she says.


What is happening in Sweden is not isolated, and according to Sebastien Fecteau, that process will require a lot of coordination.


“You have to remember that utilities used to own the grid. Today, everyone can produce power; this decentralized grid is a complex beast to deal with,” he says. “Whether it is a small microgrid or larger interconnectors between countries, the link between systems is essential in trying to balance supply and demand.”

Stability Through Grid Reliability

Reliability will emerge as another global theme for the next few years in the power industry. The security of power supply, at a reasonable cost, is crucial for industrial activities, as well as for other commercial operations.


“Today’s grids were designed 30-40 years ago, and now we’re injecting renewable power into them. We need to upgrade those ancillary services,” says Stephen Green, director of power for WSP in Asia.


And that is true in many parts of the world.


“The UK grid is almost at capacity in every part of the country. If you have a massive development in London today, you will need careful planning to ensure the grid is suitable,” says Frazer Mackay.


In the U.S., aging power infrastructure also needs an upgrade to deal with new challenges associated with the integration of renewable power, the addition of new microgrids and increasing interconnections between systems.


Additionally, with climate conditions becoming more extreme, large utilities need to step up protection of their power assets while improving their reliability. The 2017 northern California wildfires were in large part caused by power lines, poles and other equipment, providing further evidence that outside events are affecting grid reliability.


Consequently, utilities must first gain a better understanding of how their networks can adapt to these fundamental trends.

“In Latin America, power utilities are conducting asset assessments because they want to prepare. They understand that power delivery is in transition and they want to be ready for the smart grid,” says Juan David Martinez, portfolio manager for WSP in Colombia.

What about the Electrification of Transport?

Fast forward 20 years and try to visualize a world filled with electric vehicles, as many experts predict will happen. Although the electrification of transport is a hot topic, we still need to assess its impact on the power grid. How much more power will be needed? Can the power grid deal with this increased demand?


“When we decide to implement EV infrastructure throughout various points in our cities, we will need to address the challenges surrounding distribution,” explains Paul Williams, Director of Power for Australia. Whilst we can get power to shopping centres and other key points, distribution is going to be difficult because our cities aren’t designed as massive distribution points.”


In denser regions, many people use their cars to drive to the train station, and then use mass transit to get to the central business district. Car parks can serve as great charging stations. But should we connect them to the grid? Should we install solar panels on top of them? How much should be charged? The entire business model around the last mile will ultimately be defined by local conditions.


But is the electrification of transport ultimately the best course of action? In the Nordic countries, Sweden is not only looking at electrification, but at energy as a whole and may elect to go with biomass plants and biogas for mass transit. Many experts also believe that the issue of greening transport is more closely linked to using hydrogen and other low carbon alternatives than powering vehicles with electricity.

Welcoming the Smart Grid… Finally

The world is in a period of transition. The power grid is getting greener, and that’s a good thing. It is also gaining flexibility, thanks to advancements in storage capacity. Finally, it is becoming more reliable, thanks to sound investments and interconnections aimed at procuring a secure and stable supply.


So what comes next? Can we at last talk about smart grids and energy efficiency? Today, technology allows us to dream of truly integrated and intelligent networks, capable of creating connections to and off of the grid. What if an intelligent network could leverage a newly created pool of batteries to better manage supply and demand?


What if we could create a system that reacts instantly to changes in demand, supply, weather, cost, historical patterns, etc.? What if this intelligent system could automatically connect with other systems, enabling power exchange through interconnectors? What if we could integrate massive storage capacity into such a system? And what if we could build modular solar systems on roadways to feed the grid?


Wait a minute…we’re already there.

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