2021 power and utilities industry outlook
Exploring energy industry trends
In 2020, the US power and utilities (P&U) industry led the clean energy transition despite federal policy headwinds—and COVID-19 helped solidify the urgency. How will the energy industry converge as players seek to serve a growing clean power industry in an economy moving toward electrification? Explore five P&U trends as we enter a new landscape.
Accelerating energy industry convergence
Pressure coming from a wide range of stakeholders, including citizens and shareholders alike, intensified in the past year, hewing closely to the recommendations of the Paris Climate Accord. Several utility companies, as well as their host municipalities and business customers, announced plans to fully decarbonize over the next three decades—even in the aftermath of pandemic-driven shocks to electricity load. In fact, as intermittent renewables recorded record-high penetration and peak oil demand came into focus, COVID-19 helped to crystallize the urgency of the power and utilities industry transition and the convergence it entails.
In 2021, a new administration could usher in an acceleration in the energy industry’s transition and convergence. Biden’s campaign platform calls for national net-zero greenhouse gas emissions by 2050 and a $2 trillion investment to help equitably achieve this target. The power and utilities industry is expected to lead this transition, as the new plan envisions the industry achieving an even more ambitious target of zero emissions by 2035. While a Republican-led Senate may narrow the scope and/or extend the timeline of these plans, agreement on an infrastructural stimulus could serve as a vehicle to advance the energy transition, as could executive authority over emissions.
The broader energy industry could start to converge in the coming year, as many players seek to serve a growing clean power industry in an economy increasingly moving toward electrification. Within the energy industry, the oil majors’ diversification strategies will likely increase their investment across the power industry’s value chain. Automakers’ increased shift toward electric vehicles (EVs) could also help enhance the electric grid via charging infrastructure and battery storage development. They might even seek to become renewable and electric service providers. Technology companies may also do the same as they enable vehicles, homes, and businesses to serve as distributed energy resources (DER) in addition to consuming them. The convergence of the electric, transportation, and building sectors may witness companies with varying levels of regulatory, technological, and capital constraints and opportunities partnering (or competing) with power and utility industry companies. All these companies are looking to establish a strategic foothold in a new energy landscape characterized by the following five trends.
2021 power and utilities industry trends
FERC enables competition through regulation
The Federal Energy Regulatory Commission (FERC) issued a landmark ruling in September 2020 that could help consolidate the competitive landscape for the energy industry in 2021. By leveling the playing field for DER to participate in a wholesale capacity, energy, and ancillary services markets, Order 2222 could help spur innovative technologies and aggregations of rooftop solar arrays, EVs, and smart building devices. In another move that may further consolidate the competitive landscape in favor of clean energy, FERC recently took a position of being open to carbon pricing.
Emerging DER aggregation platforms expand digital utility industry infrastructure
DER integration into the grid would require a new digital infrastructure to aggregate and manage these resources in a way that enhances the grid. Following a pandemic-related dip in DER capacity additions this year, growth is poised to recover in 2021, with a mix that is shifting from mostly commercial to predominantly residential, solar, and EV load management. The big question is to what extent utilities, third parties, and customers can cost-effectively manage this DER digital infrastructure.
Mobile battery business models develop around EVs and charging infrastructure
The electrification of transportation and its resulting charging infrastructure are also poised to experience unprecedented growth in 2021, opening a significant opportunity for utilities to grow earnings. In 2021, we may see the introduction of new longer-range batteries in truck and SUV models from startups and established automakers that may further bump EV sales and accelerate their timeline to parity with gasoline-powered vehicles. Regulators are increasingly coming around to the idea of a leading utility role in EV charging infrastructure development, portending a wave of charging program approvals in 2021 that could help grow utility revenue.
Oil companies are investing in the power industry
The growth in renewables and clean technologies has engendered interest in the sector from new entrants, including some of the larger oil companies. Over the past several years, oil company investments in storage technologies, transport electrification, and renewable energy have increased noticeably. This trend is expected to continue in the longer term as oil companies move beyond the immediate impact of the oil price drop and COVID-19–related demand decline.
Digital strategies to help address wildfires, COVID-19, and cyberattacks
Several disasters buffeted the power and utilities industry in 2020, bringing disaster readiness to the forefront going into 2021. Utilities may increasingly deploy digital tools to address the “twindemic” of COVID-19 and extreme weather events such as wildfires. The first set of solutions revolves around a remote workforce, while the second set of digital solutions pertains to a remote workplace.
Decarbonization and digital strategies to drive power and utilities industry convergence in 2021
In the coming year, the evolving energy industry landscape is expected to be characterized by five trends: consolidation, new economies, new battery business models, increased scale, and heightened disaster readiness. In this context, our postelection poll showed that most power and utility industry executives surveyed think that utilities should primarily focus on decarbonization strategies (33%) and digital strategies (29%) over the next year. Key areas to watch amid a change of administration include the uptake of distributed energy resources, EVs, and hydrogen. Meanwhile, pending FERC decisions and new FERC appointments could shape the extent to which this uptake will translate into market participation. These trends, in turn, would expedite the process of convergence we are now seeing as new entrants and incumbents position to serve a growing clean power industry in an economy that’s gradually electrifying. The recent uptick in antitrust activity around big technology companies may also alter the competitive landscape by limiting their penetration of the energy industry. Expanding to the international market, carbon taxes could be a game-changer in both the energy and trade sectors as well.
Energy and industrials trends in 2021
Our industry outlook collection, covering oil, gas, and chemicals; power, utilities, and renewables; and industrial products and construction, evaluates sector landscapes to help executives better plan for success and unforeseen challenges.
In today’s rapidly evolving marketplace environment, key business issues are converging with impacts felt across multiple industry sectors. What are the key trends, challenges, and opportunities that may affect your business and influence your strategy? Look for more perspectives and insights from some of Deloitte’s forward thinkers.