The Future Energy Market: Will Decentralised Power Become the New Normal?

Across the world, our consumption of energy is increasing. The global population is growing at an astonishing rate and advances in technology mean that we are using more power than ever before with no signs of the trend slowing down. The United States’ Energy Information Administration (EIA)  projects that global energy consumption will rise by 50% by 2050.

Driven by the need to reduce carbon emissions and powered by a constant decline of prices for renewables, the architecture of power systems around the world is also changing. 

Satisfying this insatiable energy demand requires a new approach from the global power market, which remains largely dependent on energy generated by ageing fossil fuel assets and inflexible grids, where energy flowed in one direction only. 

One of the key trends which we are seeing is decentralisation. But what decentralisation actually means and what challenges it brings will vary from region to region. 

In this report we will consider what the energy market of the future could look like, and what this means for the way our power is produced and delivered. 

TAKING A NEW APPROACH  

As the energy transition gathers pace, there’s recognition from across the industry that sole dependency on central power generation and distribution may be confined to the history books in the not so distant future. Dr Steven Fawkes, Managing Partner of EnergyPro, echoes this with his view that “the energy market of the future will be distributed, decarbonised and digitised.” 

Ageing national grids across the world have started to show signs of strain. There are high costs associated with extending national grids to remote areas, and significant CAPEX requirements to update ageing assets.  

Dr Thomas Hillig, Managing Director of THEnergy, points to the role that the increasing deployment of renewable assets is having in accelerating this trend, noting “we will probably need much lower grid capacity than in the past if we prioritize decentralized renewable energy approaches over centralized solutions like off-shore wind.” 

Microgrids provide customers with more control over their energy consumption. A range of options for generation sources, fuel types, storage options and innovative configurations allow customers complete control over the cost and carbon outputs of their power system in a way that is just not possible when connecting to the main grid. 

Analysis from BNEF in 2018 found that over the next decade, investment in microgrids will reach $38bn, significantly outweighing the $16bn projected investment in on-grid power generation.

 But this funding may not be enough. BNEF forecasts a $191bn investment gap that needs filled in order to reach the UN Sustainable Development Goal of “access to affordable, reliable, sustainable and modern energy for all.” 1.1bn people across the world still lack access to reliable power and central grids are unlikely to be able to deliver the answer to the problem.

As the industry searches for alternatives, IEA’s latest Energy Access Outlook 2017 suggests that microgrids will be central to the effort to filling the gap; a view that is shared by Professor Daniel Aldrich, Director of the Security and Resilience Studies at Northeastern University, who thinks “the future will be in microgrids.”