Home2025: Electricity

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The world’s electricity system has reached a turning point. Built a century ago for fossil fuel centralized generation, transmission and distribution, our systems are now poised for a shift. New technologies such as solar power, battery storage and information technologies are enabling us to manage and control energy demand better than ever before.

And the wider energy system, of which the power sector is a major part, is also changing.

Transportation and industry – which both make up around 30% of the world’s final energy consumption – are facing price volatility and security issues around oil and gas that further incentivize the electrification of transport and localized energy use.

While we should not oversimplify these complex dynamics, the major trend toward electrification of transport in particular is clear. The Paris Declaration on Electro-Mobility for example, calls for 20% of road vehicles to beelectrified in 2030. Individual company commitments could move us this way even faster.

But the wider energy system itself is not known for efficiency. Estimates vary depending where you measure final consumption, but around 98% of the energy we use in the process of production is wasted by the time we do simple things in our homes, such as boil an egg or read a book by the light of a lamp. And that loss has much wider impacts.

In the UK, at least 60% more energy is produced than is eventually consumed. And globally, in 2013, we ‘lost’ twice the produced energy in conversion, transmission and distribution than we consumed. In the power sector, the length of transmission and efficiency of the system itself greatly impacts losses from combustion through to end use.

Losses also come from other places. In countries where theft is a problem for example, such as Haiti, losses can be 60% of generated power whereas Iceland, Israel and Korea boast just 3% losses. A loss of around 15%-20% is most common. It’s clear that if we focus only on what consumers actually use, we are forgetting the 60%+ system losses.

Far from being a challenge though, these hidden energy losses are an opportunity for businesses to innovate. For example, smart grid solutions in the last decade have begun to trial and scale ways to optimize voltage and balance the grid more efficiently. This saves power and enables intermittent renewables to increase as a share of overall generation.

But much more can be done.

New battery storage solutions could provide more services to customers, utilities and the grid, making them cost-effective, faster. A study in two US states found that for every US$1 spent on reducing peak demand, US$2-3 would be saved by consumers. And there are many other opportunities, some of which are explored in this section.

Future trends

Driver Description Key fact
Economics In developing countries, financing energy 'leapfrogging' – whereby development is accelerated by skipping less efficient, more expensive and polluting technologies to move directly to more advanced solutions – is critical. Access to energy in particular will be a source of innovation for global electricity systems to learn from new solutions, such as mobile payment. Flexibility and resiliency in electricity grids will become as important as ‘security of supply’ in these countries, and the technologies that enable it such as storage and demand response, will become more economically beneficial. 

Some clean energy companies are already outcompeting fossil fuels, with cheaper solar power in off-grid locations.

Worldwide 1.3 billion people – a population equivalent to that of the entire OECD – continue to live without access to electricity. 
Mobility

The electrification of transportation will be driven by improvements in electric motor efficiency, availability of battery technologies, consumer choice and climate change. And as transport is electrified, new infrastructure for charging impacts electricity grid operators will advance.

Renault Nissan expects 10% of sales to be electric vehicles in 2020. Competition to invest in research and development is growing among car manufacturers.
Climate change 2014 was the first year we saw decoupling of emissions from GDP growth (3%). But while over 150 countries have climate action plans, we will require increased technological and social innovation to drive a shift in energy systems and consumption practices – and in the next 10 years will see more climate impacts around the world. Global energy intensity needs to more than double – from 1.1% per year today to 2.6% by 2050.
Globalization We may see energy models in India or Africa being brought back to the US, as different parts of the energy system mature faster in different places. Cooperation on energy research and development between countries is a challenge, but the rise of city collaborations will drive a new set of more distributed energy solutions

Household solar is at grid parity in 20 US states.

India plans to build 175 gigawatts of renewables (90% solar and wind) by 2022.

Demographics and mitigation Young people will dominate the population in some countries (mainly emerging economies such as India) and growing aging populations will be found in OECD countries. A global population of 8 billion in 2025 will expect energy access as a basic right. And the growth of the middle class will increase demand in emerging economies, even as demand is expected to remain relatively constant in OECD countries.

A 50% decline in household size is expected to 2100.

The global stock of air conditioners in non-OECD countries will increase by 78% from 2010 to 2030.

NEW SYSTEMS

Electricity is a commodity and utilities make money from selling it to us, so incentivizing its optimization and productivity will depend on how far system regulations allow efficiency benefits to pass on to consumers.

As we noted in the Home2025 introduction, Airbnb or BlaBlaCar-style business models offer consumers the ability to use their own infrastructure more efficiently – and get compensated for it. Currently, if people use less electricity in their homes they may save on electricity bills, but they are not compensated for the benefits they provide to the wider electricity system. If they generate solar power on their rooftops, in some places they are even penalized through so-called demand charges for problems expected on the grid.

But as SolarCity notes in its contribution to Home2025, the increase in solar power and other renewables generation point to entirely new ways of designing electricity grids that would increase flexibility and reduce those hidden losses mentioned above, by bringing generation closer to consumption – and therefore reduce system costs. If the grid is revamped this way, SolarCity estimates savings of US$1.4 billion for Californians alone.

SMART HOMES

Smart homes are a key part of this new, flexible electricity system. Homes in 2025 may not look different to today’s homes, but we can count on the fact that the technologies in and around them will be very different.

A typical family home could contain more than 500 connected devices by 2022. The below graphic shows some of the predictions for home energy-consuming devices and behaviors, such as the rise of ‘prosumers’, or homes that produce their own power.

But whether all homes are able to become energy producers or not, we are on a path toward ‘smart homes’ that are able to monitor and communicate electricity demand in a more timely way, which will enable further system benefits.

From OECD countries where smart meters are mandated to provide more accurate billing, to pay-as-you-go solar installations in Kenya through companies like M-KOPA, accurate pricing and settlement is also a key enabler of scaling new energy and electricity solutions.

However, as Nesta’s contribution shows, we have much to learn about consumers and their interaction with ‘smart’ homes. The pace of smarter home technology adoption remains unclear.

THE CONNECTED VILLAGE

Today, more than 1 billion people do not have access to electricity, mainly in Sub-Saharan Africa and India. Although we expect 30% of these people to have access to grids by 2030, 70% will need distributed energy resources and other innovative solutions for lighting, irrigation or cooking. India’s decentralized renewable energy market alone is expected to increase to US$375 million by 2018.

One project focused on developing off-grid renewables is The Climate Group’s Bijli - Clean Energy for All, which has connected over 65,000 people to low carbon energy in India by testing four financial and business models. The project found long tenure loans with flexible terms could best address challenges and reach millions of villages faster.

And these models are already benefitting local economies. Through Bijli, clean energy entrepreneurs are earning more than the national average wage by managing the solar micro-grids, as are ‘operators’ who engage with village-based clean energy businesses.

Models developed for these difficult-to-reach geographies could also have reverse 'leapfrogging' potential. For instance the effective mobile-payment systems used by villagers could be adopted in developed countries.

GLOBAL TRANSITION

A wider systems approach to electricity and energy will allow us to accelerate an upgrade of last century’s infrastructure, toward a system that is innovative, renewable – and resilient.

Already companies like SolarCity in the US and Tempus Energy in the UK are providing such flexibility, through very different business models and engaging directly with consumers.

But if we expect the pace to increase, electricity system operators and regulators must do more to ensure the benefits of system services are also passed on to homes, as noted in the contribution by Energy Unlocked.

And without innovating energy efficiency for end-use appliances such as fridges, lighting and air conditioners, the International Copper Association estimates that soaring energy demand in emerging economies in the next decade will be hugely challenging to meet with renewable power alone.

For the smart home to deliver on its promise, our energy producing and consuming home devices must become high efficiency – and connected not just with us, but with the providers managing our complex electricity systems.

Only then will a consumer-led low carbon transition be possible.

Home2025

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