This is the third release of Chambers Global Practice Guide for Alternative Energy and Power, which was launched in 2018 amidst a transformation of the global electric energy and power industry. The factors driving change when this guide was released in 2018 – among others, climate change, new technologies, threats to grid security, increasingly proactive energy consumers – continue to drive change and challenge market and regulatory structures. Added to these, this edition of the Guide is being released amidst the COVID-19 global pandemic, an event which is having profound and unprecedented socioeconomic impacts.
While it is too early at this stage to predict the medium and long-term impacts of the pandemic on the global power industry, the pandemic is currently manifesting itself through substantial reductions in energy demand and changes in patterns of energy usage. Only time will tell whether these and other changes have longer term impacts on energy infrastructure investment and the global power sector more generally
De-carbonising Power Generation
The desire to de-carbonise and, to a lesser extent, to de-nuclearise power generation has been – and continues to be – a focus in many jurisdictions around the globe. At the same time, and in response, renewable generation in its various forms is viewed largely as the way of the future and is garnering more government attention and investor interest than ever before. Carbon phase-out and renewable energy targets are commonplace, as are renewable energy incentive and subsidy programmes.
Such change does not occur without creating regulatory, technical and commercial challenges. Governments are assessing their current regulatory, market and rule structures to determine how best to adapt and are doing so within the framework of existing long-lived transmission and distribution infrastructure investment that also needs to adapt to dynamic changes in power supply and consumption. At the same time, the increasing risks to grid security from cyber-attacks and natural disasters have imposed new imperatives on investment in "grid hardening" and resilience.
Evolution within the electric and power industry is a constant. A decade or two ago, many jurisdictions contemplated and experienced material changes in the form of "unbundling" the then-predominant vertically integrated electric utility model. The need to adapt or create regulatory, market and rule structures was required to accommodate the unbundling of electric utilities into a mixture of generation, transmission and distribution segments, while also developing and implementing retail and wholesale supply and market regimes. However, the drivers for today's transformation, as well as the scope and magnitude of that transformation, are significantly different.
The changes relating to the unbundling of electric utilities were largely driven by government policy, with the goal of reducing the price of power for consumers through the creation, and opening, of markets in order to incentivise competition from both new and different investment. Today's drivers are multifaceted and complex. They include: geopolitical factors; the social and environmental awareness and involvement of consumers combined with reciprocal social and environmental governmental policy; and technological advancements in almost all aspects of the industry, including at the consumer level. That is, whereas the changes in the electricity industry that were experienced in the recent past were largely driven top-down though government policy, today's changes are in response to both topdown and bottom-up stimuli.
The unbundling of electric utilities involved altering the regulatory and commercial models that existed but did not involve much, if any, change to existing electric infrastructure and how that infrastructure physically delivered electricity to the consumer. In contrast, the changes occurring and being contemplated today are triggered by the development and implementation of new and varied types of generation and-demand side technologies which require integration with existing infrastructure. Indeed, the desire to replace dispatchable or steady-state carbon-based generation with distributed, non-dispatchable and intermittent renewable generation, like wind and solar, as well as demand response, storage and other technologies raise reliability and integration challenges at a time when consumers in developed countries view reliable electricity service as a right and not a privilege.
The integration of smaller scale distributed technologies, like storage (eg, electric car batteries) or aggregated demand response, raises further integration challenges. For this reason, these new technologies have the potential materially to disrupt market designs, market and regulatory structures and the physical infrastructure that is in place today.
The full scope of change has yet to unfold. Again, one need only look at the historic example of the unbundling of electric utilities. In Canada, only Alberta and Ontario unbundled their electricity sectors (in different ways and with mixed success), and of the eight provinces that continued with vertically integrated structures, approximately half include publicly owned utilities as the only participants.
The other half are either fully private or a mixture of public and private. That is, the evolution of the industry through unbundling did not fully materialise in Canada and the result is that the change brought about by unbundling was a matter of degree and not one of kind.
However, unlike unbundling, the changes discussed above are driven in no small part by developments in "Uber-like" technologies which threaten to transcend government policy. In this way, the degree to which the existing industry paradigm evolves will be significant, but only time will tell whether that evolution will result in an entirely new paradigm.
Even in the face of efforts to de-carbonise and the push for renewables to replace carbon-based generation, globally the need for carbon-based generation (either coal or natural gas), including new generation, will remain for some time. The International Energy Agency (IEA) forecast that between 2017 and 2040, global energy needs will expand by 30% and during the same period, presumably to meet the expanding need for energy, a net global addition of 400 gigawatts of coal generation is forecast. At the same time, the IEA estimated that between 2017 and 2040, renewable energy generation will capture two thirds of global investment in electricity generation.
This explosive growth in renewable energy (primarily solar and wind) will result, in the IEA's estimation, in renewable power generation representing 40% of global generation by 2040. In the European Union, this number is estimated to be twice that, at 80%.
Globally, the electric energy and power industry is changing and evolving at an unprecedented rate. This means there is, and will continue to be, plenty of opportunity for those in the industry, including legal experts, to develop and apply their expertise. Flexibility and innovation, on the part of all, will be necessary for success.
Originally published 27 August, 2020
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.