Electricity utility Iberdrola is directing 42% of new investments into networks, hoping to reap the benefits of an economy-wide electrification process currently underway in Europe and across the world, a senior company executive has told EURACTIV.
Gonzalo Saenz de Miera, Iberdrola’s Director of Climate Change, has one strong conviction: the electrification of the economy will revolutionise the way people consume energy – especially in the building and transport sectors which are still massively reliant on oil and gas.
And this represents a huge opportunity for Iberdrola, a leading European electricity company, ranked among the top five utility companies worldwide.
“With the electrification of the economy, we’re going to be players in the whole energy sector, not just the 25% of the energy market covered by electricity right now,” Saenz de Miera told EURACTIV during a recent visit to Brussels.
Anticipating this transformation, the Spanish electricity giant is currently investing some $200 million annually into smart grids and renewable energy solutions, including recharging hubs for electric vehicles.
“Our strategy is to develop distribution networks, which are very important from the point of view of renewables integration. In this process of electrification of the economy, you need to integrate smarter grids to take in distributed generation coming from consumers,” Saenz de Miera explained.
And digitalisation is going to be central in that process.
“Iberdrola is becoming a digital company,” he declared, adding: “For all our activities, digitalisation is key – for distribution, retail, demand management, etc.”
Saenz de Miera is far from being a visionary iconoclast. His views reflect a growing consensus among industry players and policymakers that the electrification of the economy – together with digitalisation – is now unstoppable.
Estonia, the current holder of the EU’s rotating presidency, believes innovative ICT tools will shape the future energy system, in particular for power grid operators. It plans to drive the point home at a conference in Tallin in early September – ‘Where digital meets energy’ – where policymakers will discuss issues like data management, ownership, and privacy.
Cheap power – “an incentive to electrify everything”
The good news is that Europe is in a good position to become a world leader in the transition to an electrified economy. It has industry leaders in solar, wind and automotive, and has more experience than any other region in the world when it comes to managing variable flows of intermittent renewable power using digital technology.
“So let’s take advantage of this. Because if we don’t, others will. This is a global trend and a massive business opportunity for Europe and European firms,” Saenz de Miera said.
There are obstacles, however. In Europe, transport still almost entirely relies on oil-based fuels benefitting from favourable tax regimes. “Diesel and gasoline don’t pay for CO2 and other pollutants, which are causing air pollution in cities. And at the same time, electricity consumers are paying for costs which are not related to the costs of electricity supply. It is important that the polluter pays principle applies there,” he argues. “If you have these kinds of barriers, you will slow the process of electrification.”
But the Spaniard believes transport’s conversion to electricity is well on its way and will eventually happen because electric cars need less energy to produce the same thrust. In fact, he believes electric vehicles will be fully competitive “within five to six years”.
“Soon, oil will disappear from the energy mix and gas will be the only fossil fuel remaining in the transition – for transport, for buildings and some industries,” he predicted. “And we now have the technologies to have 80% of transport running on electricity”.
The big challenge for the power sector now is that electricity is becoming cheaper and cheaper, driven by falling costs of renewables. Solar photovoltaic now cost about €60 to produce per megawatt hour and prices are expected to fall further by 2050, to €40 or €30, he pointed out.
“So there will be an incentive to electrify everything,” Saenz de Miera said.
In fact, renewable electricity is becoming so cheap at certain times of the day – in sunny regions, mainly – that it poses challenges to prices and grid stability, leading to what Californians have dubbed the “duck curve”. Cheap electricity also depresses revenues – and therefore investments – in a global power sector in need of $16.4 trillion worth of fresh money in 2014-2035, according to the International Energy Agency (IEA).
New business models
But Saenz de Miera says cheap electricity won’t be a problem for the industry, which will eventually reinvent itself. “And the business model of companies like Iberdrola will have to be adapted accordingly to provide services, not just electricity.”
With the electrification of the economy, power companies can also expect to verge into new business areas, and grow their potential to offer new services to clients.
“This will create challenges of course, but there is no way back. We will have to develop new business models but we are already very active thinking about this,” Saenz de Miera said, referring to research on the utility of the future by the Massachusetts Institute of Technology (MIT).
These new business models will rely greatly on digital tools providing consumers with real-time information about energy prices and consumption.
“I’m sure there will be apps or programmes that will do demand management for you. That’s why it’s so important to have real-time tariffs because it will give you the signal for when to charge your car battery, for instance, when the price is low.”
Smarter grids are also required to take in increasing distributed generation coming from consumers with rooftop solar panels, he pointed out. “And digitalisation is going to be key so we are investing a lot in networks”.