2021 power and utilities industry outlook
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.
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.