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A series of profound waves of innovation is transforming the electric power sector worldwide. The development of new technologies on both the supply and demand sides, the growing policy focus on deep decarbonization, the electrification of end users such as transportation and heating, and the emergence of new business models enabled by digitalization are already influencing electricity markets today. and will influence their further development.
First wave
The first major wave of innovation is provided by the increasing use of renewable energy sources (RES) and the gradual replacement, at least in Europe and North America, of conventional thermal generation, both fossil fuel and nuclear. This change in the generation mix is the result of considerable political support and technological development since the early 2000s. While hydropower continues to play a fundamental role, wind power and solar photovoltaics (PV) have the most significant growth potential today, while concentrated solar, biomass, geothermal, wave and tidal power have less promising prospects due to more limited availability of primary resources. , immature technology or more valuable uses in other sectors.
Second wave
The technology landscape is changing rapidly on the demand side as well. Over the past few years, significant innovations in electrical appliances and digital solutions have given customers more and more options to monitor, control and optimize their electricity consumption, self-generate electricity and store any surplus for later use. As a result, traditional consumers are turning into solumers, prosumers, and even “non-consumers. Their demand becomes more flexible and responsive to market and system conditions.
The greening of the energy mix and the digitalization of “retail-sized” assets located on customers’ premises are challenging existing business models in the industry and opening the door for new ones to emerge. Generating electricity from wind and solar PV is capital intensive and requires determining long-term guaranteed revenue streams before making any final investment decisions.
Third wave
The third major innovation wave in electricity markets is the shift in the focus of energy policy from competitiveness to environmental sustainability. In many jurisdictions around the world, governments are concerned about climate change and have decided to implement several public policies to decarbonize the electricity sector. There are many variations on this. For example, we can distinguish market- and technology-neutral policies from those that address specific technologies.
Fourth Wave.
Electrification of road transportation represents the fourth wave of radical change in the electric power sector. The mass deployment of electric vehicles in the coming years could significantly increase the demand for electricity and offer new sources of flexibility for the system. Technology has improved over the past decade, and sales in several countries have increased.
Fifth wave.
Along with the electrification of transportation, another disruptive wave is represented by the electrification of the heating and cooling sector. This sector is now dominated by fossil fuels and accounts for a large share of global greenhouse gas emissions. Its decarbonization is necessary, but is a challenge because of the enormous stock of physical capital that needs to be replaced and the limited availability of fully mature technologies. The introduction of heat pumps and other electricity-based technologies represents one of the most viable pathways at the moment, especially when it comes to residential and commercial buildings.
