Worldwide, the installed base of electric generating plants has a capacity of roughly 6,400 GW. Annual new construction is about 5 percent per year, or 320 GW. However the additions can be 'lumpy' depending on economics and energy policies. Older and generally smaller generating units are retired from service usually after a 40 year operating life (though this can be extended via further investment). The amount of generating capacity retired in a typical year can also vary greatly from year to year based on fuel prices, plant economics, and energy policies. ARC covers top technology trends in the Electric Power & Smart Grid industries on an ongoing basis. Please visit Technology Evaluation and Selection Guides page for recent ARC research reports.
Electric Power & Smart Grid Industry Overview
Long term, the trend worldwide is to substitute renewable forms of generation (primarily wind and solar photovoltaic) for traditional fossil-fueled thermal plants. The lifecycle costs of wind and solar PV have fallen to the point where they are much more economically competitive than several years ago. In addition, they are subsidized as a matter of policy.
In some regions (notably the Nordic countries) renewables make up a substantial fraction of total installed generation capacity. As this transition to more renewables occurs, the role of the traditional thermal plants shifts from base load or daily cycling toward more load-following operations. This is a technical challenge. It is also often a business challenge as the traditional regulated utility companies often own mainly the thermal assets. The regulatory environment in which they operate often has not adjusted for this shift in roles.
After the 2008-09 economic crisis, which only had a small effect on the power generation industry, revenues grew fast in 2010 and 2011. However, since that period capital expenditures and revenues have declined, mainly due to overcapacities in Europe as well as a slowdown in China.
Overall, there is less growth coming from developed economies. Developed economies in general have much smaller electric load growth than developing economies. Historically this growth is in the range of 2-3 percent per year, but the historical load growth pattern appears to have broken down. This is caused by greater energy efficiency both in industry and in the consumer/residential market segment. Technical innovations in low-energy lighting are mandated in some major markets. Investments in developed markets continue to be in maintenance and modernization of older power plants, if economical. However, many national energy policies favor lower-carbon generation technologies. This has resulted in the closing of many existing coal-fired plants at mid-life age of 25-35 years. These are plants that would have been extensively updated in earlier times under different energy policies.
In contrast to commodities, which are mostly traded on global markets, electricity cannot be stored or exported. Available generating capacity cannot be increased on an hourly basis. Automatic load curtailment schemes (called demand response) have been allowed to participate in some markets, providing markets with some elasticity of demand as well as of supply.
The drop in CapEx also represents a shift in companies that do invest in power, as the typical utility large generating project is replaced by distributed generation investments by non-utility firms. As renewable generation becomes a significant fraction of the total, utilities are becoming base load providers, providers of capacity at peak times, and backup providers. Generally utility regulation has not yet come to grips with this fundamental change in the role of regulated utilities. This remains a major long-term challenge to the industry.
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