The 3 Ds of Energy: Decarbonization, Digitization and Decentralization

Energy decarbonization has boosted the sector due to the continuous entry of new energy sources and new players in the electricity market. Noteworthy here is the entry of variable renewable generation, predominantly solar, photovoltaic, on-land and offshore wind, which have begun to replace conventional forms of generation.

In addition, electricity systems in the future will have to consider other actors, such as smart transport and services, which will not be liabilities but participants and assets that will become quick, real-time boosters of these systems.

To meet this goal, a substantial investment in technology innovation is required, part of the 3D strategy (digitization). Together with new business models, involving states of affairs in both electric and economic variables, this will improve operation of electricity transmission and distribution networks, thereby responding adequately to the growing challenges of power generation and consumption.

New technology entails challenges, both for investments in conventional energy (hydro, natural gas steam thermal power plants, among others) whose emergence took place in a different energy context with different prices and expectations from today, as well as for new forms of energy production. This context has changed and has often been distorted, for example, when renewables originally received significant economic incentives to encourage their production. This influenced and changed the revenue flow of projects, which—depending on each country’s models and payment terms—led to the downfall of some of these producers. This is further enhanced by the breakneck technological changes in renewable energy, as well as promotion policies, which countries have implemented in their own way.

Electric transport networks are an important factor in the generation-transmission-distribution power chain, and face the challenge of digitizing and integrating unmanageable and large-scale (giga watts) generation (wind and photovoltaic), as well as integrating distributed resources (electric vehicles and charging stations). Therefore, control mechanisms will have to be modernized based on these new concepts and roles in generation, transmission and distribution.

Another energy revolution is the “decentralization of energy sources,” i.e., as wind, solar and storage technologies have more competitive investment costs they will become more affordable, and therefore, there will be greater penetration of distributed generation, which should also be taken into account as part of these new power systems.

In these new electric business models in the distribution segment, where users or customers are no longer mere energy recipients, they now become more dynamic actors, and are not only able to deliver energy but also to choose and buy cheaper energy on a variable basis intra-day or in any period of time.  This is because customers now have the possibility to install distributed energy resources, making them more informed consumers, who can see and analyze production and consumption from their computers.

Consumers become more proactive, and thus will push energy marketers or distributors to find new ways and products to attract customers. Furthermore, distribution networks and operators will also have greater investment needs, whether in recharging infrastructure, housing installs and adaptations of electrical installations, integrating self-consumption, smart meters, etc.

This is the dynamics that will govern electrical power systems, which, although will provide services adapted to technological development in society, will also bring about issues to be solved and that specialists and all other stakeholders promoting these investments should address and take into account. One of these challenges is that, since consumers can become self-generators, based on the current electricity system this will imply a loss of demand, since they are physically off the grid, which could affect customers who decide to stay on it. Thus, because there is less demand, they would have to cover fixed costs for the current infrastructure.

This will lead us to the issue of how to deal with payment of investments, made especially on distribution infrastructure, since distributed energy stakeholders would stop using the current grids.

Against this backdrop of changes in electrical systems, CAF’s challenge is to support not only agents that are apparently part of this new called 3D trend, but all stakeholders in these new chains. These include the area of generation, where decarbonization is focusing its efforts, as well as the area of distribution, linked to the concept of decentralization or distributed generation. This is also true for digitization, where all agents in the electrical chain are involved, such as transmission generation and distribution, and where electrical system operators will have to update their control systems, in order to link and close the 3D chain.

CAF must play a catalyst role, and support countries of the region, fostering innovation and development of infrastructures and policies that enable these advances.