The future is electric: How the power sector is driving change

Power generation is at the heart of the energy system, providing critical systems and infrastructure as the world electrifies and evolves. Energy use could double by the end of the century, with geopolitical tensions, new technologies, a changing climate and variable economic outlooks all key drivers influencing the direction and pace of change.

Imagining that future is hard but the scale of change could be huge. 30 years ago, life looked very different. In 1990s 3.5” floppy disks were still in use, the smart phone was still nearly two decades away, Google was an idea in a university dorm room called Backrub.

Getting the balance right: Power companies are acutely aware of what’s at stake

Whether the future is a risk or an opportunity will depend on power companies’ business goals and risk management strategies. The momentum behind electrification is growing. And risk leaders are challenged in making the right decisions today, to build a better tomorrow for their business.

As the demands on the power sector evolve at pace, future-ready leaders will need to explore three key trends:

Electrification and networks

The bottom line is global grid capacity needs to grow 2.5 times its current size, with annual expenditure on grids more than doubling to $970 billion by 2050 to achieve the goals of the Paris Agreement to keep global warming to no more than 1.5°C.

While the technologies to diversify energy production are still at different stages of development, more energy users will be adopting decentralized energy generation, storage and flexibility.

Connecting these networks together is a key area of focus. Bloomberg New Energy Finance (BNEF) estimate that 152 million kilometers of power lines may be needed for the world to reach net-zero by 2050. 

“Speeding up grid expansion will require substantial technology investment over the coming decades. Every project is unique. If controls are not put in place for manufacturing and installation quality, the risk of a loss increases, and pricing may start to climb. Access to robust expertise – whether that’s in nuclear or subsea cables – is essential to develop a tailored program that aligns with your company's specific requirements, ensuring effective risk mitigation and optimal operational outcomes.” Thomas Mallindine, Head of Energy Transition and Development, Natural Resources Global Line of Business, WTW

Demand and consumption

Power demand and consumption are becoming more dynamic and complex, driven by electrification, digitalization, energy efficiency improvements, societal values, and the growing role of renewable energy.

Computers accounted for 1-2% of global electricity use in 2018 and are projected to hit 8-21% by 2030. Updated regulations and technological improvements, including on efficiency, will be crucial to moderate the surge in energy consumption from data centers. 

“Greater numbers of diverse energy users will be adopting decentralized energy generation, storage and flexibility techniques. Risk leaders need to conduct regular horizon scanning and partner with their specialist brokers to address emerging trends through proactive risk management or by working with intermediaries and insurer partners to develop future-proof risk transfer and/or retention solutions”. Carlos Wilkinson, Head of Power & Utilities, Natural Resources Global Line of Business, WTW

Energy security and resilience

Building a growing network of connected energy producers will be critical for energy security and resilience.

But major headwinds remain a threat.

“There have even been instances where national governments have requested operators to have specific assets continue operating beyond their planned decommissioning dates. Robust life extension processes and independent analyses of these processes by qualified engineers need to be undertaken by power companies to ensure that the assets that continue to operate do so in a safe manner and are considered to be “fit for service”. Failing to do so could, and probably will, result in losses that no one wants to experience, either as an operator or insurer.” Alan McShane, Global Head of Risk Engineering, WTW

The signals for tomorrow are here today, and power companies are already dealing with cost-benefit questions of system flexibility, maintaining existing assets or transitioning to new technologies, and the need to challenge market design.

Download the full article to find out how to get the balance right.