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THE TRANSFORMATION(S) OF POWER
Shayle Kann, Head of GTM Research
The power sector is constantly evolving, but rarely in modern history has it seen such rapid change as it
faces today. The interaction between technological, economic and political forces is catalyzing what
could become the most dramatic transformation of electricity in the past century.
We identify four primary trends shaping and directing this transformation globally. This report briefly
outlines each trend, notes its global status, and identifies key questions it invokes across the energy
sector. But this is just the beginning; these trends will drive our power and renewables research agenda
moving forward. We will compile and analyze data, forecast future developments, and ask difficult
questions about how each of these trends might shape the future of power throughout the world.
 Decarbonization – The reduction of greenhouse gas emissions from the electricity sector as a
response to climate change. This includes the rapid expansion of variable renewable energy,
coal-to-gas fuel switching, solutions for intermittency, and the evolution of power market design.
 Decentralization – The transition of the electricity grid from one with primarily centralized
generation and unidirectional power flows to a more dynamic, localized network incorporating a
wide array of distributed energy resources (DERs). This includes technology and market
development both for electricity customers and utility companies, new distribution grid
hardware and software, and a new regulatory paradigm for the power sector.
 Vehicle Electrification – The global proliferation of electric vehicles. This includes impacts on fuel
demand, electricity loads, and power markets. It will necessitate new electricity rate designs and
business models, as well as distribution grid planning.
 Energy Access – Bringing modern solutions to the 1.2 billion people globally who remain without
access to electricity, and bringing reliable power to the myriad more who face frequent service
interruptions. This includes technical solutions ranging from grid extension to microgrids, policy
and financing challenges, and impacts on overall energy demand and greenhouse gas emissions.
Transformative Trends in the Power Sector
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Solar and wind now regularly account for more than 40%
of net electricity capacity additions on a global basis…
DECARBONIZATION
Driven by falling costs, increasing investor confidence, and policy support, renewable energy is beginning to transform the
global electricity mix. Wind and solar power now consistently account for more than 40% of new generating capacity
additions, up from less than 10% through 2005. When hydro power is included, more than half of all new capacity worldwide
today comes from renewables.
This trend shows no signs of abating. Solar power costs continue to fall, with power purchase agreements regularly being
signed at record-low prices in locations ranging from Mexico ($31/MWh) to the UAE ($29/MWh) to India ($38/MWh).
Offshore and onshore wind are driving rapid cost reductions in Europe and North America. And energy storage is emerging as
an enabler of increasing renewable energy penetration.
Wood Mackenzie’s Carbon-Constrained Scenario imagines a future in which solar and wind rise to 30% of global electricity
generation by 2035, up from 5% in 2015. Meanwhile, coal’s share will decline by more than 50%, and natural gas generation
share will peak in the early 2030s. This scenario portends a future in which power markets will need to adapt to increasing
penetration of intermittent generation while maintaining reliability and low costs. It presents a growing need for flexibility on
the grid, major roles for grid integration and high-voltage transmission, and strategic questions for incumbent generators.
Key Questions
 In what cases, and for how long, will natural gas act as a “bridge fuel” during the transition to renewables?
 Will energy storage costs fall sufficiently to enable higher penetrations of intermittent renewables? How far will
renewables-plus-storage extend?
 How will electricity market design and regulation adapt to ensure reliability and affordability during the
decarbonization transition?
 What role will nuclear, hydro and other types of “dispatchable clean energy” play in this transformation?
Global Annual Net Electricity Capacity Additions
Source: GTM Research, Wood Mackenzie
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Non-Hydro Renewables All Other Generation
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Wind Solar Coal Gas Hydro Other
Global Share of Electricity Generation
…but renewables still represent less than
10% of global electricity generation
Source: GTM Research, Wood Mackenzie
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DECENTRALIZATION
In some countries, the architecture of the electricity grid is undergoing its most dramatic transformation in over a century.
The existing system, from infrastructure to regulation, was designed to support predictable, unidirectional power flows from
centralized generators through transmission and distribution systems to passive customers. But the emergence of distributed
energy resources (DERs), combined with increased availability of granular data and communications, is presenting an
opportunity (and in some cases, a requirement) to reinvent electricity networks and delivery. If successful, tomorrow’s grid
could be a platform interconnecting millions of devices – power plants, DERs, consumers, aggregators and more – in a
transactive, resilient, efficient network.
Achieving this will be no small task. In order to match the promise of the next-generation grid, electricity systems need updated
infrastructure, regulation, business models, technologies and markets. And all these changes must occur without sacrificing the
reliability and affordability that is available to customers today. GTM Research calls this nexus of factors the Grid Edge.
Source: GTM Research
Key Questions
 How will utility companies adapt to the proliferation of customer-sited distributed energy resources?
 To what extent can grid operators reduce costs and improve efficiency through the proliferation of distributed,
intelligent grid networks?
 What distribution grid infrastructure, communications and analytics will be required to manage and optimize DERs?
 What role will solutions such as blockchain play in the distributed grid of the future?
 Will electricity tariffs evolve to send customers time- and location-based price signals?
 How can regulators avoid unintended consequences regarding equity and affordability?
 Will decentralized energy negatively impact the outlook for centralized generation? And will the rise of
distributed networks decrease the overall capitalization of the power sector?
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0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
2010 2013 2016 2019 2022 2025 2028 2031 2034
EV Share of Vehicle Stock EV Share of New Sales
0
200
400
600
800
1,000
1,200
2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035
TWh
Africa North Africa South China
India Japan Other Asia Pacific
EU28 Other Europe Middle East
USA Other North America Russia
Global EV Penetration
Source: Wood Mackenzie Carbon-Constrained Scenario
Global Transportation Power Demand
Electric vehicles could exceed 20% of global
vehicle stock by 2035…
…causing global power demand from
transportation to more than triple
Source: Wood Mackenzie Carbon-Constrained Scenario
Key Questions
 When will electric vehicle costs fall below those of traditional ICE vehicles?
 How will vehicle electrification impact upstream and midstream oil producers?
 How will electricity rate structures impact EV charging patterns and grid impacts?
 Will vehicle electrification extend beyond passenger vehicles and light-duty trucks?
 Will vehicle-to-grid technologies and business models emerge to allow EVs to act as a source of grid flexibility?
VEHICLE ELECTRIFICATION
Electric vehicles represented less than 1% of all new automotive sales in 2016. But EV sales are booming, and over 100 new
EV models are poised to hit the market by the end of the decade. Meanwhile, battery prices are declining fast enough to put
EV purchase prices on par with traditional internal combustion vehicles during the 2020s, and increasingly prevalent charging
infrastructure will reduce and, ultimately, eliminate “range anxiety” as a barrier to adoption.
If EVs do indeed become mainstream, they will produce ripple effects across at least three dimensions.
 Vehicle electrification will serve as the largest source of new electricity demand, especially in Western markets that have
seen minimal load growth for decades.
 The capability to manage EVs as interactive grid assets will engender innovation in electricity tariff design, distribution
grid infrastructure, and utility business models.
 EV penetration will threaten oil demand growth. In Wood Mackenzie’s Carbon-Constrained Scenario, EV penetration
eliminates 6.5 million barrels per day of oil demand by 2035.
But vehicle electrification remains a nascent trend, and the transition may not be smooth.
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ENERGY ACCESS
1.2 billion people remain without access to electricity, severely handicapping their economic and social development. More
than half of the off-grid population live in sub-Saharan Africa, which (despite strong progress elsewhere) retains an
astoundingly low 45% electrification rate. And much of the population with access to electricity still suffers from frequent,
unpredictable outages. Providing affordable, reliable energy to this population is widely recognized to be among the most
formidable, and most important, development challenges today. And the pace and manner in which energy access is
provided to more of the population will have a dramatic impact on power demand, generation sources and GHG emissions.
Globally, average per capita annual electricity consumption is 3,104 kWh (per capita consumption in the U.S. is 13,000
kWh/yr.). To provide electricity access to the 1.2 billion people currently living without it at the global per capita average
level, global electricity consumption (and thus generation) would need to increase 18%
If the goal is to provide developed-economy levels of energy to this population, the numbers become even more stark.
 Access at the per capita level of Germany (7,019 kWh/yr.) would increase global electricity consumption by 40%
 Access at the per capita level of the U.S. (13,000 kWh/yr.) would increase global electricity consumption by 74%
Achieving universal energy access (a 2030 U.N. Sustainable Development Goal) will require significant new electricity
generating capacity, infrastructure and business models.
634
512
22 18
1,186
0%
20%
40%
60%
80%
100%
120%
0
200
400
600
800
1,000
1,200
1,400
ElectrificationRate(%)
PopulationWithoutAccessToElectricity
(Millions)
Population Without Access To Electricity Electrification Rate
…But 1.2 Billion People Remain Without
Access to Electricity
Source: IRENA
0
500
1,000
1,500
2,000
2,500
3,000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
CapacityMW)
Africa Asia
Central America/Caribbean Middle East
Oceania South America
Led by India, Global Off-Grid Renewable
Energy Has Grown 5x Since 2007…
Key Questions
 How quickly can markets such as sub-Saharan Africa provide electricity access to their populations? What level of
access will be achieved, both in the short and long term?
 Will the emergence of renewable energy and grid technologies replace the otherwise-anticipated increase in fossil fuel
demand to meet energy access goals?
 What will be the share of bulk grid extension vs. off-grid electrification? How will this vary by region?
 Will microgrids emerge as a viable alternative to centralized grids?
 How will financing models for rural electrification evolve?
Source: IEA
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Decentralization Vehicle Electrification Energy Access
Decarbonization
In large part, the decentralization
trend is driven by the desire for
climate change mitigation. As a
result, many of the trends driving
decentralization (rooftop solar,
increased grid efficiency) support
decarbonization. But this is no
guarantee. Diesel gen-sets, for
example, could form part of a
rapid decentralization trend while
increasing overall emissions.
Vehicle electrification is generally
considered a core tenet of
economy-wide "deep
decarbonization" strategies. But the
extent of decarbonization will depend
on proliferation of low- or zero-carbon
generation.
Energy access could serve to
accelerate decarbonization, if access
is provided via emissions-free
generation. But energy access could
hinder decarbonization if supply is
provided via traditional sources of
generation. Like vehicle
electrification, energy access
increases power demand – and the
mechanism to meet that demand
determines its impact on climate
change mitigation.
Decentralization
Vehicle electrification is a key enabler
of decentralization. As an increasing
number of electric vehicles and
charging stations arrive on the grid,
operators and utilities will test
opportunities for two-way
communications, control and
charging/discharging (often termed
“vehicle-to-grid”). In a highly
decentralized future, electric
vehicles could act as flexible demand
to follow load patterns and a source
of energy storage for excess nondispatchable
generation.
In some locations, energy access will
be provided via extension of the
existing centralized grid
infrastructure. But in other regions
(especially rural areas in countries
with unreliable electricity supplies),
decentralized energy in the form of
microgrids and off-grid power may
prove the best solution. Depending
on the ultimate balance between
these two options, energy access
could become both a driver and a
beneficiary of a global
decentralization trend.
Vehicle
Electrification
Reliable, affordable electricity is a
prerequisite for the sale of electric
vehicles. Until near-universal energy
access is achieved, the vehicle
electrification trend may be limited to
more affluent regions. But ultimately,
developing economies could benefit
from the electrification of everything
from scooters and motorcycles to
buses and mass transit,
ACCELERATORS AND BARRIERS
Each of these trends would be transformative on its own. But what makes the current moment rare in the history of the energy
sector is that these changes are occurring simultaneously, and they interact with and impact each other. Below we outline some
of the relationships among the trends described above, and their respective ability to accelerate, or hinder, one another.