As 2018 begins, the Capgemini Energy & Utilities team reflects on the most striking events of 2017 and details our predictions for 2018, with a particular focus on the French market. These are based on both news stories and the consulting team’s ongoing assignments and include the plummeting costs of renewables, electric vehicles, battery storage, new challenges for utilities, and how digital is accelerating the energy transition.
Renewable installations in Europe will remain steady while France picks up the slack owing to higher tender volume and stability in the regulatory framework. Wind and solar installations are expected to increase to 23 GW in 2017 compared to 2016 according to WindEurope and SolarPower Europe. In France, the government enacted two decrees to set the remuneration for new wind farms. In December 2017, the French Ministry for Energy Transition raised the annual PV tender from 1.45 GW to 2.45 GW. Gas is also on the table, as highlighted by Engie’s commitment to produce 100% green gas by 2050.
Subsidy-free projects will become more common. Renewable costs of generation continue to decrease thanks to lower equipment costs, performance improvement, and tenders putting pressure on prices. Yet how many projects will not materialize? Cost reduction can be seen everywhere as the supply chain builds up. In December 2017, the Dutch government launched the first round for sites I and II in the Hollandse Kust offshore wind zones without subsidies. The first contracts are expected for in the first quarter of 2018. These projects will hinge on the evolution of wholesale power prices and contracted prices. Could we see a surge in projects failure if wholesale power prices fall faster than expected?
The number of renewable developers will shrink as the renewable market consolidates and energy majors bolster their ambitions. Although the French solar PV market is still highly fragmented, the acquisitions of Quadran by Direct Energie and of Eren by Total signal a surge in M&A activity. Similarly, EDF launched a solar plan to deploy 30 GW solar PV capacity between 2020 and 2035 in France. Given that the French government’s ambitions to add some 2.5 GW annually, EDF could contribute 2 GW of the target. What does this mean for the competition, for smaller solar developers, and for participative and local energy projects?
EVs will be a hot topic, but beyond announcements, will we see massive deployment of electric vehicle charging stations in Europe? Car manufacturers and utilities made several announcements around EVs: Renault launched a new subsidiary dedicated to energy services, V2G, and second-life batteries; Shell acquired the EV charging network NewMotion (30,000 charging points); and Enel acquired eMotorsWerks for grid-balancing services or V2G. Nevertheless, the number of EVs sold in 2016 was 1.5% of total European sales (13.5 million).
The energy efficiency market as well as the flexibility mass market will continue to grow slowly in the absence of ambitious regulatory support. Energy majors are investing steadily in the sector, as evidenced in Total’s acquisition of Greenflex, because getting control of energy services is definitely the key to the future. That said, there is a lack of large “energy efficiency” developments in Europe. New smart digital tools are developed primarily to provide better comfort and control of the devices to the customers. The ESCO model and Energy Performance Contracting remains complex, while fostering dynamic tariffs and mass flexibility no longer seem to be the priority of governments. Will it come back later when digital makes it easy and cheap everywhere?
We don’t believe in the mass-scale deployment of batteries and smart grid applications in France. While batteries seem to be making breakthrough in a number of countries (UK, Germany), poor economics and the structure of the network don’t really incentivize battery deployments in France. Furthermore, the deployment of batteries for self-consumption, for grid applications, or for reducing the capacity subscribed to the grid would raise the issue of the evolution of the Distribution System Operator (DSO)’s role in a more decentralized system and the equalization of the tariffs—both thorny issues for public authorities.
The French retail electricity market is close to saturation. The French market has 55 licensed electricity providers from incumbent utilities, international utilities, small local providers, and large retailers (Casino). At the same time, EDF is reported to have lost over one million clients in 2017. The viability of these new players will be highly dependent on the evolution of French wholesale power prices and bankruptcies and market exits should not be ruled out from the equation.
Consumption habits are changing and Energy Management Platforms become a must have. The business or residential consumer is keen on getting increased control of its usage, while the development of self-consumption, corporate PPAs, and solar cloud (see E.ON’s new offer for virtual solar bank account) highlights how energy is no longer a simple commodity for consumers. Energy players must implement improved energy management platforms that enable IoT control, analytics, and customer intimacy in order to go beyond customers’ expectations and develop opportunities.
We would love to hear what you think about our reflections and our predictions, especially if you disagree. In the meantime, we wish everyone a happy 2018 and we look forward to working with you this year.
 of December 13, 2016 and of May 6, 2017, La structuration des financements de projets éoliens dans le contexte des nouveaux mécanismes de soutien en France