Alternative Energy & Power 2022

This is the fourth release of the Chambers Global Practice Guide for Alternative Energy & Power, which was launched in 2018 amid a transformation of the global electrical energy and power industry. The factors driving change when this guide was released in 2018 – climate change, new technologies, threats to grid security, increasingly proactive energy consumers, among others – continue to drive change and challenge market and regulatory structures. Added to these, this edition of the Guide is being released amid the world’s emergence from the COVID-19 pandemic and the war in Ukraine – global events which have had and are having profound impacts on energy trade and usage. 

De-carbonising and the Transition to Net Zero

The desire to de-carbonise has been and continues to be a focus in many jurisdictions around the globe. Renewable generation, demand-response resources and energy-efficiency technologies in their various forms are viewed largely as the way of the future and are garnering more government attention and investor interest than ever before. Carbon phase-out and renewable energy/demand reduction targets are commonplace, as are corresponding incentive and subsidy programmes. 

Such change does not occur without creating regulatory, technical and commercial challenges. Governments are assessing their current regulatory, market and rule structures to determine how best to adapt, and are doing so within the framework of existing long-lived transmission and distribution infrastructure investment that also needs to adapt to dynamic changes in power supply and consumption. At the same time, the increasing risks to grid security from cyber-attacks and natural disasters have imposed new imperatives on investment in “grid hardening” and resilience.

Sector Evolution

Evolution within the electricity and power industry is a constant. A decade or two ago, many jurisdictions contemplated and experienced material changes in the form of “unbundling” the then-predominant vertically integrated electrical utility model. There was a need to adapt or create regulatory, market and rule structures to accommodate the unbundling of electrical utilities into a mixture of generation, transmission and distribution segments, while also developing and implementing retail and wholesale supply and market regimes. However, the drivers for today’s transformation, as well as the scope and magnitude of that transformation, are significantly different.

Unbundling Utilities and Unprecedented Technological Change

The changes relating to the unbundling of electrical utilities were largely driven by government policy, with the goal of reducing the price of power for consumers through the creation, and opening, of markets in order to incentivise competition from both new and different investment. Today’s drivers are multifaceted and complex. They include: geopolitical factors; the social and environmental awareness and involvement of consumers combined with reciprocal social and environmental government policy; and technological advancements in almost all aspects of the industry, including at the consumer level. That is, whereas the changes in the electricity industry that were experienced in the recent past were largely driven top-down through government policy, today’s changes are in response to both top-down and bottom-up stimuli. 

The unbundling of electrical utilities involved altering the regulatory and commercial models that existed but did not involve much, if any, change to existing electrical infrastructure and how that infrastructure physically delivered electricity to the consumer. In contrast, the changes occurring and being contemplated today are triggered by the development and implementation of new and varied types of generation-and-demand side technologies which require integration with existing infrastructure. Indeed, the desire to replace dispatchable or steady-state carbon-based generation with distributed, non-dispatchable and intermittent renewable generation, like wind and solar, as well as demand response, storage and other technologies, raises reliability and integration challenges at a time when consumers in developed countries view a reliable electricity service as a right and not a privilege. 

The integration of smaller-scale distributed technologies, like storage (eg, electric car batteries) or aggregated demand response, raises further integration challenges. For this reason, these new technologies have the potential to materially disrupt market designs, market and regulatory structures and the physical infrastructure that is in place today. 

Global Need

Even in the face of efforts to de-carbonise and the push for renewables to replace carbon-based generation, globally, the need for carbon-based generation (either coal or natural gas), including new generation, will remain for some time. The International Energy Agency (IEA) forecast that between 2017 and 2040, global energy needs will expand by 30% and during the same period, presumably to meet the expanding need for energy, a net global addition of 400 GW of coal generation is forecast. At the same time, the IEA estimated that between 2017 and 2040, renewable energy generation will capture two thirds of global investment in electricity generation. 

This explosive growth in renewable energy (primarily solar and wind) will result, in the IEA’s estimation, in renewable power generation representing 40% of global generation by 2040. In the European Union, this number is estimated to be twice that, at 80%. 

Globally, the electrical energy and power industry is changing and evolving at an unprecedented rate. This means there is, and will continue to be, plenty of opportunity for those in the industry, including legal experts, to develop and apply their expertise. Flexibility and innovation, on the part of all, will be necessary for success.