Challenges of the Power Sector of Tomorrow

To be able to develop their business, companies operating in the power sector must, in particular, prepare for what has been coined as the ‘power sector of tomorrow’. What it means is a transformation of the utility-scale power generation sector toward decentralized generation, an increased role of cross-border connections, energy storage and new energy services, such as ‘virtual power plants’, demand side management and distributed generation.

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The new approach also changes the role of distribution, which must face the challenges of smart technology, distributed (including prosumer) generation and bidirectional electricity flows.

All these changes must ensure a higher quality and security of supply. Due to the rapid development of the power sector based on distributed sources of renewable energy, we see the need to change our generation mix toward greater flexibility of conventional plants. Due to the growing share of unstable sources in the power system, units enabling quick load changes and energy storage facilities will play an increasingly important role.

In our Strategy for 2016–2025, we have defined the following four key areas for the TAURON Group: regulations, market, customer and technologies. Some of the assumptions adopted at the Strategy development stage have become a reality, including the introduction of a dual-commodity market and publication of BAT conclusions, but most of the challenges in various areas remain current.

Key challenges for the TAURON Group

The Strategy and the Update of the Strategic Directions are TAURON Capital Group’s responses to the challenges posed by the business environment and the requirements of the energy sector’s customers:

 

Regulations

The European Union’s (EU) decarbonization policy and successive regulations aimed at reducing emissions, introduction of the quality based regulation model in the distribution segment, changes to the support for the RES installations and the EU’s actions aimed at developing a common electricity market and achieving climate neutrality.

Market

Changing forecasts of electricity and hard coal prices, hard coal availability, demand for electricity, demand for capacity, growing competition on the retail market, rising level of RES generation, the reduction of the financing for the coal related investments as well as for the capital groups with coal assets.

Customer

Growing awareness of the customers and the requirements with respect to satisfying their needs as well as the comprehensiveness of the offering, increased expectations with respect to customer service quality and availability.

Technology

Falling prices of renewable and dispersed (distributed) technologies, rising competitiveness of such sources versus conventional sources, a change of the role of the distribution service due to the expansion of dispersed (distributed) power generation, advancement ofsmart technologies, microgeneration and energy storage.

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Opportunities and threats

Opportunities:

  • Introduction of the dual-product market – additional revenue for maintaining generation capacity.
  • Support for electromobility (growing electricity consumption).
  • Introduction of legal solutions supporting the curtailment of low emissions (e.g. system district heating).
  • New regulations related to the support for the cogeneration.
  • Use of the aid funds for the expansion of TAURON Capital Group’s operations.

Threats:

  • Tightening energy and climate policy of the European Union (EU).
  • Increase of the costs of generating electricity using the conventional sources due to, among others, the environmental costs and the decarbonization policy.
  • Lack of stability and predictability of the regulations for the RESsources as well as uncertain future of the RES sources based on the biomass burning and co-firing technology.
  • The need to incur additional expenses due to the changes to the energy law.

Opportunities:

  • Access to the largest, among Poland’s energy companies, customer base.
  • Entry into the energy related services market segments based on the competences held.
  • Commercialization of innovative solutions developed as part of the research and development activities.
  • Own mining assets base, allowing for the stabilization and predictability of the fuel cost.

Threats:

  • Decline of the margins and lower utilization rate (load factor) of the conventional assets (deteriorating profitability, refurbishments or shutdowns of old generating units due to the new high efficiency units entering the system and due to the BAT Conclusions requirements).
  • Loss of volume and profitability of the Supply Segment.
  • Pressure on the electricity prices with the growing cross-border exchange volumes.
  • Reduction of the financing for the coal related investments as well as for the capital groups with coal assets
  • Increase of the prices of goods and services negatively impacting investment efficiency.

Opportunities:

  • Competitive advantage with respect to the customer service quality.
  • Customer segmentation and offering the additional products in line with customer expectations.
  • Growing customer awareness and expectations towards comprehensive, personalized offering of additional services and products.
  • Expanding an offering of services for customers based on the competences held and trust in the TAURON brand.
  • Developing modern and integrated sales and customer service channels.
  • New competences and business models based on the research and development (R&D) activities.
  • Maintaining an upward trend in electricity consumption by the final consumers.
  • Developing competences and competitive advantages in the new areas of operations.

Threats:

  • Potential loss of customers due to an increase in the number of competitors offering customers similar products and due to low electricity supply market entry barriers.
  • Decrease of the customer loyalty – intense activities conducted by the competitors.
  • Greater customer awareness and requirements with respect to the customer service quality and product offering.
  • Power independence of the consumers (prosumers, energy (power) islands, energy storage facilities, clusters).
  • Energy intensive consumers building their own generation sources, as a result of the drive to reduce the electricity costs.
  • ”Carbon leakage” – moving business operations to other countries due to the cost of energy.
  • Incurring of high expenditures required to implement the new customer service platforms and develop the contact channels.

Opportunities:

  • Continued and noticeable decline of the prices of the renewable technologies.
  • Advancement of the storage technologies, smart technologies and the technologies related to the dispersed (distributed) generation.
  • Additional services for the customers related to the new technologies (internet of things, dynamic tariffs, virtual power plants).
  • Developing and implementing (commercializing) of proprietary innovative solutions that provide a competitive advantage.

Threats:

  • The need to adapt the grid to the growth of dispersed (distributed) power generation (bi-directional electricity flows).
  • Arrival of the new, cost competitive electricity generation technologies in the countries neighboring with Poland.
  • Growing number of cyberthreats and the infrastructure susceptible to such attacks.
  • Multitude of the communications standards, problems with providing the expected goals for the projects implemented.

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