- Challenges Continue for Global Supply Chains
Global supply chains will continue to be disrupted in 2022, resulting in delays in the commissioning of new power & energy projects, with the booming wind and solar PV sectors worst affected. China’s zero-Covid lockdown policy will see periodic disruptions in manufacturing for many key components. Significant constraints on global port capacity will continue to delay shipping. Concerns over US-China relations will continue to drive near-shoring of some manufacturing capacity and also encourage OEMs to look for alternatives to China for at least part of their supply chains – the so-called China+1 policy.
Jonathan Robinson, Director, Power & Energy
- More Volatility for Gas Prices
After a prolonged period of relative calm, volatility returned to the natural gas market in the second half of 2021. This is set to continue into 2022 with strong demand setting a floor for prices and geopolitical tension between Russia and the EU and the US amongst several factors making traders nervous. Higher prices are likely to translate into higher investment in LNG capacity, as US players look to boost exports, and importers invest to diversify gas supply options. Higher prices will be bad news for suppliers of gas power equipment – the depressed state of the North American and European markets will continue. Finally, higher prices for households and businesses will make energy a hot political issue in many country markets.
Lucrecia Gomez, Director, Power & Energy
- Greater Decentralisation & Decarbonisation Focus in the Commercial and Industrial Space
Net zero and sustainability will both continue to be key drivers behind greater investment in clean and efficient solutions for power generation and energy efficiency. However, this trend will accelerate in 2022, as higher energy costs further improve the business case for reducing the use of fossil fuels. This momentum will be particularly strong for the industrial segment where 80% of energy currently comes from fossil fuels. 70% of global fossil furnaces are due to be replaced in the next decade – failure to act threatens locking in a generation of carbon emissions.
Jonathan Robinson, Director, Power & Energy
- Virtual Power Plants Increasing the Bedrock of Decentralisation
The increasing share of electricity from renewable energy sources (RES), distributed energy resources (DERs) and increasing penetration of EVs and their charging infrastructure makes grid load management operations extremely difficult for utilities. In response, utilities have started leveraging innovative grid management practices like virtual power plants (VPPs) to increase grid reliability and resiliency. Post-2021, VPPs are set to leapfrog and emerge as a crucial measure for stable grid operations, limiting the need for new peak-period generating capacity. Many utilities across the US, Japan, South Korea, Germany, the UK and Australia have already started adopting VPP solutions as part of their clean energy transformation. Frost & Sullivan forecasts that the global market for Virtual Power Plants will increase $565 million USD in 2021 to reach $3.3 billion by 2030.
Swagath Manohar, Senior Analyst, Power & Energy
- The Rise of Energy Services
Gone are the days of regarding electricity as a commodity. As EV sales, residential storage, and distributed generation continue to rise, more utilities and energy retailers are launching new services to capture the full value of DERs in terms of load management, customer preference, and new revenue streams. A growing number of companies worldwide are venturing into solar-plus-storage and smart heating energy-related services, while the most innovative retailers in deregulated markets are focusing on 100% carbon-neutral energy propositions, smart EV home chargers, and V2G offerings. To develop and scale these new digitally-enabled energy services, Frost & Sullivan estimates electric utilities and energy retailers will spend over $4 billion in digital solutions in 2022.
Maria Benintende, Principal Analyst, Power & Energy
- More M&A Activity in the Digital Grids Space
Last year, we saw some software and data analytics companies being acquired by grid equipment suppliers and energy companies, including the acquisitions of Smarter Grid Solutions by Mitsubishi Electric, envelio GmbH by E.ON, and Opus One Solutions by GE Digital. As the share of utilities’ budget for digital solutions continues to increase to support grid modernization and grid-hardening initiatives, so does the interest of ecosystem players to develop robust interoperable digital platforms to advance in the energy transition. For 2022, we expect further consolidation in the digital grids market with more acquisitions taking place around DER integration; grid planning; cybersecurity; and asset, distribution, and outages management.
Maria Benintende, Principal Analyst, Power & Energy
- No End in Sight for the Growth of Hydrogen
Investment in green hydrogen will accelerate in 2022, as 2021’s hottest industry topic continues to gain momentum. Expect to see further announcements from the likes of Siemens and MHI on their latest hydrogen solutions, as the race to offer larger, cheaper and more efficient electrolysers continues. The increase in natural gas prices is a further boost to green hydrogen, as the cost differential between green and grey has declined significantly in 2021 – technology innovation will erode that further in 2022. Governments will continue to look favourably on hydrogen initiatives as a way of turbocharging post-Covid economic recovery and as a medium-term play to limit increases in carbon emissions.
Jonathan Robinson, Director, Power & Energy
- Embrace of the Power Sector by Oil & Gas to Continue
Commodity prices may have rallied in the second half of 2021 but this will not stop the trend of oil & gas companies rebranding as energy companies and continuing to invest in the power sector. European-headquartered companies are currently leading the energy transition in terms of technology and initiatives, but 2022 will see companies in other regions making moves to close the gap. Power generation, particularly larger renewable projects, will continue to be the standout area for new investment, but significant volumes of investment will also go into green hydrogen production, battery and home energy storage solutions, electric mobility and grid flexibility services.
Maria Agustina de Sarriera, Analyst, Oil & Gas.
- CCUS
The CCUS market is expected to grow exponentially in 2022, as more than 50 projects globally are in advanced stages of development. High-emission industries like cement, iron and steel, chemicals and fertilizers, are significant contributors to economic growth and job creation. There is no alternative to these industries, so CCUS will help transform these high-emitting industries to near-zero emission industries, while maintaining economic prosperity. In 2022, 18.6 MTPA of CCUS capacity will be added and total investment will be $1.8 billion. The US will continue to lead the project table, followed by Europe and China. The clustering of CCUS projects will act as a significant driver in growth; globally, more than 20 CCUS cluster projects are in advanced stages of development, with some of them expected to become operational by late 2022.
Mahesh Radhakrishnan, Senior Analyst, Oil & Gas
