Why Digitalisation is key to the Energy Transition
The energy world is undergoing a Grand Transition driven by a combination of factors including the increasing pressure for decarbonisation, the fast-paced development of new technologies, an unstoppable digital revolution, emerging physical and virtual risks and changing growth and demographic patterns.
Energy leaders face and are increasingly acknowledging disruptive change. The one thing above everything else that is keeping energy leaders awake at night globally is the impact of digitalisation on the future of the energy system. Industry leaders and policymakers across the globe are considering the impact of innovation with a mixture of excitement and unease.
The World Energy Council’s G20 Issues Monitor Map shows issues such as decentralisation, electric storage and blockchain technology are rapidly moving to the top on the list of CEO insomnia issues, while a more uncertain growth context and new physical and digital risks are posing ever greater threats to the energy sector.
Decentralised energy systems are becoming increasingly important to the global energy system, particularly in the context of the energy transition.
Key findings leveraging on interviews with global energy leaders analysed in our 2017 World Energy Trilemma report, show the share of decentralised energy systems will increase rapidly to a share of 15% or higher of installed generation capacities by 2025.
Energy storage, including batteries are becoming a key element of the grid of tomorrow, helping to enhance system efficiency and cost stability. Global energy storage capacity along with revenues from utility scale applications are expected to increase dramatically over the next 5- 10 years.
The world in which the internet of things and blockchains will enable direct and low-cost transactions between parties and between appliances is fast approaching, with at its core precisely recorded transactions in unfalsifiable ledgers that also open new possibilities for supply chain tracing and product labelling by fabrication origin, materials used or emissions caused.
A world where big data, machine learning, and artificial intelligence enable automated system analytics and instant demand response is very different from the analogue world where many leaders started their careers.
The next decade will begin to define the winners and losers of the energy transformation, making it crucial to understand the new realities for the energy sector now.
In a context provided by continued electrification of final demand – on transport, heat, and industrial energy demand – we will see greater diversity in types of actors and business models, enhanced system response capability through digitalisation, and more decentralisation and direct interactions between prosumers and devices enabled through technologies such as blockchain.
These new technologies not only change the way we operate the energy system but revolutionise the potential for a sharing and leasing economy through new platform solutions, which will affect traditional business models in energy and change the way we think about supply-demand interaction. Mobile technology with cloud support already today enable new financing models, such as micro-leasing schemes in the developing world and greater customer choice and control for all.
In such a context of acclaimed technology democratisation and a changing energy system we must re-think the role of the state and of companies in ensuring access to secure, affordable and environmentally sustainable energy.
For infrastructure and system-critical companies the digital revolution doesn’t come for free: they face broader exposure to cyber risks due to greater number of digital entry points into the system and increased planning uncertainty resulting from lowering entry barriers for new players.
Addressing cyber risks in the energy sector is critical not only to global energy security, but is also vital for a resilient state and economy to avoid total collapse.
A rapid transition is underway. Photovoltaic or digital & platform revolutions are witnesses of a new reality.
Adapting to this new reality, with new market players and business models will require a massive effort. However, global policymakers, business leaders, and governments need to plan for these transitions and anticipate its likely impact on energy systems and market actors.
If there is a digital rent to be harvested in the transitioning energy system it is vital that policymakers and energy leaders within the G20, among others, work towards greater energy policy cooperation. The goal of achieving a sustainable energy future critically depends on an internationally coordinated, collaborative, approach.
There is a real opportunity for the G20 Energy Transitions Working Group to promote and deliver greater energy policy cooperation with a focus on developing energy grids that are more flexible, transparent and clean as the world witnesses rapid digitalisation of energy markets.