Digitalization is blurring the lines between supply and demand

The International Energy Agency has unveiled its first in-depth study into digitalization in the energy sector. Kelvin Ross examines its findings

Increased use of data and analytics in the energy sector could save power companies close to $20 billion per year and also save $270 billion of investment in new electricity infrastructure.

That’s one of the conclusions of a new report on digitalization from the International Energy Agency.

Digitalization is “blurring the lines between supply and demand” said Dr Fatih Birol, Executive Director of the IEA, at the report’s launch in Paris this month.

And he added that while “the electricity sector and smart grids are at the centre of this transformation, ultimately all sectors across both energy supply and demand will be affected”.

The report, Digitalization & Energy, states that digital technologies are set to transform the global energy system in coming decades, making it more connected, reliable and sustainable. “This will have a profound and lasting impact on both energy demand and supply”, it adds.

It predicts that more than one billion households and 11 billion smart appliances could participate in interconnected electricity systems by 2040, thanks to smart meters and connected devices. “This would allow homes to alter when and how much they draw electricity from the grid,” the IEA said, adding that demand-side response in building, industry and transport could provide 185 GW of flexibility, and avoid $270 billion of investment in new electricity infrastructure.

With the help of smart thermostats, the IEA report finds that smart lighting and other digital tools, buildings could reduce their energy use by 10 per cent by using real-time data to improve operational efficiency.

And it adds that massive amounts of data, ubiquitous connectivity and rapid progress in artificial intelligence and machine learning are enabling new applications and business models across the energy system, from autonomous cars and shared mobility to 3D printing and connected appliances.

Dr Birol said that digital technologies could help integrate higher shares of variable renewables into the grid by better matching energy demand to solar and wind supplies. Energy supply sectors also stand to gain from greater productivity and efficiency, as well as improved safety for workers. However, the report stresses that digitalization has key role to play for conventional power, explaining how technologies are being used throughout the coal supply chain to cut production and maintenance costs and enhance workers’ safety.

“The increased availability of low-cost sensors and computer-aided simulations will bring new opportunities for coal operations,” the report states. “For example, sensors can provide the exact status of various components of the essential equipment in real time and analytics can compare the actual configuration with the ‘optimal’ situation as designed so that the process can be optimised. Digital technologies, data analytics and automation will be increasingly adopted to improve productivity while enhancing safety and environmental performance through multiple applications.”

The IEA says that digital data and analytics can reduce power system costs in at least four ways: by reducing operations and maintenance costs; improving power plant and network efficiency; reducing unplanned outages and downtime; and extending the operational lifetime of assets.

And it adds that the overall savings from these digitally-enabled measures could be around $80 billion per year between now and 2040, “or about 5 per cent of total annual power generation costs based on the enhanced global deployment of available digital technologies to all power plants and network infrastructure”.

“Digital data and analytics can reduce O&M costs, enabling predictive maintenance, which can lower costs for the owner of plants and networks and ultimately the price of electricity for end users. Over the period to 2040, a 5 per cent reduction in O&M costs achieved through digitalization could save companies, and ultimately consumers, an average of close to $20 billion per year.”

The report states that in the long term, one of the most important potential benefits of digitalization in the power sector is likely to be the possibility of extending the operational lifetime of power plants and network components, through improved maintenance and reduced physical stresses on the equipment. And it adds that if the lifetime of all the power assets in the world were extended by five years, investment in power plants would be reduced by $34 billion per year and in networks by $20 billion per year.

Increasing flexibility

However, the report states that “the greatest transformational potential for digitalization is its ability to break down boundaries between energy sectors, increasing flexibility and enabling integration across systems”.

The IEA says digitalization is enabling four inter-related opportunities: smart demand response; the integration of variable renewables; the implementation of smart charging for EVs; and the emergence of small-scale distributed electricity resources such as household solar PV.

The IEA believes smart demand response could provide 185 GW of system flexibility, roughly equivalent to the currently installed electricity supply capacity of Australia and Italy combined. “This could save $270 billion of investment in new electricity infrastructure that would have otherwise been needed. In the residential sector alone, one billion households and 11 billion smart appliances could actively participate in interconnected electricity systems, allowing these households and devices to alter when they draw electricity from the grid.”

The report says digitalization can help integrate renewables by enabling grids to better match energy demand to times when the sun is shining and the wind is blowing. “In the European Union alone, increased storage and digitally-enabled demand response could reduce curtailment of solar PV and wind power from 7 per cent to 1.6 per cent in 2040, avoiding 30 million tonnes of CO2 emissions in 2040.”

Rolling out smart charging technologies for electric vehicles could help shift charging to periods when electricity demand is low and supply is abundant, according to the report. This, it states, would provide further flexibility to the grid while saving between $100 billion and $280 billion (depending on the number of EVs deployed) in avoided investment in new electricity infrastructure between 2016 and 2040.

The IEA also believes that digitalization can facilitate the development of distributed energy resources, such as household solar PV panels and storage, by “creating better incentives and making it easier for producers to store and sell surplus electricity to the grid. New tools such as blockchain could help to facilitate peer-to-peer electricity trade within local energy communities.”


While digitalization can bring many positive benefits, the report acknowledges that it can also make energy systems more vulnerable to cyberattacks. The IEA says “building system-wide resilience depends on all actors and stakeholders first being aware of the risks. Digital resilience also needs to be included in technology research and development efforts as well as built into policy and market frameworks.”

The reporet calls for digital energy security to be built around three key concepts:

ࢀ¢ Resilience, i.e. the ability of a nation, system or institution to adapt to changing contexts, to withstand shocks, and to quickly recover or adapt to a desired level of stability, while preserving the continuity of critical infrastructure.

ࢀ¢ Cyber hygiene, i.e. the basic set of precautions and monitoring that all ICT users should undertake. This includes awareness, secure configuration of equipment and networks, keeping software up to date, avoiding giving staff and users unnecessary system privileges or data access rights, and training.

ࢀ¢ Security by design, i.e. the incorporation of security objectives and standards as a core part of the technology research and design process.

The report adds that international efforts can also help governments, companies and others to build up digital resilience capabilities. “A variety of organisations are involved, each contributing its comparative strengths, including to share best practices and policies as well as to help mainstream digital resilience in energy policy making.”

The report highlights how information and communications technologies (ICT) are emerging as an important source of energy demand in their own right.

It says: “As billions of new devices become connected over the coming years, they will draw electricity at the plug while driving growth in demand for – and energy use by – data centres and network services. However, sustained gains in energy efficiency could keep overall energy demand growth largely in check for data centres and networks over the next five years.

“The strong growth in demand for data centre services is offset by continued improvements in the efficiency of servers, storage devices, network switches and data centre infrastructure, as well as a shift to much greater shares of cloud and hyperscale data centres. Hyperscale data centres are very efficient, large scale public cloud data centres operated by companies such as Alibaba, Amazon, and Google.”

The report states that data networks consumed around 185 TWh globally in 2015, or another 1 per cent of total demand, with mobile networks accounting for around two-thirds of the total.

Depending on future efficiency trends, by 2021 electricity consumption from data networks could increase by as much as 70 per cent or fall by up to 15 per cent, says the report.

This large range highlights the potential role for policy to drive further efficiency gains.

The IEA forecasts that the number of connected IoT devices is expected to triple from about 6 billion in 2016 to over 20 billion by 2020. “Over the longer term, it is conceivable that most electrical devices – and even some consumer items such as clothing – could become connected IoT devices, using energy to collect, process, store, transmit and receive data.”

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