Europe gripped by digital energy insomnia

Digitization is the biggest issue that’s keeping European energy leaders awake at night, writes Dr Christoph Frei of the World Energy Council

Current policy and political uncertainty over EU cohesion connected to issues such as Brexit in the UK, upcoming elections in many European countries, and a new president in the US is adding complexity to an already difficult investment context in the energy sector.

Their impact on issues such as climate negotiations, environmental policy and trade rules, which will have significant consequences for the energy transition, are being hotly debated in ministries and boardrooms globally.

With digitalization's benefits come vulnerabilities
With digitalization’s benefits come vulnerabilities

In Europe, climate action is higher on the agenda compared to the rest of the world. Ambitious 2020 and 2030 targets have set the framework; however, energy leaders have expressed a malaise associated with regulatory uncertainty on emissions trading that so far has not delivered anticipated carbon price levels.

The uphill battle for the Energy Union and recent mixed signals around institutional EU cohesion leaves European energy leaders concerned about effective integrated electricity markets as a trust foundation for investments in the energy transition.

This is at a time where increasing levels of intermittent renewables in power systems, decentralized electricity generation with low entry barriers, as well as increasing shares of zero marginal cost production are keeping energy leaders alert.

But the one thing above everything else that is keeping energy leaders awake at night is the impact of digitalization on the future of the energy system, not only in Europe and beyond industrialized countries.

How do infrastructure and system-relevant companies prepare for cyber risks? Cyber threats are among the top issues worrying energy bosses in Europe. Over the past three years, we have seen a rapid change from zero awareness to headline presence. As a result, more than 30 countries around the world have put in place ambitious cyber plans and strategies, considering cyber threats as a persistent risk to their economies.

Viewing digitalization's disruptive potential
Viewing digitalization’s disruptive potential

We have already seen a number of serious cyber incidents but most experts see much greater risks and potential damage on the horizon.

As increased digitalization creates greater efficiencies and grid management improvements, with such benefits also come increased vulnerabilities, due to the automation of industrial control systems. With an estimated 41 per cent of cyberattacks targeting the energy industry and oil and gas companies, this shows that for many energy sector stakeholders in Europe a greater resilience to cyber risk is critical to current and future energy security. Cyber threats must be addressed with a systemic approach to risks across the entire energy supply chain, utilizing both human and technical measures of resilience.

How will big data, machine learning and artificial intelligence enable predictive supply chain management, traffic and congestion management, automated system analytics and automated demand response? How will the sharing and leasing economy and new platform-based business models affect traditional business models in energy? How will the Internet of Things and blockchains enable direct and low-cost transactions between individuals and directly between appliances, or allow supply chain tracing and labelling? How are mobile technology and cloud support enabling access to new financing models, not only in Europe, but in the developing world?

All these developments define the collective digital energy insomnia for the sector. The need to understand the new business models that are being driven by these digital solutions is creating a level of uncertainty not experienced by the sector since Thomas Edison invented the light bulb.

Many utilities in advanced markets such as Europe are already responding by restructuring their operations and by creating new business models, working on automated demand response to stabilize grids that are more exposed to intermittence, and developing smart grids and an energy Internet of Things.

In developing economies, technological innovation and new business models advance rural access to electricity at unprecedented speed and provide new solutions for clean energy and smart transportation. No longer do we need to wait for mega projects with fully-integrated grid systems to be put in place by the public sector to allow the benefits of modern energy to raise the aspirations of the many.

The disruptive potential of energy blockchains could at last hold the key to unlock the promise of the much-talked about Internet of Things, with its vision of providing revolutionary system benefits. Use cases are being explored globally and a new ecosystem of a rapidly growing number of startups is emerging.

Industry uses for this technology are vast as it offers the chance to leverage decentralized peer-to-peer and device-to-device internet technology, where transactions are registered through a trusted consensus process via a distributed ledger.

Combined with smart contracts, this empowers appliances to time their consumption when prices are low, for a battery to become a trader between local supply and demand devices, for cars to ‘tank’ electricity wherever with one bill, or for energy certificates to enable the development of fully traceable guarantees of origin or CO2 content.

As a consequence of this growing digitalization and decentralization, blockchain applications are starting to become more and more visible and are gaining momentum in the utilities industry.

Companies and researchers from countries in Europe including Germany and The Netherlands, among others, all explore various applications across the grid and beyond the meter. Many aim for no less than developing the next utility model.

It is clear from our latest survey of energy leaders in over 90 countries that a new digital age for the energy sector is here. The new energy reality is that relying on the traditional business models and conventional systems approaches are no longer an option if leaders do not want to be left behind.

Energy leaders in Europe recognize and embrace this reality: taking the next technology leap is key to delivering a secure, clean and affordable global energy future as a foundation for our all prosperity.

Dr Christoph Frei is Secretary General of the World Energy Council. The World Energy Council’s 2017 Issues Monitor Report: Exposing the New Energy Realties is out now. The report acts as a unique benchmark and reality check to enable leaders to better understand and guide the energy transformation. The findings help energy leaders shape our response to the grand energy transition and secure a sustainable and prosperous future.

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