The energy world is undergoing a Grand Transition driven by a combination of factors, including the fast-paced development of new technologies, an unstoppable digital revolution, global environmental challenges, and changing growth and demographic patterns. This transition was clearly apparent when ministers and industry leaders gathered in San Francisco last year for the Clean Energy Ministerial. These disruptive changes are even more apparent today as we meet in Mexico City for a World Energy Leaders’ Summit.
The impact of innovation
The one thing — above everything else — that is keeping energy leaders awake at night is the electrification of final demand combined with the impact of digitalization 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.
Innovation issues such as decentralization, innovative market design and electric storage are rapidly gaining traction, while a more difficult growth context and new physical and digital risks are posing ever greater threats to the energy sector.
In such a context of shifting business models and behaviors among energy players, technology democratization and a changing energy system offering entirely new opportunities, we must rethink the roles and responsibilities of the state. Companies also need to reassess the way they ensure access to secure, affordable and environmentally sustainable energy.
In a world…
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.
A world in which the internet of things and blockchains will enable direct and low cost transactions between parties and between appliances is fast approaching. At its core, this new world will provide precisely recorded transactions in unfalsifiable ledgers. This also opens new possibilities for supply chain tracing and product labelling by fabrication origin, materials used or emissions caused.
A world where 66 percent of the world’s population will live in cities by 2050 increases the pressure to further electrify final energy demand. Buildings in the United States already consume around 40 percent of all energy and 70 percent of grid electricity. The next decade will begin to define the winners and losers of the energy transformation, making it crucial to understand these new realities for the energy sector now.
We will see greater diversity in types of actors and business models, enhanced system response capability through digitalization, and more decentralization 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 revolutionize 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 enables new financing models, such as micro-leasing schemes in the developing world and greater customer choice and control for all.
Preparing for the transition
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.
The way the energy sector has developed over the past 100 years is about to change significantly, and we need to be ready with agile thinking, flexible investments and dynamic policy frameworks to respond to this grand transition. What are great opportunities for some represent new risks for others. Energy is not transitioning in isolation but along with a digital revolution and broader industrial transformation. If there is a digital rent to be harvested in the transitioning energy system, it is vital that policymakers, energy leaders and industry work towards improving and developing standards and protocols and consider policy preparedness such as sovereignty, privacy, price solidarity and cyber security.
As the finance community often reminds us, “past performance is no guarantee of future success.” This is now most relevant for the energy sector. We need to be open to the future and its new realities so we can build a new, sustainable energy system that provides prosperity for all.