Digital Marketplaces Unleashed
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73. Energy Is Essential, but Utilities? Digitalization: What Does It Mean for the Energy Sector?
Ines Varela1
(1)Stadtwerke Düsseldorf AG, Düsseldorf, Germany
Ines Varela
Email: ivarela@swd-ag.de
73.1 Energy Sector in Transition
The traditional utility companies face dramatic economically losses. The liberalization of the energy market, changed regulatory frameworks, the increase of renewable and decentral energy generation disrupted the energy branch already. Now, with the liberalization of the metering point operations the utility industry transformation is in full swing. New and more advanced technological opportunities affect not only the generation, transmission, distribution, storage and trading, but as well the consumption of energy. Consumer needs and behavior change. Costumers consume less, save more and produce more energy themselves. Additionally, the increase of digitalization and new market participants further unleash the energy market.
73.2 Digitalization as a Game Changer
Due to Huawei digital economy is growing at 10% a year – more than triple the rate of overall worldwide economic growth, and Huawei estimates, that by 2025 the number of connected devices will reach 100 billion [2]. The industrial Internet of Things is supposed to reach US$150 billion by 2020 [3].
Digitalization has made its way into nearly all industries, creating new products and services, new production processes, and new ways of collaborating with customers and other market participants. Digitalization can change every sector more or less, and slower or faster. Digital disruption has a profound impact on the role that Information & Communication Technology (ICT) plays in almost every enterprise. And, ICT and the Internet of Things (IoT) play a central role in the energy sector transition. But considering the energy branch Deloitte expect the sector to be on a long fuse but the impact will be a big bang [4].
73.3 Technology Disrupting Branches
New or improved technologies like sensor based M2M1 Communication, mobile devices and IoT offer better connectivity and data transmission. Big data analytics, In Memory Technologies, hadoop, or new databank technologies like SAP HANA (High Performance Analytic Appliance) and Cloud Services offer the possibility to manage and to analyze huge quantities of data on the fly. Distributed ledger technologies like Blockchain technologies, cognitive technologies/artificial intelligence or augmented reality help to bridge the digital world and the physical world to create new systems. Just to name some.
So, ICT is no longer just a supporting service but shaping strategies and business models. ICT creates value by increasing productivity and delivering a better customer experience. And, ICT and IoT will play a key role in developing a future energy system and help to realize the Internet of Energy in which all components are intelligent, electronical interconnected. Complicated, complex networks of interlinked applications, interfaces and databases communicating with internal and external systems will increase. In a smart energy world all components are connected to match dynamically supply and demand, providing volatile energy integration, real‐time grid planning and operations, incl. predictive maintenance and real‐time distributed energy management. Smart meter and smart grids will play a key role in this smart energy system.
73.3.1 Smart Meter
The “Energy Act” (EnWG) passed in 2011 created the framework for the implementation of intelligent metering systems2. And recently the German “Act of the digitization of the energy transition” (“Gesetz zur Digitalisierung der Energiewende”)3 just came into force. Starting in 2017, large‐scale consumers and generators of electricity will be equipped with intelligent metering systems. As of 2020, these systems will be rolled out to private households using more than 6000 kWh of electricity per year.
The introduction of intelligent metering systems involves detailed consumption of data. This data plays a central role in integrating renewable and decentral energy sources. Smart measurement systems will assist in the “smart grid” by measuring the electricity fed and the power consumption. Furthermore, equipment whose power consumption can be controlled and timed, such as night storage systems and electric vehicles, can be charged at automatically optimized times. Meter can be read remotely. Also it will record voltage failures and provide information for the grid operations by automatically balancing grid loads and using grid capacity more efficiently [7]. And, it gives transparency in the energy consumption. Consumers will benefit from having their own power consumption visible and they can be offered flexible “customized” tariffs.
The massive growing number of sensors, embedded systems and connected devices as well as the increasing horizontal and vertical networking of the value chain results in a massive continuous data flow. With the implementation of intelligent metering systems, the data volume and data processing will increase tremendous. In 2011 the Federal Network Agency (Bundesnetzagentur or BNetzA)4 already mentioned in their frameworks “smart grid” and “smart markets”, that they suppose, that data management will become essential due to the fact that nearly all business models will be based on metered data [9]. And, according to IBM smart meters are expected to produce more than 150 quadrillion bytes of data per year worldwide by 2020 [10]5.
Smart meters used with the right analytic systems are the enablers of an interconnected energy system – where demand and supply can be balanced in much more intelligent ways. The data from meters is useful not just for the energy consumer, but especially for the suppliers and the National grid operator.
73.3.2 Smart Grids
Nowadays the electricity system is characterized by an increase in renewable and decentralized generation that leads to an increased volatile energy production. But volatile generation needs flexibility in generation, transmission & distribution, storage and consumption. The question is how to integrate renewable energy, and how to manage the increase of decentralized energy supply? To ensure system reliability and resiliency electricity generation and consumption need to be kept in balance. Generation and consumption have to be connected efficiently and intelligently. Therefore, grids have to become smart to be able to manage an increased number of distributed and variable sources of power generation. They need to balance the fluctuating power generated with renewable energy and the actual consumption. They will become open, flexible, interconnected and interactive with integrated grid controls and new distribution grid management. Smart Grids are becoming an essential component of the energy system [11].
The digitalization of the energy grid will play a key role in the transition of the energy system. Electronical networks and energy grids will be created with complete new structures and functionalities. They will be connected, integrated and partially sharing same infrastructure. Previously standalone operational production systems/distributed control systems will be connected with the commercial IT systems and will be integrated into the corporate infrastructure of a utility company, and with the internet. ICT based smart grids will be mandatory for the realization of the Internet of Energy.
With so much digitalization going on in the sector, cybersecurity becomes more and more important. Therefore, a key requirement for the recently issued German “Metering Point Operating Act” (“Messstellenbetriebsgesetz”) is to ensure a very high level of data protection and data security. Additionally, as operator of critical infrastructures German utilities are obliged to implement a special and very high level of IT Security and data protection due to the recently issued “Act of IT Security” (“IT‐Sicherheitsgesetz”). The act contains principals for sector‐specific data protection, and is to require the compulsory use of protection profiles and technical guidelines, and data access for the safe use of smart meters to ensure data protection, data security and interoperability [12].
73.3.3 IP Based Utility Networks<
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With the increased digitalization of the energy world, cybersecurity is becoming more and more important. Secure connectivity for smart meters and the smart grid is becoming essential. Therefore, it should be considered to build an own private communication infrastructure for the utility branch with a non‐public, own radio frequency network. This will be a real game‐changing for utilities. An own radio frequency networks allows utilities to ensure their critical data transfer and offer the utility the possibility to secure their critical grid applications, and to be prepared for the future development of the distribution grid. Smart meter and additionally other intelligent wireless devices could be migrated to support the smart grid management. Additional to the energy grid the utility would operate an IP based network, where all information and data would come together in a private network. In this case the boundary to other markets like the telecommunication market would be unleashed.
73.4 Digital Sales Business Models
Smart meters in connection with smart grids help to increase productivity and are the base for new customer centered business models. The customer could become the epicenter of a utility. This customer centered approach is new to utilities with their former centralized generation structure and their technical driven attitude.
73.4.1 Digital Living Solutions for B2C‐Customers
In the past, utilities were monopolies that didn’t interact closely with their end customer. But today it is not enough to provide people with reliable power anymore. Costumers demand tech‐enabled products and services. The younger customers want more of their energy to come from renewable sources, and they want digital applications to have more information about their consumption. They conduct online research before buying, expect omnichannel communication, and they want to be social media connected to their utility [13].
And, people are interested in connected living solutions. The automated home solutions market, including assisted living components like health and security applications is expected to reach worldwide USD 121.73 billion by 2022 [14]. But currently it is still a problem of technical compatibility and inter‐operability of the different digitally connected and controlled devices. And the question is, if smart home is a new, profitable business model for a utility. Non‐utility players like Miele, Bosch, Samsung, Apple and Google already entered the connected home market, acting faster and more cost efficient. Probably it might be more successful for the utility in partnering with those industries.
On top, ICT/IoT offer the utility the possibility to analyze huge amount of real‐time structured and unstructured data, and to use big data analytics to track the journey of the customers. By using data analytics of intelligent measuring systems to get more information about the consumer innovative, personalized pricing models can be offered. Additionally, behavior patterns can be analyzed in combination with socioeconomic data to get information about cross‐ and upselling sales potentials.
73.4.2 Digital Service Provider for B2B‐Customers
Utilities are still large, centrally driven supply companies, but consumers prefer more and more to produce their own energy. A concept to fulfill customer wishes could be a digital based business model to take care of the complete energy management of decentral produced (preferable regenerative) energy of industrial companies or real estate management companies. The utility could become the digital service provider by offering remotely managed smart energy supply concepts, that includes smart energy storages and flexible demand side management by software‐based steering the energy flows. Utilities might be shifted from huge, central driven production companies to distributed and bi‐directional energy providers and managers.
The question here is as well, if the utility company is the first to be addressed for this digital‐based service or if the company is more interested, if it is at least in cooperation with other technical supporting and building firms.
73.4.3 Digital Infrastructure Provider for the Public Sector
By 2050, 70% of the world’s population will live in cities [15]. As such, finding new methods of supporting municipal authorities is becoming increasingly important. Gartner predicted, that in 2016 there will be 1.6 billion connected things used in smart cities, with 314 million connected things installed by utilities, and it will double in the next two years [16]. Smart cities have digital technologies embedded across all city functions providing an intelligent, energy‐ and traffic optimized infrastructure.
The utility could become the smart infrastructure provider for such a sustainable, energy‐optimized, safe smart city/municipality providing via a smart, private and secure communication infrastructure smart lighting, sensor‐based, intelligent Waste Management, smart intermodal transport solutions and ICT/IoT based intelligent energy and water systems. Just to name some options.
The technologies for energy intelligent and traffic optimized cities exist. Companies like Cisco, IBM, Microsoft or Siemens invest billions in smart city technologies. The challenge will be the cooperation and networking of the central utility company with the municipal authorities and global acting industrial technology firms.
73.4.4 Platform Provider for Energy Market Places
Imaging 2020 and the largest utility company in the world will not own any assets (no grid and no generation assets). This is the vision of Zarko, distinguished Analyst at Gartner [17]. And he is not alone. The economist Jeremy Rifkin believes that a decentralized network of alternative energy sources will replace the existing vertically integrated energy industry. It will be made up of “prosumers”6 generating their own power and networking together through a smart grid that routes power to where it is needed. In the long run, energy will be available at zero marginal cost [18].
In Harvard Business Review you can read that the technology most likely to change the next decade of business is not the social web, big data, the cloud, robotics, or even artificial intelligence. It’s the blockchain technology7 [21]. The peer to peer architecture allows a distributed network of computers to reach consensus without the need for a central authority [22]. A blockchain enables anyone to directly and securely make a transaction between two people or companies, without having to go through any third parties. The blockchain technology might be the base for decentral transaction and energy supply systems, where “prosumers” act without a central utility company [21].
And this is already reality: In New York 10 households exchange between each other their self‐produced solar energy. Blockchain‐based microgrids8 enable them to exchange and to sell and buy their self‐produced energy between each other without any participation of the central utility company, regulator or any authority, that monitors or controls the transaction [24]. The digital distribution platform creates an open energy market which brings together those who generate energy with those who consume it. It requires a network operator who manages and ensures the reliability of the energy grid, and a sharing energy economy platform operator who brings the participants together and calculates the costs.
It might be still more a conceptual framework for the energy blockchain and there might be a lot of issues to clarify like regulatory and security aspects, the responsibility of a blackout and technical subjects like how to integrate the micro grid into the existing grid and how to coordinate the micro grids with the rest of the system. But technical there are no barriers and this new concept of energy market fulfills the consumer wishes of independency, autonomy and supports the sharing economy and might lead in the long run to a zero margin economy.
73.5 Outlook
Digitalization is opening the door to new market players to intrude the energy sector. Competition is becoming tougher and new players are entering the market. But digitalization also offers the energy branch the option to improve processes, new ways to reach and to inte
ract with the customers, to change how they partner and who they partner, and it offers the possibility in generating new business opportunities by creating new products and services as well as new business models. And, digitalization unleashes the boundaries to other sectors. New marketplaces and market forms as well as new platform based business models in cooperation with different other market players will emerge everywhere.
ICT and IoT will play a significant key role in an unleashed energy world and will be a central success factor for an efficient new energy supply system. With the further digitalization, cybersecurity will become more and more important. So, an own, private communication network for utilities should seriously be taken into consideration. The technical challenge is to bring the different requirements of the electric and electronic world together but it also needs a culture change and digital capabilities of human being. Utilities have to re‐invent themselves using the opportunities digitalization offer, if they want to continue to play a central role in the market.
References
1.
energy.gov, 2016. [Online]. Available: http://energy.gov/oe/technology-development/smart-grid/distributed-energy. [Accessed 1 August 2016].
2.
Huawei Technologies Co., Ltd., “Global Connectivity Index 2016 Whitepaper,” 2016. [Online]. Available: http://www.huawei.com/minisite/gci/en/. [Accessed 12 August 2016].