Across the energy industry, companies are introducing new digital technologies and business models to increase their competitiveness. This article assesses the motivation that energy players have to digitalize, and the ultimate impact this will have on their businesses.
Key drivers for digitalization in the energy value chain
Rapid change in the power sector is giving companies reason to implement new technologies like data collection and analysis, cloud computing and the Internet of Things. Incumbents and start-ups alike are challenged by increasing levels of variable renewable energy generation, and by aging infrastructure, falling wholesale prices, rising levels of distribution-grid-connected generation, and the advent of the ‘prosumer’ (a consumer making their own power, often from rooftop solar).
There are various motives for digitalization, relevant to different parts of the energy system. In Figure 1, we split these players into generators, transmission and distribution operators, utilities and prosumers. Whereas attractive economics and technical advantages incentivize generators and prosumers, grid operators are more driven by government policy and new revenue sources. Only utilities feel customer and industry pressure strongly – showing the increasing levels of competition that is coming from new and innovative energy retailers.
Evolution of business models for organizations within the energy value chain
BNEF’s work evaluates the impact that digital technologies will have on the business models, investment levels and revenues for all key players in the energy value chain (Figure 2).
We think digitalization will cause the most change to the day-to-day operation of businesses with regards to data strategy, i.e. the amounts of data collected and their use. This will open the door to analytical tools, and novel revenue streams or customer segments (Figure 3). How much this changes the business of a company will depend on the level of market regulation, type of customer, age of assets and form of business.
How digital systems will affect organizations in energy
Power generators will get the chance to tap into new revenue streams (e.g. grid-balancing services), which will increase plant uptime and change the main use of certain assets. Meanwhile, utilities will see digitalization bringing the pressure to become service providers, using software tools to create virtual power plants or distributed asset aggregation. The increased competition will spur retailers to learn more about their customers, using smart-meter data to tailor services and automate the workforce. Figure 3 illustrates BNEF’s overall view on how various parts of the business will change, thereby impacting revenues and business structure.
The widespread use of data and analytics will bring about discussions on privacy and security. At the same time, the plethora of new platforms and digital services will require industry standards and protocols to be put in place. We predict that practices around ownership of data and access to that data will become stricter. Overall, digitalization will provide new revenue streams for those energy players ready to implement it, and for those service companies designing new digital offerings. But none of this will come without significant investment in asset modification, software platforms and data strategy, cyber security and workforce restructuring.
Get the new whitepaper by BNEF “Digitalization of energy systems”.