The Energy Industry Pivots toward a Digital Future

My last blog discussed General Electric’s (GE) decision to pool its software assets in a single, $1.2 billion business with its own equity structure and board of directors. GE is not the only vendor to make significant changes recently. ABB sold its Power Grid business, which makes transformers and substations, to Hitachi. The sale comes after sustained pressure from investors, worried that ABB was too sprawling and needed focus. Launched in August 2018, SiemensVision 2020+ saw the company also embark on a reorganization. The move saw Siemens create three primary divisions: Gas and Power, Smart Infrastructure, and Digital Industries.

These reorganizations are part of the seemingly inexorable transition to a decarbonized, decentralized, and digital future. In 2018, California set out an ambitious plan to move to 100% renewable power. The European Union upped its 2030 renewable energy target to 32%. Even the 2018 UN Climate Change Conference (commonly known as COP24) made partial progress on implementing the Paris Accord.

A Decentralized, Decarbonized, and Digital Future

Regulators are increasingly focused on how to create an electricity market that can incorporate ever-increasing volumes of grid-scale renewables, distributed energy resources (DER), and new loads from EVs and heat pumps. The UK regulator Ofgem is committed to using market signals to balance increasing intermittency. Non-wires alternatives—the US markets’ preferred term for flexibility—are gaining traction also.

The electricity network is often described as the world’s largest machine. It was not designed to cope with large volumes of intermittent decentralized generation, nor was it designed with EVs in mind. However, it will cope. All new supplies and loads will be connected, providing the opportunity to improve visibility and as, a consequence, grid management.

The focus for value growth is in new DER—not just the hardware, but in the new digital services that DER enables. And this explains exactly why the large engineering companies are repivoting their businesses. First, as a matter of necessity as the large-scale power generation is a difficult business to be in. Second, to exploit the opportunities of a digital future.

Change Is Slow but Inexorable

These organizational changes are significant and not done lightly. They are testament to the monumental changes occurring in the industry. The utilities industry will never turn on a dime, however, we are witnessing the turning of the world’s largest and slowest oil tanker. But it is turning and turning relentlessly. In the future, we may well look back on 2018 as the year the tanker finally pivoted in its new direction.

Decentralization and decarbonization are the future of energy. Consequently, all future business models will be digital. Utilities, technology vendors, communications companies, and service providers must all plan for this digital future or risk losing out on the trillions of dollars of new value that will be created in the Energy Cloud. For the next 10 years the only constant will be change.