What does Charles Darwin have to do with digital transformation in the energy sector? More than you might think. Darwin’s theory—that it isn’t the strongest of the species that survives, but the ones most responsive to change—can point the way for utilities to move faster toward a sustainable energy system.
At CGI, every year we conduct over 1,000 face-to-face interviews with senior business and IT leaders across 10 industries and 20 countries. During these in-depth conversations, we ask them about the trends impacting their industries and their business and IT priorities for the future. The resulting findings are pulled together into insights we call the CGI Global 1000 outlook, and this year the urgency to achieve digital transformation emerged as the overarching trend.
Digital transformation is not a new subject. In fact, in the last few years it has caused massive disruption in the telecom, retail and banking sectors. Most discussions around digital transformation attribute the downfall of Kodak and Free Record Shop to their inability to embrace digitalization. At the other end of the spectrum are companies like Uber and Airbnb, frequently cited as textbook examples of how successful digital transformation can be achieved.
With the advent of such digital enabling technologies as cloud computing, the Internet of Things and big data analytics, digital transformation is an imminent reality for asset-intensive industries, such as utilities. Per the below diagram, while they have been slower to adopt digitalization, asset-intensive industries can benefit from the experience of those consumer-intensive industry leaders that are already ahead of the curve.
Biggest challenges for the energy sector
Our utility clients tell us that the biggest challenge they currently face is the ability, or lack thereof, to safely extract data from their assets and use this data to create value, including optimizing operational efficiency and developing new services and business models. In addition, digitalization needs to enable customers to benefit from an affordable, reliable and secure supply of sustainable energy.
Local versus central
The discussions with our clients acknowledged that in the (near) future, more renewable energy—such as solar, wind and geothermal—will be generated and stored locally, while energy surpluses will be traded between groups of customers and citizens. This scenario will be enabled through so-called microgrids and energy islands.
In 2017, utilities will need to focus on integrating their legacy systems with digital technologies to address the new energy system. However, our clients say that overcoming internal resistance to embedding a digital-first culture (71%) and current ICT infrastructure (50%) hinder digital transformation and the shift to decentralized "energy marketplaces."
At the same time, our clients see digital transformation as a precondition to successfully navigating the energy transition to achieve a low carbon society. Digital transformation enables utilities to generate significant cost savings that can be reinvested in transforming for the future. This includes the digitalization of networks and offering innovative, new products and services to customers.
Digital transformation or disruption?
I wonder if digital transformation is a sufficient term to inspire us to achieve a sustainable energy system in time. Perhaps what we need is a more powerful term such as digital disruption. Time is of the essence, as the consequences of climate change are plain to see.
Based on the insights garnered from the CGI Global 1000 outlook, in which utility companies say they are on the verge of their digital transformation, some disruption is essential to achieve the necessary acceleration. Digital transformation is about leading the company into the digital era through innovation, product development and operations, using agile methods and emerging technologies, such as the Internet of Things and big data analytics. This shift is bound to affect company culture and presents a challenge that must be addressed quickly and effectively.
Digital disruption, on the other hand, is about transforming to more customer-centric business models that empower citizens—through demand response programs or peer-to-peer trading (via blockchain)—and offer solutions such as microgrids and energy islands. For more information on these solutions and how they can facilitate the energy transformation, please visit our utilities white papers.
Energy islands or micro grids are a disruptive concept that will create new market roles, business models and provide the required boost to move to a new, sustainable energy system. Currently, there is very little momentum driving this shift, even though the anticipated benefits are evident.
Energy islands will create a market in which the role of the citizen will be increasingly important. Also the role of energy suppliers is likely to change. What happens, for example, when consumers and groups of users begin trading energy among themselves, or central and regional grid operators need to transport less power over long distances? What if these grid operators reinvent themselves as agile organizations with new services such as providing backup power?
Disruption in the energy market seems inevitable. The question now is: who will be the Kodak and who will be the Uber of the energy sector? Darwin’s hypothesis fits in with my conclusion that society needs digital disruption to move faster toward a sustainable energy system. Energy companies must become digital to survive! It’s time to be the most responsive to change, or the most agile.