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18/05/2016

Digital initiatives to support the Energy Transition

Since the beginning of the 21st century, the transition to digital has been changing power balances and business models of our economies. Today, in the context of the COP21, the energy transition is becoming essential in the fight against global warming. In order to meet climate goals, the question arises: can digital transition provide the necessary solution and drive the energy transition towards success?

The Energy Transition objectives call for transformation of our energy model

Among the measures and projects undertaken by European member states (see our study: Energy Lab - Energy Transition), we should identify the ways in which digital transformation can contribute to the success of the energy transition.

In 2015, the European energy consumption was primarily dominated by the transportation sector, the heating of buildings and electricity production. To have a significant impact on the way we consume energy, we should tackle these three categories first.

Digitalisation is changing the way we consume energy

Today, digital transformation offers many possibilities to impact our behaviour on how we use energy in the three segments mentioned above. Digital innovation increases awareness regarding the energy use of consumers because of the high level of penetration of measuring devices and the availability of data. Digital innovations are also changing consumption patterns: the so-called sharing economy is improving the use of transportation; connected thermostats optimize the home heating and the increasing share of renewable energy production is contributing to the rollout of smart grids.

Companies are aware of the issues but the progress of implementation is still far away

Business innovation is becoming even more vital in the digital age. It will be key in coping with the growing digital-driven customer expectations, but also with the reshuffle of the global competitive environment and the risk of new players disrupting the current value chain.

Companies are realizing the importance of digital and are therefore adopting various digital transformation and development programs. Nevertheless, the 2015 digital practices barometer launched by Sia Partners,  in partnership with Econocom and IFOP, revealed many differences in practices and contrasts in priorities between major French companies. After interviewing over 400 companies of more than 500 employees (about half of them who represent the CAC 40) it was revealed that almost 60% of the companies analysed do not move as fast as they would like to on digital matters.

Two main obstacles were cited by the companies: the first was the lack of resources allocated to digital transformation, which seems to be obvious in the difficult economic context; the second was the internal resistance to change that was difficult to overcome. On the other hand, according to our survey, the involvement of the executive committee and the nomination of a digital responsible appeared to be key to the success of such projects. For instance, EDF has integrated a digital dimension to the pillars of its new strategic plan (Cap 2030), and ENGIE (also known as GDF-Suez) appointed a Chief Digital Officer to coordinate the digital transformation of the group and to manage more than 300 digital projects (excluding Energy Management and Trading GrDF).

Digitalization optimizes but does not transform our energy consumption

Even a fully digital-oriented approach to reshape the economy has its limits, especially when it comes to ensuring a sustainable and economically-viable energy transition.

The latter cannot be realized without changing the consumption pattern. The digital approach will not change our carbon energy mix, nor will it make our buildings more thermally isolated. Instead, digital initiatives are powerful optimization tools that can facilitate the energy transition. Among digital engagement and other tools, users and companies should anticipate the challenges faced by the energy transition. These challenges include the scarcity of natural resources, the increase in resource prices, the trends of decentralization of the electric system and the need to take measures against global warming.

Figure 1 : Four categories of digital initiatives

Figure 1 - Four types of digitalization initiatives

Digital initiatives to meet the energy transition challenges

Businesses are adapting their activities and are introducing transformation initiatives by using new digital-driven technologies at an accelerated pace.

Within the French energy sector, we can classify these projects into four categories: technological research and development initiatives, industrial transformation initiatives, internal digital transformation initiatives and initiatives targeting customers.

These initiatives have an impact on the entire value chain of each company. Upstream, they redefine the supply and extraction of primary energy sources, as well as the products and services offered to customers. Only after this can the existing business processes be transformed. The captured data can be exploited to improve the performance of the electricity and gas network. Sometimes the industrial strategy as a whole needs to be revisited; an example of this is the focus on renewable energy by E.ON. Finally, the relationship with the customer is evolving due to their ever-increasing use of digital channels, which forces energy players to adapt the tools through which they communicate with their clients accordingly.

Digitalization should not overshadow the need to change the economic model of the energy industry

We do observe a strong move from the energy companies towards digital transformation. It is worth noting that the same move is happening the other way around, with digital businesses investing heavily in the transformation of their energy model. GAFA companies are the front runners in taking initiatives such as the recovery and reuse of the heat produced by servers and construction of power plants on renewable energy. These are only a few examples of their engagement. This convergence between the energy and digital industries illustrates the potential interdependence between them.

It is also important to note that the increasing role of digital technology is only part of the solution for a successful energy transition. The key to success lies in the commitment at the human level to embrace such new technology and make it part of our path to reach our objectives. 

Copyright © 2015 Sia Partners

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