I have presented a fusion of IBM’s point of view and my personal view on a number of occasions over the last year, the most recent presentation was at a joint InterConnect with the University of Glasgow. Here is a summary of my thoughts on this topic.
My uncle lives on a farm in the south of Namibia; we visited there in 2013. They have always been off-grid and have relied on Internal Combustion Engine (lately diesel) driven generators. A few years ago they switched to Solar Photo Voltaic (PV) as the source of electricity combined with batteries to provide electricity during the night and to cope with periods of high demand. Since then the diesel generator has not been used. Now, there are some very favourable conditions at play here: Grid connection is extremely expensive, the farm is located quite near to the equator (c.a. 25ᵒ South) and the weather is usually very good.
Leading academics believe that with an investment of $15bn a year in R&D, focussed on solar and wind generations as well as storage, renewable energy sources could reach grid parity near the equator in years and within 15 years in most of the densely populated parts of our planet. “Programme Apollo” - as the R&D spend is in real terms very similar to the original Apollo programme – would require the top 10 or so countries to spend just 0.02% of GDP on renewable energy R&D, upping the total global R&D spend on renewables from 2% to 4% of total R&D spend.
The IBM Paper lists ten features of the Energy System in 2025, these are paraphrased here:
- Smart Appliances will become ubiquitous and will be connected to the internet
- Automated Demand Response (ADR) will allow appliances to reduce energy consumption when energy is scarce.
- Energy management systems will manage energy use; these could be smart, low power on premises devises or cloud based services, potentially run by independent Energy Services Companies (ESCos).
- Mobile apps will be used by customers to control their energy use, often through setting preferences and allowing the system to get on with managing energy within these constraints.
- “Consumers” will also become sellers of energy.
- Distributed generation will make up an increasing portion of overall generation.
- Battery technology will become affordable and accommodate renewable generation in the energy mix, at domestic, business, community and grid scale. Other storage technologies such as compressed air, flywheels, heat and, especially in countries such as the UK with extensive gas networks, hydrogen / synthetic gas may also play a role, mainly at grid scale.
- Micro-grids will start to manage the distribution and use of energy locally and can be federated to create a larger smart grid.
- New business models will evolve, examples include virtual power plants (VPPs) that link up distributed generation, storage, ADR and peer to peer energy trading.
- Regulation will permit and encourage new business models but also ensure that reliability and stability of supply is maintained
The potential impact of these should not be underestimated. I started my presentation in Glasgow with this clip from the film Birdman.
Traditional energy companies may struggle to remain relevant. In one scenario domestic and community generation (mainly solar PV and on shore wind) combined with storage reverses the current model: The grid becomes the backup, most of the energy is generated locally and distributed via micro-grids.
Five Technology Drivers
The IBM PoV lists the following “5 technology happenings” that will enable these changes, comments are mine:
- Internet of Things (IoT): Utilities were pioneers in connecting sensors and control devices with central control systems. The wide scale adoption of IoT is now introducing sensors, connectivity and data stream management at much lower prices. This will allow utilities to instrument parts of the system that were previously too expensive to instrument (e.g. low voltage networks). This will support some of the new business models mentioned above. VPPs can now, for example, know exactly how much energy each of the generation assets under its control is producing. ESCOs can sign up to more aggressive energy savings targets as they can manage energy consumption in real time.
- Information Technology and Operational Technology (IT / OT) Convergence is covered in extensive detail in the following earlier blog posts .
- Situational Awareness was limited to reacting to SCADA data feeds and customer complaints. Utilities now have access to social media (e.g. Twitter), video, blogs, meteorological data, planning applications and much more. This allows all actors, not just Transmission and Distribution (T&D), to get a multidimensional view of what is happening. It should be noted that the veracity of many of these data sources is a lot worse than that of SCADA sensors.
- Big Data refers to the huge amount and diversity of data that is becoming available. I don’t like the term as it usually implies that certain technologies (e.g. Hadoop) are needed to address the challenge of dealing with this data. In some cases this is indeed the case, in many others more traditional technologies, such as time series databases, provide a much better cost / benefit ratio. The most important thing about data is to analyse it to derive business benefit by improving decisions. The point is that we are in the privileged position to be able to deal with just about any volume, velocity and variety of data, even of questionable veracity (often referred to as 4 Vs) by selecting the optimum set of tools that balance development cost, performance and run time cost.
- Cloud not only provides another option for running existing workload, it is a key contributor to enabling the new business models that were mentioned above. Cloud services like Netflix and Amazon Prime Video did not just provide a cheaper way of streaming video – they are killing the DVD. Similarly cloud based rapid development technologies such as IBM Bluemix enable start-ups to very quickly develop and deploy software solutions that underpin new business models. If the new business fails then they can be shut down quickly with minimal loss of capital, when they succeed they can be scaled up and adapted quickly to meet increasing and changing demands.
Generation will become more distributed, not just geographically but also from an ownership point of view, as we move to renewable sources. It will also rely on new technologies such as storage and micro-grids to provide reliable energy to the consumer. This will reduce the lead that incumbent energy companies currently enjoy. Winners will be those (both old and new) that can adopt the new technologies and create business models that make them commercially viable. The IBM PoV paper refers to these winners as “Energy Integrators”; businesses than can integrate different electricity sources and manage demand. One of the key features of such a business will be the ability to integrate IT and OT. Nimble ESCos that are not burdened with legacy systems and bad press pose a significant threat to incumbents as they can implement new business models quicker, achieve greater operational efficiency and "own" the customer relationship.
I foresee a divergence in the requirements that customers have from their energy providers (my point of view here diverges somewhat from that expressed in the IBM PoV paper). Some will want to have high levels of interaction, probably using a combination of mobile and social technology; they will also be using many other services from the same supplier. Most will want to minimise their interaction and want things (especially their energy supply) to “just work” at the lowest possible cost. Yet more will fall somewhere on the continuum between these two extremes. In the retail industry the concept of a “customer segment of one” has become common place. This approach will enable energy suppliers to create a tailored approach for their customers that provides as much or as little interaction as they require and will ensure that, wherever they fall on that spectrum, this interaction is as smooth as possible.
Technology such as mobile, social, analytics and Operational Technology (OT) will enable this customer specific engagement model. New entrants, who see themselves as a retailer first and energy company second and the changing energy supply model will force utility companies to adopt this approach.
In the UK Peter Bonfield has been asked to review energy efficiency of residential properties. One of the work streams is focussing on the connected home and how this can contribute to better use of energy. It will be interesting to see what recommendations come out of the review but it is likely that this will present opportunities for more interaction between customers and energy companies.
Reliability and security of supply
All of these new requirements have to be delivered against the backdrop of a continued safe reliable supply of energy; in the UK (and most of Europe) the bar has been set very high. This has to be achieved at reduced cost as political pressure mounts and barriers to competition are removed. The IBM PoV paper put this well: “utilities need to disruptively innovate business processes through analytics driven operational excellence.”
A recurring theme here is IT / OT convergence and integration. The technology now exists to optimise business processes ranging from long term planning to real time operations by using data from multiple data sources from within the organisation (IT and OT) and outside the organisation (e.g. weather, topography, traffic, planning, social media).
The ongoing work by the Institution of Engineering and Technology (IET) on the role of a national UK electricity system architect provides an opportunity to ensure that the role of information (both from IT and OT) becomes as important as the flow of electricity itself to ensure that we have reliable, affordable and sustainable access to energy.
The energy market will change significantly over the next 10 years. Incumbents cannot rely on their existing market position; there are significant opportunities for new entrants to either compete directly using new technology or by creating entirely new business models.
Winners will be those that can utilise the five new technologies to accommodate the changes in generation, T&D and customer interaction.