Transforming Energy through Digitalization

The more you look around, you see impeding barriers to undergoing the energy changes required. Changing the energy system into one reliant on clean fuels is a monumental task. It is fraught with complexity, greater competition, increasing costs and a constant concern that energy demand is becoming less predictable.

The profound changes need better ways to unlock the value within the energy system. To do this, nearly all of the energy system needs to digitally transform, can it? Will it?

Looking outside the Energy industry to gain insights and value understanding

Digitalization, when we look around many industries, has given a higher level of predictive analytics. Data is informing current and future decisions. The combination of digitalization and automation is extracting cost improvements and actions that provide greater efficiency, transparency and manage these growing complexities.

Recognizing digitalizazion is seen differently within the Energy System

Every part of the energy system needs to make critical investment decisions in its digital future. Oil and Gas operators have growing volatility, Utilities face growing complexity in their power generation mix and grid management.

Refineries need to build an improved network of demand, trade far more across the globe. The renewable players offering wind and solar alternatives have to show the benefits of changing fuel sources, and digitalization gives them access to all the variables to cost and assess.

Service companies alongside OEM providers, need to remake their models and solutions digitally ready. Their need to build in the digital connecting points into their offerings so the physical gathers the data and can model ’cause and effect’ in real-time of the system itself.

The previous “dumb” station (without sensors or data capturing capabilities) where its effectiveness and reliability came from physical inspection or general experience. It was not based on the actual piece of equipment. Often it was after disruption it was fixed. This post concept cannot work in the future.

Equipping the offerings with data capturing abilities has to have a clear plan, not just collecting the data on one piece of equipment but connecting them up to give the real, longer-term value.

As confidence grows, the digital twin will begin to be valued for what it provides in the predictive modelling or simulation.

It is only once parts of the energy system begin to be connected up or thought about digitally, both in their design and future value the value of the data captured can offer a real business alternative to today’s operations.

Finally, the whole engineering, maintenance, construction, design, and procurements involved in managing energy require more dynamic management and going digital, so the visibility allows for greater leveraging of the systems.

Competitiveness and Collaboration

The inherent energy system was a closed one. It relied on perhaps one fuel source for generation, centrally managed, with a rigid grid and transmission system to deliver through.

Today, the consumer expects clean fuel electricity, generated by wind, solar or hydro, not the “dirty type” generated by the use of oil, coal or gas. That demand, coupled with the Paris agreement on climate, has given a different perspective to decarbonizing the supply.

New technologies that need to monitor and capture are required. These need sensors to track and determine omissions or measure efficiencies.

As different fuels enter the energy market, as energy opens up into a greater, deregulated market, old competitors become partners. They trade energy, combine in fuel purchases or infrastructure projects. Collaboration is changing the points of competitiveness.

Consumers have their own power to generate their energy needs by installing rooftop solar or combining in community cooperatives and generating surplus energy to enter the grid.

New supply sources need to be integrated into the energy system. It needs to be planned and controlled; its final product of electricity needs to accept, evaluate in value, and then re-direct. This cannot be undertaken by human interaction alone; it needs managing in a digitalized system.

Overcoming the difficulties inherent in the Energy System

There are different barriers to overcome. Many of these are historical that have a legacy attached to them; others are existing mindsets determined not to adopt or invest differently than the known and accepted practices.

Recognizing digitalization is seen differently within the Energy Systems

So what is holding holds digitalization back? Here is my take on the barriers

Firstly physicality rules

The sheer physicality of energy operations makes changing Energy operations incredibly difficult. Digital applications have to be on or built into the equipment on-site; The ruggedness of the sensors or data collecting equipment has to contend with many individual and unique challenges of the design, location and needs of capturing “that” data point. The cost of retrofitting established equipment needs revisiting the ROI, which enters a complicated domain of justification.

Energy operators demand high bars of proof that digital will give additional value. Some of these arguments enter the spheres of “safeguarding assets”, changing how they are assessed for their health and capturing real frontline value measuring for the investments.

The fact it is potentially dangerous needs enormous care in safety, energy security and offsetting risk as well as you can. This danger is throughout the energy system. Generating Energy or providing the energy chain requires total reliability and safety.

Regulations dominate, rules are in place, and changes to these take time, understanding, and multiple parties to become involved to assess the risks. Having digital equipment that requires electricity, such as in a potentially volatile environment, needs precaution and expertise.

A culture of being risk-averse dominates, some good reason, some not!

Over time, the culture with Energy companies has been specifically designed to be averse to risk for all the concerns and regulations to protect human life and physical property. Digitalization’s value to control and monitor enough requirements to meet regulatory demands is highly complex and drives efficiency and often cost validation. Reliant on digitalization is a slow, complicated process to make changes that give insights and extract value for the investments required. With the level of change, risk needs to be seen differently- controlled experimentation to explore and ready an organization limits risk. Exploring new ideas needs accelerating, and digital adoption is one of those areas where unique insights give added value to managing in a complex environment.

Finding a comprehensive universally recognized E-ERP system

It was not until we can achieve a reasonably complete Energy Enterprise Resouce Planning system we will get the full benefit of digitalization. As we saw with Enterprise Resource Planning software, it galvanized business organizations when introduced, eventually becoming the productivity tool to drive continuous improvements and evaluate a business in its entirety. At present, we have “apps” for specific needs to solve, but there is gaining a real need to have a comprehensive roadmap of how to connect up the whole system.

When you can harness data, information, and process supported in one system that will demonstrate clear improvements in the organization’s availability or standard operational details and practices, you have a game-changer.

Energy Enterprise Resource Planning’s primary purpose is to track, gather, and evaluate data to allow the sharing and dissemination of information efficiently within the organization and direct this to the appropriate decision points to determine value, action, response, and worth.

The Engineer-driven culture dominates Energy.

The mindset of the engineer is dominant. They are paid to do (or should do) rigorous evaluations and analysis; they relate to big, comprehensive projects and solutions. They build in margins of error to deliver perfect solutions to manage all eventualities. They find rapid assessments, flexibility, and adaptation that needs different thinking as uncomfortable territory.

The engineer dominates at all levels of the hierarchy, for a good reason but not when the need is for rapid change. Digital may seem a threat, but it gives them better oversight and validations if the engineer embraces it. Data engineers and analyzers can complement and balance out one dominating view. Different informed views can better serve any transformation as complex as the energy transition we are undertaking on future decisions.

There is a high dependence on third parties in a highly fragmented energy chain.

Supplier collaboration has a long history. It forms bonds in equipment supply, confidence building, in mutually supporting each other. Third-party management is highly reliant on relationships, often built up over years of managing good and bad times.

Digitalization needs to be embraced by all within that energy supply system. Still, the visibility changes the relationship dynamics, and there is a likely reluctance to disturb that without pressure applied. Digitalization is not connecting up the one; it is connecting up the many.

Global operations have a history of applying a playbook that works.

Digitalization disrupts no question. It challenges well-held positions as data becomes visible and can validate making change. The established career executive found in the Energy system has been managing in well-defined ways a business or operation, introducing new approaches, and deciding on data and not personal experience is challenging. To challenge that accepted wisdom, where the physical, high risk, highly engineered and longer-term evaluations might have different ways to be assessed is (deeply) uncomfortable.

Differently, thorough new assessments centred on the data-driven performance that can challenge and confront, reduce individual judgment, or local quantification need a new way of operating and working. The ‘good and appropriate’ data in the hands of the ‘good’ engineer or technician will, over time, see approaches, methodologies, and processes analyzed and understood differently from the past. The risk gets quantified in sophisticated modelling techniques, and decisions increasingly go up the line to central decision points a different way of managing. Digital challenges local capability, individual experiences, but not to cut across it, but to compliment it. Validation and proof points can be better shown and justified.

Managing all these sets of dynamics is not easy and instant.

Digitalization has to find and navigate a series of complex trade-offs and value-adding points, taking time within the Energy Systems.

Reimagining the Energy System where digitalization can deliver will be an extensive challenge. Digitalization will need to unlock value points, provide improved data and technology insights that demonstrate improved efficiencies and effectiveness. They need to enhance and provide the catalyst for change with the necessary changes in cultures and capabilities built up in managing Energy over the decades to accommodate the significant difference. Digitalization is a potential game-changer, but it is radical in its final design and outcome for all involved.

The ability to overcome inertia.

Inertia, as defined, is “a property of matter by which it continues in its existing state of rest or uniform motion in a straight line unless an external force changes that state.”

Digitalization is the external force that, when applied, shows the value-adding power required to overcome friction and the inertia of all the moving parts of a well-established Energy System.

It will take time, care and demonstration to break down all the barriers seemingly in place.

Reference, a great foundation document by McKinsey: “Achieving escape velocity, digital transformation in energy”