Digital Transformation in Energy and Utilities Sector
Currently, the energy and utilities sector is facing a strong call for change. The rise of the sharing economy, entailing a more rational resource usage, customer-centric approach in service delivery, increasing demand for green energy, growing trend in using electric cars, and many others encourage energy and utilities companies to search for new opportunities and business models.
To effectively address all the market challenges and reconcile with local energy and climate policies, energy and utilities companies have to develop and establish a sustainable digital infrastructure. It can help businesses to effectively keep up with the changes that are already occurring and stay competitive in the market, providing high-quality service.
In this article, we’ll have a look at:
- how digital transformation can enhance relationships of the energy and utilities companies and their customers;
- what challenges energy and utilities companies encounter when undergoing digital transformation;
- what are the factors that drive digitalization in the energy and utilities sector;
- how companies can benefit from developing their digital infrastructure.
Digital Transformation Redefining the Relationship Between Energy & Utilities Companies and Their Customers
Today, customers are more demanding than ever. They are better informed, have a wider choice of brands, and, therefore, have higher expectations. Banks, retailers, telecom, and companies from other spheres compete for customer attention, providing on-demand services, offering all kinds of goods, and striving to establish real-time relationships with them through omni-channel platforms. The same experience customers expect from energy and utilities companies.
Those energy and utilities companies that manage to quickly pivot and offer their customers the services and products that meet their expectations will manage to maintain their position in the market. For this, companies have to adopt the existing customer service approaches from other spheres and develop innovative ways to provide their services. For example, it can be selling energy to customers in the needed amounts and when they need it, offering electricity from only renewable sources, or providing customers with apps that they can use to pay their bills, compare rate plans, get discounts, etc.
To align the offerings with their customer needs, companies have to learn more about their necessities. Using data analytics tools, they can segment their customers into groups and micro-target their offerings, making their services more personalized. For example, offer low-income customers bill payment options, provide personal tips and analytics on energy saving, notify customers when their electricity usage is unusually high, and much more.
Aside from utilizing analytics tools, companies should consider how to upgrade their structures with diverse technologies to provide new services. For example, this could be allowing consumers to sell back energy when it exceeds the capacity of the batteries in their households or providing them with the ability to share energy in peer-to-peer scenarios, and many others.
Main Problems of Digitalization in the Energy Sector
Digital transformation is showing much promise in the energy and utilities industry. However, it’s much more difficult to achieve digital value in this industry sector than in any other. McKinsey&Company has determined several reasons for that. Let’s have a closer look at them.
Any energy business has to come in contact with the laws of physics, e.g. solar power physics, dynamics of wind, geophysics, and many others. Above all, it involves heavy assets like power plants, oil platforms, pipelines, and others. All these factors make business operations and profit generation much more difficult. Therefore the energy industry software must provide high value for the companies for it to be integrated into energy generating, processing, and selling activities.
Safety Risk and Documentation Compliance
Energy can be dangerous if treated improperly, therefore, the industry sets high standards for safety measures. Aside from safety rules, companies also have to ensure that their documentation and operations comply with the local legislation, e.g. rules on land and water use, customer service requirements, how to manage international trade, and much more. All of them require detailed analysis and strict enforcement. Those software companies that create digital solutions for the industry have to consider every aspect of compliance with the laws and safety measures and fully address them in the developed applications.
Engineers set the rules in the energy and utilities sector. Companies develop the engineering traditions and workers have an engineering mindset reflected in preference to large and comprehensive projects, detailed planning and analysis over fast adjustments and flexibility.
The digitization process, in its turn, involves much experimenting, quick change, and innovation. Therefore, when integrating new software in an energy company, business owners and stakeholders have to make sure that its implementation is well-planned, the solution is well-tested, and it provides clear benefits to the company.
Heavy Dependence on Third Parties
Energy companies heavily rely on their supply chains which involve the work of businesses from other industries, e.g. automotive, maintenance and construction companies, companies that provide funding and regulatory engagement, and many others. Energy industry software has to include each participant of the supply chains and provide a sufficient number of tools for effective business operating.
Energy companies are location-dependent. It means that they operate in regions rich in natural resources or which have conditions for efficient energy production from Texas to China. All these regions significantly vary in legal and operating environments. For example, they have differences in labor forces, maturity of supply chains, governmental policies, and many others. Each of these factors adds complexity to business digitization and requires an individual approach in each case.
Trends Driving Change in the Energy Industry
Though digital transformation is challenging for the energy industry, the phenomenon isn’t new to it. Energy companies have been broadly implementing innovations and rather heavily rely on technology in general in their work. For example, smart meters that collect real-time data on power consumption have been utilized for decades in the industry. However, the changes in the sector occur rather slowly and have much inertia. Companies approach new solutions with caution and scrutinize their value and safety precisely before putting them into operation. Meanwhile, digital transformation is happening rapidly in all the industries and the energy and utilities sector has to keep up with the global digitization pace.
New trends occurring in society drive energy companies to change and implement innovations faster in their work. One of these trends is the quickly rising demand for green energy. In 2020 13,000 scientists from 153 countries have supported the findings presented in the report “World Scientists’ Warning of Climate Change”. The report revealed the climate crisis and appealed for the countries to cut down on carbon dioxide emissions globally. To move to clean energy faster, more than 110 countries have pledged carbon neutrality by 2050, and China pledged to achieve it by 2060. This means that companies have to transform their energy extracting approach, turning to renewable sources.
Another force that drives transformation in the sector is a growing demand for electrification. According to the World Energy Outlook report, the global electricity demand is expected to reach 550 terawatts per hour by 2030, meeting 21% of global final energy consumption. This will result in the development of electricity grids that will increase in their capacity and number of installations.
All these trends positively influence the development of the energy sector, leading to lower use of fossil fuels for power generation and increased demand in using IT equipment, applications, and services for effective business growth.
Benefits of Digital Transformation in the Energy Sector
The implementation of IT technologies in the energy sector offers an extensive variety of benefits to energy and utilities companies. Let’s have a look at how they can use IT solutions to enhance their business development:
- enhanced customer interaction – building various web and mobile apps, companies can make their offering more customer-centric, providing the services that are in demand and keeping them better informed on their electricity use; moreover, combining customer apps with other innovations, companies can influence their customer behavior, e.g. reduction of greenhouse gas emissions, more sustainable electricity use, utilization of green energy more, and much more;
- improved safety – aside from digitizing their customer experience, energy companies can also enhance the safety of their workers by providing work training in a safe environment using VR/AR solutions;
- better reliability – energy companies and electric power systems already use digital solutions to automate many operations; companies without solid digital infrastructure or that use obsolete software are more prone to cyber risks; with the increased digitization, companies become more concerned about how to improve their cyber risk capabilities and many of them implement blockchain and artificial intelligence solutions for that; the technologies allow to strengthen cyber security of standalone processes and across entire enterprises;
- better data management – with digitization, companies can effectively modernize their energy value chains, involving energy generation, transportation, distribution, supply, as well as management of the grid; this can be done with the help of IoT, ML, smart meters, and other digital innovations; building smart grids will allow companies to process large volumes of data from different sources and gain valuable insights on how to smooth and enhance their operations;
- improved performance – building digital platforms for energy infrastructure management and integrating them into the cloud allows companies to improve their efficiency and unlock new value, e.g. cloud asset management systems and ML algorithms can notify businesses when it’s the best time to provide maintenance of their assets, predict customer churn using real-time data analytics solutions, and much more.
Digital transformation in the energy and utilities industry is a natural process caused by social and technological changes and experienced by many industries. It allows companies to open new horizons of digital opportunities and reach a new level of global economic growth and environmental care.
To implement digital technologies at any level in the industry requires much effort due to its specifics, e.g. large and complex assets, a number of various partners involved in supply chains, high standards for safety measures, and compliance with the legislative system in a particular area, and others. Nevertheless, they offer energy companies many benefits, including providing enhanced customer services, improved safety and cyber risk, better data management and performance.