Companies need to get wise to smart power systems

Peter Stewart participated in the Hyper-smart Power Systems panel discussion at St Petersburg International Economic Forum. The article below appeared in the 1st June issue of Natural Gas Daily, an Interfax publication covering the global gas and energy markets. The views expressed are his own.

The transformation of power systems over the next two or three decades will be comparable in scale to the transformation of industry during the first Industrial Revolution (1760-1820).
Much has been written about the disruptive nature of technological change in the power sector. The degree to which companies will have to transform their structures and business models in response to this change has been less discussed. However, the revolution in the function and operation of corporations may be the single biggest change in the transition to a hyper-smart power economy.
Traditionally, national energy systems – whether for the delivery of power or fuels – have involved centralised organisations, often national monopolies or oligopolies. Their output is then transmitted to distribution centres and on to end-users through a supply chain that is planned centrally, either at the headquarters level or through tiers of delegated control. Until recently, such companies were typically vertically integrated and hierarchically structured.
The emergence of smart systems, higher levels of automation and a switch from centralised to distributed models of power supply and demand will have a profound effect on such companies. ‘Blockchain’ technologies and smart grids will allow companies to contract for power supply directly with each other. Indeed, it is not only companies that will have this ability. Neighbourhoods and even individual households will be able to exchange the power they generate on their own terms, possibly even using their own currencies or other means of exchange.
Demand-side management systems, which enable customers to negotiate with multiple suppliers on the detailed profile of their energy use, will require a new mindset from the traditional process-led and hierarchical organisations that have dominated the industry.
Faced with this dizzying technological change, companies will have to transform themselves. The thrust of change will be away from the centralised and bureaucratic entities that have dominated the energy industry in the past and towards flexible, adaptive, customer-focused and data-driven organisations: smart companies delivering smart energy. But although the direction of travel is clear, the scale of power demand to meet the needs of an additional 2-3 billion people will make this transition infinitely more complex.
Fossil fuels not dead yet
Fossil fuels will remain a critical source of energy until at least 2030 and most probably beyond 2050, but the market for fossil fuels in the power sector will increasingly be in less-developed, high-population countries in the Far East, Africa, the Americas, and South and Southeast Asia. Huge investment will be required to serve these regions, both to maintain existing infrastructure in emerging markets and to serve the growing demand for power in the least-developed countries, which currently use firewood or charcoal for heating and cooking. The model for financing this investment is unclear.
The population shift in less-developed countries from rural areas to towns and cities will be a further challenge. It has been estimated that, by 2050, 75% of the world’s population – which by that time will be around 9 billion people – will be living in cities. This will have huge implications for power distribution to the industrial, commercial and residential sectors, where customers will take increasing control of the commercial agenda through smart meters, demand management and the ability to both feed into and take power from the grid.
The rise of smart cities will transform the way power is generated, distributed and used. This is already happening in the UK and parts of Europe, and the momentum is unstoppable. Even traditional resource-led economies are changing. Russia is developing smart energy systems in cities such as St. Petersburg under the Energy Net Roadmap.
Smart cities in the developed countries of Europe, Asia, the Middle East and the Americas will also include smart urban transport systems. Vehicles will increasingly be driverless and powered by electricity or fuels such as natural gas and hydrogen, which are perceived as environmentally friendly. In regions such as Asia, which is expected to see strong growth in its economy and population, this will lead to substantial increases in the demand for electricity and gas from urban areas to power such vehicles.
However, millions of people worldwide will remain dependent on diesel- and gasoline-fuelled vehicles until at least 2030 and probably even until 2050. This will not only require building new infrastructure that is both intra-urban and inter-urban in scope, but also maintaining and integrating legacy infrastructure. The model for investing in and financing all this is unclear.
The speed of change makes it difficult to plan, as does the fact that countries at different levels of economic development are subject to different drivers. Some have already taken steps to adapt. For example, German power utilities E.On and RWE have split into two divisions to better focus on legacy interests and new energy models. The need to deliver power on a massive scale in a landscape where the technology and competitors are ever-changing will require companies to adapt continuously to a world of evolving complexity.