Sector Report

Energy & Utilities

Technology Enables and Disrupts

The energy sector has reached a point of transformation.

Electrification is gaining momentum: from decentralized renewable energy, to electric vehicles, the revolution has begun.

The lines between oil & gas companies and electric utilities are beginning to blur as traditional fossil fuel companies invest in the low-carbon transition. Cities are on the frontline of change – leading on smart grids, energy storage, electric vehicle infrastructure and digitized energy and carbon transactions. Challenges regarding issues like infrastructure funding and equitable access to affordable clean energy remain central.

Signals to Watch

Urban Energy Revolution

Cities are at the leading edge of low-carbon innovations and efforts to avert global warming. Big data and IoT continue to offer energy efficiency gains for buildings and transportation. Electric and autonomous vehicle technology is leading to advances in grid storage and reduction in emissions. Energy transformation is being modeled in cities, with lessons for regions and nations. Energy companies will partner at the city level to advance smarter, cleaner energy.

  • Global spending on smart cities technology is expected to almost double from $80 billion a year in 2018 to $158 billion in 2021.

  • Mayors have pledged that new buildings in 19 cities, including London, Los Angeles, New York City, Tokyo, Paris and Sydney, will have zero emissions by 2030, with existing buildings becoming zero by 2050.

  • Smart grid technologies could help cut greenhouse gas emissions by 3.9 percent by 2030.

  • Companies including California utilities Pacific Gas and Electric (PG&E) and Southern California Edison are beginning to address a “just transition” – the equitable transition to renewable energy and electric vehicles.

  • EV ownership is expected to reach 125 million by 2030, spurred by policies that encourage drivers, fleets and municipalities to purchase zero emissions vehicles.

Electrification, decentralization and digitalization are the driving forces behind the transformation of energy systems and act in a virtuous cycle. Source: World Economic Forum

Electrification Changes Business Models

Electrification won’t happen quickly, but its ascent now seems inevitable. Emerging technologies are forcing oil and gas companies to transform their business models to remain competitive. Utilities will continue to shift away from coal to renewables. These transformations will require ongoing and deep engagement with external stakeholders such as investors, government and local communities.

  • Statoil (now Equinor) and DONG Energy (now Orsted) have both undergone recent name changes that reflect their shifts away from fossil fuels and deepening investment in renewable energy.

  • Shell has been rapidly investing in the electricity and EV space, with numerous acquisitions over the last two years. The company has committed to spending $1-2 billion per year until 2020 on low carbon solutions.

  • French energy giant Total is preparing to become a competitive gas and electric provider in Europe with its takeover of electricity retailer Direct Energie and heavy investment in renewable energy and natural gas.

  • Major investors, such as BlackRock and State Street are beginning to put public pressure on companies to assess climate risks.

  • For electric utilities to remain competitive, regulatory innovation and reform, such as rate reform and Performance-based Regulation (which provide a framework to connect goals, targets, and measures to utility performance or executive compensation) will be essential.

Digitized and Decentralized Energy Trading

Tech startups, utilities and governments are experimenting with blockchain technology to revolutionize smart grid management and facilitate peer-to-peer energy trading. Blockchain can enable small producers of energy to issue Renewable Energy Credits (RECs) that can then be tracked and sold to businesses looking to reduce their carbon footprint. Blockchain enabled trading pilots are currently underway in Thailand, Singapore, South Korea, Europe, the United States, Canada and Australia. The technology will continue to be applied as our energy systems shift to a more distributed model.

"A race is on to roll-out peer-to-peer energy trading platforms that will allow prosumers to sell energy directly to one another, reducing transaction costs and allowing small-scale renewable energy producers to compete with large traditional energy suppliers."
Dr Thomas Morstyn, Department of Engineering Science, Oxford University
  • A growing number of battery companies, including Californian battery start-ups Sunverge and Stem, Panasonic, and German energy company sonnen group are using blockchain to enable virtual peer-to-peer energy sharing networks that utilize home batteries and EVs to stabilize grid energy usage.

  • Japan’s TAKE Energy Corporation is offering customers a solar and storage package which will allow peer-to-peer power sales through blockchain. The country’s second largest energy company, Kepco, is following suit.

  • SP Group, the power grid operator in Singapore, is allowing small-scale solar and wind operations to issue blockchain generated RECs.

  • In the UK, a consortium of energy companies is supporting the development of a blockchain enabled flexible trading platform for energy distribution.

  • Ben & Jerry’s is using blockchain technology to break carbon credits – that offset GHG emissions of a company’s operations – into micro-transactions that enable consumers to buy a carbon credit for each scoop of ice cream purchased.

What to Expect in 2019

We expect to see continued merger between oil and gas companies, electric utilities and third-party renewable energy companies. An increasing number of energy companies will invest in renewable energy and EV charging infrastructure. Blockchain technology will continue to spur adoption of innovations such as peer-to-peer energy trading, empowering consumers and increasing disruption for electric utilities.

What This Means for Business

  • Prioritize investment in blockchain

    Business model transformation, electrification and decentralized renewable energy will be essential to the long-term success of energy companies. Blockchain will play an increasingly integral role in decentralized energy and carbon transactions and companies that invest early in this technology will have an advantage.

  • Collaborate on innovation

    To remain competitive energy companies will need to form partnerships and collaborate with an increasing variety of companies, including energy storage, automakers, blockchain start-ups, renewable energy and traditional oil and gas companies. The scale of technology innovation and infrastructure roll-out that is needed over the next 10 years means that few companies will achieve their goals in isolation.

  • Develop innovative finance

    A key challenge for energy companies will be the scale of investment needed to invest in smart grid, renewable energy and EV technology, whilst also adapting existing infrastructure to withstand the onslaught of climate change impacts. Energy companies will need to embrace alternative financing such as green bonds.

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