Digitalisation: Far advanced

Digitalisation of the core processes power production, transmission, trading, distribution and sales are far advanced. The potential and development dynamic in the area of digital business models - some with a disruptive character - are underestimated.

Digitalisation is currently a hype topic in the context of the fourth industrial revolution. It will change all industries, including the power sector, so the thesis. The discussion stresses the importance of new smart technologies: The Internet of Things, clouds, social media, big data, analytics, as well sensor technology, robotics and artificial intelligence. In the energy industry, the buzzwords are smart metering and smart grids. Studies for their nationwide rollout were drawn up as of 2010 in most European countries, including Switzerland (1).

What does digitalisation mean in the power industry?

Is the development akin to the photo industry? With the invention of the digital camera in 1968 (2) and the series production of a digital 35-mm single lens reflex camera with an image sensor, global companies like Kodak and Agfa started becoming redundant as of 2002. Or are energy supply companies like the local taxi business that suddenly has a competitor from out of the blue in the form of a start-up named Uber, founded in San Francisco in 2009?

No, the two digital transformations are not representative for the over 600 Swiss energy companies that efficiently supply business and society with power. The examples show us that there’s a long timespan from invention to mass market. In the case of digital photography it took 30 years. And as for Uber, the local taxi business does lose market share, instead it often remains dominant locally while Uber stays in a niche as a new disruptive player.

What are the advantages of digitalisation?

As with all the industrial revolutions, the digitalisation driver is to increase productivity, the fundamental principle of economic growth. "Technology" and "innovation" have always been seen as levers to increase productivity. In the fourth industrial revolution, more productivity and growth is expected thanks to digitalisation.

Energy supply is becoming increasingly decentralised and complex. The international influence of the political and regulatory environment contributes to this. Subsidised construction of stochastic production capacities in the areas of photovoltaic and wind not only increases the supply, but the volatility as well. Furthermore, the latest development in the energy industry points to sector coupling of electricity, heat and mobility. Wind and solar energy generation will be used for cars and heating systems, as well as for electricity. Electric charging stations and heating systems are already in use today. How strongly they establish themselves mainly depends on the reduction of costs for power-to-X and storage technologies. The technology concept "power-to-X" foresees the storage of surplus wind and solar energy when there is an abundance of wind and sun, and the conversion into other energy forms (e.g. power-to-liquid, power-to-gas, power-to-heat). Multi-modal energy supply systems will come about through sector coupling. Intelligent, networked energy grids are the key for this sector coupling, and essential for flexibility management, as well as the stability and efficiency of the system as a whole.

Progressive digitalisation of society and business is dependent on the efficient supply of electricity, which is, in turn, dependent on fully networked, fail-safe, intelligent data communication systems. This is the core of convergence in the energy sector and the ICT industry: No power, no ICT - no ICT, no power. The transformation in energy supply is a challenge for all energy supply companies.

So where is the focus of digitalisation for energy suppliers?

Experts predict that as a result of digital transformation, physical and virtual worlds will grow together to become cyber-physical systems. At the level of individual energy supply companies, business processes and customer interfaces have been digitalised. In concrete terms: The networking of data communication systems for the control of core processes and customer portals are gaining in importance. And: New players with new digital business models are entering the energy supply market; business is increasingly transacted over digital platforms.

According to a study (3), digital start-ups are the drivers of this development, although industry outsiders such as Google and Tesla are entering the energy market with full force. Fifty-eight per cent of companies consulted see the future of conventional energy supply companies as endangered. Thirty-two per cent believe that by 2025, every fourth German energy supplier will disappear from the market. Seventy-five per cent will increase their activities, create a digitalisation strategy, and invest for example in business analytics.

Digitalisation in the core process

In the year 2010, one might have thought that the invention of the "smart meter" and "smart grid" would be the trigger for digital transformation in energy supply in its core process of transmission and distribution. We know that today, eight years later, a national rollout of digital electricity meters has still not taken place, and the transmission and distribution grids still do not correspond 1:1 with the vision. However, this does not mean that digitalisation is still at square one in this area.

On the contrary. By equipping the Swiss transmission and distribution grid with a dedicated fibre optic Network (4), energy suppliers have their own high performance broadband data network. Large data volumes can be securely and quickly transmitted. Grid operators like Axpo have become broadband competence centres for data Transmission (5) and operate fully digitalised energy and network control centres that automatically control power plant utilisation and grid operation.

Owing to the requirements of fail-safe operation, fibre optic-based data transmission networks were laid out redundantly and all the network nodes equipped with emergency power supplies. The data transmission networks of energy suppliers became crisis-proof. Even in a national blackout scenario, e.g. a total power failure, all energy supplier data communication systems would be fully functioning - an essential capability for the recovery of the power supply grid.

Digitalisation in energy trading

In many parts of Europe, trading is also done via digital energy trading platforms. Trades are processed via the European Energy Exchange (6) in Leipzig, a digital market place for energy and energy-related products. The EEX is the leading European energy exchange with over 450 exchange participants from 33 countries.

Digitalisation in customer interaction

End customer suppliers have created new customer portals for bulk customers (business customers) and private customers. The platforms not only offer products and services, but also provide interactive functions such as a hotline or online Chat (7). The business model basically remains the same. The potential of these new digital possibilities for virtual customer relations and interaction is far from being exhausted. There are also great differences between individual energy suppliers. Great progress can be expected in this area over the next years. The proportion of digital, remote-read, smart meters, which are an important basis for digital customer interaction, will increase strongly from the current level of about 5 per cent. But it will take longer for a national rollout to be completed.

Underestimated potential

A study (8) indicates that energy suppliers assess their level of digitalisation cautiously: Sixteen per cent assess it as high, 50 per cent as average, and 34 per cent as low. The greatest potential of digitalisation by far is seen in sales. Therefore, within the companies it is mainly sales and marketing, as well as the network area that are making digitalisation a priority.

However, there are several new areas where the potential of digitalisation has been underestimated. The current push by technology companies in the area of sensor technology has resulted in a growing, broader range of sensors. In addition to fixed line connections, wireless access has long been possible, for example the inexpensive LoRaWAN (9) technology. The technology enables the simple connection of existing power, gas, heat and water meters to the data network for meter-reading. Transmission lines and sealing boxes can be made intelligent with new sensors. Owing to the development of the Internet of Things, the growing number of sensors generates an ever increasing data volume that can be analysed to increase efficiency and productivity in energy supply core processes, e.g. "predictive maintenance".

Digital changes in the traditional meter-to-cash process (10)

The rapid drop in the price for photovoltaic modules created a pull by private photovoltaic producers, and a push by photovoltaic system suppliers to move toward liberal, regulatory private consumption solutions. From the perspective of private investors, with increasing power prices due to EEG apportionment and high government levies, Germany has manoeuvred into a self-reinforcing control loop that will spill over into the neighbouring countries. Private consumption solutions and cooperatives require less expensive meter-to-cash processes, in addition to clear contractual and regulatory terms. When it comes to speed, flexibility and costs, traditional, more expensive and sluggish energy software systems are reaching their limits, and opening a market for new suppliers and new peer-to-peer marketplaces that use block-chain or cloud-based systems. First findings indicate that energy suppliers will increasingly turn to external providers for the billing of private consumption cooperatives because they are not competitive with their in-house solutions.

The first successes with new digital business models are becoming apparent. However, much more important is the fact: Everyone is clear, there is no turning back. Energy suppliers have become "normal" companies that must compete in an environment with high competitive intensity, regulatory uncertainty, and rapid change. Only the fittest of companies that have set and follow clear goals courageously and with perseverance will succeed on the road to the energy future.

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(1) http://www.bfe.admin.ch/smartgrids/index.html?lang=de The Swiss smart grid roadmap published by the SFOE on 27 March 2015.

(2) A range of inventions that began with the first patent for an image sensor in 1968 was necessary to realise the digital camera.

(3) https://www.pwc.de/de/energiewirtschaft/pwc-studie-deutschlands-energieversorger-werden-digital.html

(4) Fibre optic cables are installed in the core of the ground wire; in underground lines they are placed in a separate cable duct.

(5) With the take-over of WZ-Systems AG and the merger to Axpo WZ-Systems AG, a dedicated broadband competence centre has been established for secure fixed and mobile network data communications.

(6) Founding 2002: www.eex.com

(7) See B. www.ckw.ch

(8) https://www.pwc.de/de/energiewirtschaft/pwc-studie-deutschlands-energieversorger-werden-digital.html

(9) LoRaWAN stands for Long Range Wide Area Network and functions as data radio transmission.

(10) For energy suppliers the meter-to-cash (M2C) process is an important power billing process with end customers. It is comparable with the order process order-to-cash in industry.