Digital disruption may be one of the most overused buzzwords these days, but the world is going increasingly digital and disruption is everywhere—we have drones delivering pizzas and home gadgets connected to our phones.
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Digitalization has so profoundly changed our lives that it’s inevitable that’s also transforming all industries and the ways product manufacturers and service providers and consumers interact. The energy sector is no exception to this trend, and is seeing various changes in production and distribution thanks to data analytics, cloud computing, supercomputing, smart rigs, and smart meters.
These changes are so profound that the International Energy Agency (IEA) published its first comprehensive report this week on digitalization in energy, analyzing how digital tech is transforming energy systems.
Digitalization is already improving the safety, productivity, accessibility, and sustainability of energy systems, the IEA notes. But it warns that digitalization also raises new security and privacy risks. Therefore, the Paris-based international agency believes that policymakers must play a critical role and steer the world toward a more secure, sustainable, and smarter energy future.
The surge in the number of people using the Internet and the number of Internet-connected devices, coupled with stunning advances in technologies, are creating new business models in energy, the IEA said.
The electricity sector is at the heart of the digital transformation, where technologies are blurring the distinction between generation and consumption. Opportunities here lie in smart demand response, including integration of variable renewable energy sources, implementation of smart charging for EVs, and the emergence of small-scale distributed electricity resources like household solar PV, the agency believes.
According to the IEA, smart demand response could provide 185 GW of system flexibility, roughly equivalent to the current installed electricity supply capacity of Australia and Italy combined. This smart demand response could save $270 billion of investments in new electricity infrastructure that would have otherwise been needed.
Digitalization is also a way to integrate variable renewables into the grid by enabling them to better match energy demand to times when the sun shines and wind blows. By 2040, in the European Union (EU) alone, increased storage and digital demand response could reduce curtailment of solar photovoltaics (PV) and wind power to 1.6 percent from 7 percent now, avoiding 30 million tons of carbon dioxide emissions in 2040.
In oil and gas, across-the-board digitalization could lower production costs by 10-20 percent, the IEA estimates. Those digital technologies could include enhanced reservoir modeling, widespread use of sensors, and advanced processing of seismic data. Technology could also boost technically recoverable oil and gas resources in the world by some 5 percent, with the largest gains projected in shale gas.
Oil and gas industry players already use advanced analytics and supertechnologies. Schlumberger, for example, uses cloud computing to improve E&P data processing performance. BP analyzes large amounts of seismic data at its Center for High-Performance Computing (CHPC) in Houston. Blockchain—the technology best known for cryptocurrencies such as Bitcoin—also enters the energy sector. A consortium involving Shell, BP, and Statoil is working on the development of a blockchain-based energy commodity trading platform, along with three large commodity traders—Gunvor, Koch Supply & Trading, and Mercuria.
Digitalization in energy is bound to grow, and the market is expected to rise to $64 billion in 2025 from $52 billion in 2017, Bloomberg New Energy Finance (BNEF) said in a reportthis week.
“Today, the biggest use of digital technologies like sensors, data collection and analytics in the energy sector is to improve the bottom line of fossil fuel generators. Revenue for digital services for fossil fuel operation and maintenance, or O&M, are estimated to be $24 billion in 2017—some 44% of the total market size for digitalization measured by BNEF,” according to the report.
However, by 2025, opportunities for new digitalization business in fossil fuels will shrink at the expense of services for distributed renewables and the connected home.
“Home energy management technologies will see the most significant change in digital revenues, rising from $1 billion in 2017 to $11 billion in 2025. The largest driver for digital technology revenues in 2025 will be smart meters, growing 44% between now and 2025, to $26bn. This revenue increase matches the fall in digital revenues from fossil fuel O&M—46% over that time period,” said Claire Curry, head of emerging technology analysis at BNEF.
There’s no doubt that digitalization will continue to profoundly change the energy sector. The only question is: how fast?