The changing energy market: how do you prepare for uncertainty?

We are in the worst possible situation. The old world with its familiar systems ended more than a decade ago. The new world is yet to come. It is gradually taking shape but also constantly changing. True, it is fascinating. But it also means that training is essential.” An interview with Daniel Dobbeni, the chairman of Vlerick’s Energy Platform, and Professor Leonardo Meeus, the Director of the Future Power Grid Managers Programme, about the challenges the electricity industry and by extension the energy industry as a whole faces.

Predictability? Outdated

When Daniel made the switch from a laboratory environment to Electrabel seventeen years ago, the electricity industry was considered a paragon of stability and predictability. “I was surprised: we could easily make forecasts for up to ten years in our business plans. The demand for electricity, the evolution of this demand, the technologies, the business model and even the exchange with the neighbouring countries were virtually completely known beforehand. Today the situation has changed significantly. The impact of variable electricity sources, such as wind and sun, on electricity production is such that supply and demand in Belgium as well as in the neighbouring countries are almost impossible to predict. We only have a rough idea.

The relationship between electricity producers, suppliers and users has also changed. In the past, you could rely on your customer base, today customers can choose between a wide array of suppliers.

The smart grids are on the way

From a technical perspective the system has become much more complex and the technology is also constantly changing. Twenty years ago the energy industry was considered the prototype of an industry that never had to invest in R&D ever again because everything had already been invented. Today the industry is investing more than ever before in R&D while IT is also becoming increasingly indispensable. The 41 transmission system operators of the ENTSO-E are connected to each other with a private fibre optic network for the exchange of large amounts of data. However, Daniel says this is nothing compared to what will happen as more smart grids become operational. “The main question then will be how we can use these data to make the system more efficient and reliable.”

Will we ever live in “smart cities”?

Smart grids... once upon a time this was a buzzword, but not anymore. There is no doubt that we need these smart grids, which better harmonise electricity production and consumption and that they will be developed. There is less certainty about the prospects of other buzzwords, such as the smart city but Daniel thinks it is too early to dismiss this as a hype.

Are consumers interested in electricity, oil or gas? I don’t think so. They want light, heat or air conditioning. And I think that producers are increasingly starting to think along the same lines. But you can imagine the impact that this will have, for example on their call centres. Today you call your energy supplier to inform them that you have no power. In the latter case you will call them to tell them that your bathroom is 2 degrees too warm or too cold. How is this relevant to smart cities? According to the UN, 70% of the world’s population will live in cities in 15 to 20 years. And this will radically change our water and energy distribution. It is perfectly conceivable that you will one day live in an apartment and pay a fixed cost for a certain constant temperature throughout the year. These smart cities do not exist yet, but the US, China and Korea are already testing with the concept.

How much consolidation?

While the technical aspect has changed the market is also reorganising itself. Leonardo: “In the early days of the liberalisation of the electricity market there was a wave of consolidation among electricity producers and retailers. One of the main measures for promoting liberalisation was the mandatory “unbundling” or split of integrated energy companies. Some of these chose to divest themselves of their transmission and distribution system activities. The question remains whether the network operator market will see the same extent of consolidation. In most European countries the number of transmission network operators (TSOs) is limited – usually there is only one. Following the acquisition of 50Hertz Transmission Elia is one of the first TSOs to operate internationally. The European market of distribution system operators (DSOs), by contrast, is very fragmented: there are more than 2,300 DSOs, some with fewer than 10 employees. The local distribution systems will have to be adapted to cope with the impact of solar and wind energy but can you expect small DSOs to make these adjustments or will they become a bottleneck in an environment that is changing at an increasingly rapid pace?

Game changer

According to Leonardo this consolidation must not be limited to the DSOs. “Thinking of the smart cities, for example, a DSO could join forces with the local water and telecoms network operators. In our training programme we want to compare the different business models and analyse the pros and cons of each model in light of the existing regulations.”

Despite the liberalisation the energy industry is still largely shaped by regulation. And although a European energy regulator called ACER exists, the industry is still heavily regulated on the national level. “That said, ACER could prove to be a game changer: the agency’s competences were recently extended. Consequently it can make the final decision in cross-border infrastructure projects when they risk getting bogged down for example. So ACER no longer has a merely coordinating role.

Their advice? Flexibility and dialogue

Who could have predicted that the energy mix in Germany would radically change three years after the tsunami in Japan in 2011? Or that the success and excess capacity of shale gas in the US would make the price of coal drop to such an extent that the European gas-producing plants are no longer profitable? According to Daniel these events show how important it is to be flexible, now more than ever. “The electricity production apparatus needs to be renewed. We cannot afford to make bad choices because they have consequences for our children and grandchildren. And in these rapidly changing circumstances this is more difficult than ever. The value chain has also become more complex. It is no longer limited to the industry or national borders and involves much more than just technical aspects. With our training programme we want to raise the awareness of current and future managers about this complexity so they can teach the rest of their organisation to cope with rapid changes.”

And keep on talking to each other”, Leonard advises. “The liberalisation has led to a fragmentation of the industry and the value chain, which was not really conducive to a mutual understanding. Anyone working in the old integrated system and who is familiar with the bigger picture is gradually retiring. Our Energy Platform gathers people from different companies and functional areas in the industry, which can only promote future cooperation.”

Who is Daniel Dobbeni?

As the chairman of the Energy Platform and a guest lecturer of the Future Power Grid Managers Programme he looks forward to sharing his knowledge, experience and many contacts with students.

  • President of the Board of Directors of 50Hertz Transmission
  • Vice-President of GO15
  • President of the Board of Directors of KIC InnoEnergy
  • President of the Board of Directors of Coreso
  • Member of the Supervisory Board of APX
  • Member of the Board of Directors of HGRT and EPEX Spot
  • 2008-2013: Founding President of ENTSO-E
  • 2003-2013: CEO and Chairman of the Executive Committee of Elia
  • Master in Industrial Science (Industrial Engineer), Vlerick Middle Management Programme (1992) and CEDEP General Management Programme (1995)

 

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