Energy sector gearing up for digital transformation

Distribution system operators are facing a radical digital transformation of their business model. They could go from purely managing the physical infrastructure to acting as data hubs or neutral distributors of energy data as well.

Are we on the verge of an ‘Uberisation’ of the energy sector? Stijn Viaene, Professor at Vlerick Business School, believes we are. “Before Uber was launched, taxis controlled the entire business model for their sector. They owned the vehicles and decided what would happen and how. Now control is increasingly shifting from the car owner to the data owner, or in other words to Uber. Something similar is about to happen in the energy sector: the party controlling energy distribution might end up controlling the entire sector.”

Smart infrastructure

That said, it is still the infrastructure managers who control the energy sector for the time being: in Belgium, these are high-voltage grid operators such as Elia and distribution system operators like Eandis and Infrax who call the shots. They are the ones who bring electricity and natural gas to consumers. Energy is different to the taxi sector in that various European distribution system operators have made considerable investments in smart infrastructure, a ‘smart grid’, over the past ten years. These investments in smart meters and sensors were instigated partly due to a new, more complex distribution model, explains Jorn De Neve, partner at KPMG.

Decentralised energy production

“On the one hand, you have a decentralisation of energy production. Renewable energy accounts for an increasing proportion of our energy, with biomass, wind turbines and solar panels leading the field. The result is a larger number of smaller ‘power plants’, with highly fluctuating production levels. Conversely, the old distribution model was based on a number of large power plants with stable production. Local production of renewable energy also results in ‘prosumers’, i.e. private individuals or companies that both produce and consume energy.”

Mass energy storage

There has also been a major change in terms of batteries that allow electricity to be stored locally. This innovation is expected to become profitable in the future. “The advantage is that batteries could even out fluctuations in energy production, for example energy from solar panels. However, there is a risk of companies or individuals disconnecting from the main grid to develop their own local network”, Jorn De Neve warns.

Technology full speed ahead

According to Professor Stijn Viaene, these two developments have been accelerating even more over the past three or four years. Needless to say, the European distribution system operators have jumped on the bandwagon, investing more and more in smart meters and sensors, which generate more accurate data on the amounts of electricity produced and used by each party and the times when they do it. “This data collection allows for a digital transformation in the energy sector and as a result, distribution system operators could take on a new role, moving from merely managing the infrastructure to also managing the distribution data”, says Stijn Viaene.

Business model under scrutiny

This would be a key role, because just like in other sectors, this data opens doors to new applications, such as those that make energy policy more efficient. For example, production can be aligned better with consumption. ‘Smart cities’ can also clearly see what would yield the most in terms of energy efficiency. Jorn De Neve explains that the distribution system operators’ business model could be seriously shaken. “As a result, distribution system operators would not only be responsible for the distribution network, but also for data security and distribution, whilst respecting user privacy, of course. The energy market regulator would then need to draw up new regulations in this regard.”

Neutral data management

Why would it be best for distribution system operators to manage this data? Professor Stijn Viaene explains: “It needn’t necessarily be distribution system operators, yet their position as independent parties does put them at an advantage when it comes to facilitating the data-driven revolution of the energy market. Objective parties, monitored by the government, have a neutral role. These neutral parties have the task of ensuring that all players can access the same data in the same manner. A commercial monopoly on this data would be detrimental to consumers”.

This digital transformation will also lead to a cultural revolution among distribution system operators themselves, and to a new way of working. “The focus will no longer be on technology, but rather on customers and on the processes to continually improve service to those customers”, Jorn De Neve concludes.

How can you reinvent yourself as a distribution system operator in the digital era?

The research reportWhat every DSO should know about digital’ provides distribution system operators with insights into how they can become fast-paced digital players in the energy market of the future. The report was drawn up by the KPMG Chair ‘Rising to the Power Grid Challenge’ at Vlerick Business School.

Researchers at the Vlerick Energy Centre asked 108 executives from distribution system operators in 24 European countries what they believe will be the main changes in their sector by 2020. Workshops were also held, along with in-depth interviews with six leading distribution system operators.

According to Stijn Viaene, “distribution system operators are still familiarising themselves with their new role as data providers. For example, what does it mean to make your data accessible for application development? Can you disclose everything? The learning process is expected to take a few more years. Our research is useful for the development of some initial recommendations for distribution system operators.” 

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