The grid edge gains: How to become a trillionaire

There are many advantages of the transformation currently taking place in the electricity industry, but Roberto Bocca can sum them up in one staggering figure: US$ 2.4 trillion. That is the value creation the Head of Energy and Basic Industry at the World Economic Forum (WEF) predicts through the adoption of grid edge technologies in OECD countries over the next ten years. “This transformation enables industry, utilities and citizens to really extract more value,” says Bocca. “At the same time, there will be more security in the system, an improved asset utilization and also an opportunity for companies like Siemens and other providers to offer more services.”

A recent study the WEF conducted in collaboration with Bain & Company states that new jobs will add to the massive value to society. That’s on top of huge benefits to the environment and reduced carbon dioxide emissions. “Electrification, decentralization and digitalization act in a virtuous circle,” Kristen Panerali, the WEF’s Head of Electricity Industry’ explains. “They are enabling and reinforcing each other and foster developments far beyond their individual contributions.” A real game changer, Panerali believes, and one with huge potential for everyone. However, it requires the willingness to change speedily, and a close collaboration between private and public players, she emphasizes.

According to Bocca, the biggest challenge is the required pace. “This transformation is of an unheard of magnitude,” he says. “Take as an example the announcements recently made by some governments about the mass introduction of electric cars: This entails a management task requiring a new scale of thinking.” Bocca is convinced that only by working together will the public and the private sector manage to ensure maximum value creation. “The public sector must not choose the technology, but it has to create a framework that enables innovation to happen, while the private sector really must innovate and make sure it’s able to extract the value.” One option would be to work out different scenarios that, depending on the actual development, detail consequences and offer policy options.

Innovation does not mean that established utilities with their modern gas turbine power plants are losing out. “We will continue to have centralized generation,” Kristen Panerali says. “But there will be a greater number of players in the market due to decentralization, and I think that the role grid operators will have to play is mostly managing all these different parties.” The result? A system with greater efficiency, something that benefits all. “If more load is needed in a particular area, rather than investing in a new power plant, players could invest in energy efficiency or some other nonwire alternative to obtain that load from decentralized third parties,” Panerali says. Today, in the USA alone, asset utilization is below 60 percent, which leaves much room for improvement. “Connecting things to the Internet and translating the massive inflow of data into usable information in real time allow the optimization of the whole system. Smart technologies, platforms and algorithms are available to the different industry players and to the consumers so we can really drive better economics across the board.”

Bocca sees changing business models, but not necessarily new players. “How and where value is extracted, will change,” he states. “Some players already talk of an electricity flat rate or even free electricity at home, while they create the value through data management.” As to who extracts the value, that could be a newcomer or an existing utility. “The incumbents have an advantageous starting point, if you like, because they are already in contact with the consumer.” Since the lines are increasingly blurring between customers, producers and distributors, the grid will evolve into a platform that allows decentralized sources of all kinds to use it to their best advantage. For this, data management will become a prerequisite. “Questions concerning cybersecurity, privacy, business models and regulation will be key challenges for the digital transformation,” Panerali says.

Furthermore, for the World Economic Forum that was founded in order to promote public-private cooperation, a continuous dialogue is crucial so that frameworks put in place reflect reality. “For the private sector, accepting that this change is happening is key,” Panerali emphasizes. “And we see the willingness to change: Our partner companies are very aware of the transformation and very actively engaged in adapting their business models.”

For the public sector, Panerali calls for best practice and outcome-based regulation, as well as for dynamic pricing. “Being able to provide price signals to encourage customers and to utilize the load at times that make the most sense for a particular load curve is really important,” she says. Especially since these price signals are processed in fully automized systems. “Both industrial and residential consumers want things simple, they just want to use energy at the lowest possible cost – within the system that creates lots of efficiencies.” And, in the end, a staggering value of up to US$ 2.4 trillion.

2017-10-09

Marc Engelhardt reports from Geneva.

Picture credits: Philip Frowein