Comment: Europe’s utilities should embrace role in ICT and smart infrastructure

By Martin Schoenberg

As traditional suppliers face the rise of renewable energy, utilities should look to build expertise in Information Communication Technology solutions

The value of Europe’s top 20 utilities has halved in the past six years and their credit ratings have been downgraded, despite a recent upward trend.

The situation is most stark in Germany where the utilities, the traditional suppliers of power largely through their fossil-fuelled plants, were caught out by the surprise phase out of nuclear power, the sharp decrease in the cost of solar and the rise of renewable generation capacity. Earlier this month, Germany generated two thirds of its power from wind and solar. German utility CEO, Peter Terium, recently declared the situation the “worst structural crisis in the history of energy supply”.

So is there a future for these once mighty actors? There is – but it will require a massive change in their thinking and business model. Utilities must put themselves at the heart of what the German government, borrowing nomenclature from Silicon Valley, is calling Industry 4.0.

This new stage of industrial development will be based on Information Communication Technology (ICT) – smart industry enabled by smart infrastructure. There will be resource efficiency gains from managing information flows, analysing data and managing the distribution of increasing amounts of renewable energy. Information, not energy, will be the driver.

A key element of Industry 4.0, according to new research by Deutsche Bank, is the smart factory which controls fast-growing complexity while boosting production efficiency. In the smart factory there is direct communication between man, machine and resources. This could suit the new energy business.

The utilities – with their advanced engineering capability, specialism in energy systems and close historical ties to transmission and distribution system operators and consumers – have an excellent opportunity to become smart infrastructure solution providers. And coincidentally, there are two main public goods that the utilities could provide in a smart way.

The first is that, while transmission and electricity generation in many European countries becomes more flexible and suitable for renewables expansion, a lack of government incentives in many European countries has meant the distribution grid operators have few commercial reasons to modernise. Markets for flexibility need to be created that will provide those incentives. ICT can be used to balance demand and supply at the smaller distribution grid level which is a much more efficient way of doing it than further up the grid, providing net savings for end users. Thus the stability of the system and its efficiency would improve.

The utilities could also create what have been termed “virtual plants” by aggregating swarms of smaller decentralised plants (ie wind and solar farms) into what the grid recognises as one. Already, the grids in countries like Denmark are managed so well that they can accommodate more than a 40% share of renewable electricity. When using ICT for modernising distribution grids, the share can even be higher.

The second is that utilities could communicate with smart metres and appliances to manage their energy usage in accordance with “time of use” tariffs, allowing them to shift a share of peak demand to hours with lower load, reducing peak capacity.

The utilities could become aggregators of data – challenging the ICT companies (for example Google’s NEST, the US home automation company now selling its Learning Thermostat in Europe) who are their suppliers. This data can be fed back into the scheduling of energy plants and in turn improve distribution grid stability and balancing needs, and it can be used to offer energy efficiency services to end users.

There are three value drivers associated with the increased application of ICT to smart infrastructure: greater flexibility and speed in responding to unforeseen developments, greater coordination between different actors in the energy system, and better flows of information improving efficiency.

Utilities need not just become energy service companies. They can build up expertise in applying ICT solutions to become providers of more far-reaching infrastructure modernisation, utilising their close ties with households, industrial consumers and grid operators to create resilient, resource efficient, smart infrastructure to the benefit of all. And that includes the environment where the saving of CO2 will be considerable.

Martin Schoenberg is head of policy at Climate Change Capital, an environmental asset management and advisory business.

Source: The Guardian