What the sector looked like in 2022…
- • Soaring energy prices: Due to the political situation in Europe, we are witnessing a huge spike in wholesale gas prices to a point where prices went up 20 - 30 times of what it usually is, and although now we see prices going down, it still is at six times its usual price. This is challenging as for a very long time; we have enjoyed relatively low energy prices that have not soared up to this level in our living memory.
- • Industry response: Several players within the industry who consume high amounts of natural gases like the artificial fertilizers or the chemical industry, have responded in what may be described as the correct functioning of the market. These players stopped running the processes that are not making a profit. It is encouraging to see the market and big players respond with such swiftness.
- • Government response: Governments have also been positive in the way they have responded to this situation. The Dutch government has rolled out several incentives to reduce consumption to cushion the impact of high prices. These include capping of electricity and gas prices for all households in the country, a one-off energy allowance for lower-income households, and for all households, specific discounts on their energy bills.
Sector forecast for 2023
- • Alternative and sustainable energy sources: While efforts to move towards renewable energy have been ongoing since the past decade, we can expect a rapid and changed attitude towards investments in renewable energy sources now. Renewables will be preferred not only because they are environment friendly, but also because they are a cheaper way to produce energy. Players have also started to look towards nuclear as an effective low carbon dispatchable source. Partnering with specialized experts will ensure efficient management of reactors, longer life extensions, better management of the waste streams, all leading to leveraging more sustainable alternative.
- • Focused attention on energy usage and energy sourcing: End-users have already started to look at ways to reduce consumption leading to the development of many applications on energy efficiency and energy conservation. Bigger energy players are accelerating their move towards renewables and are relooking at all the processes that use energy to locate points of carbon reduction. Regulatory push towards energy reporting will further accelerate these trends and bolster a transformation towards clean energy. This will be complemented by new and digital ways of working that are already evolving in different parts of the world.
- • Decentralized energy sources: Traditionally, energy was generated from a small number of very large power stations and supply was controlled centrally. In this set up, demand was dependent on consumption and power stations would adjust their supply as per the demand. In the new set up, consumers are turning into prosumers and setting up innumerable small power generation plants like solar panels on individual roofs or home biogas energy generation units. High points of energy generation do not necessarily coincide with peak demand times. In effect, we are entering a world where demand should be adjusted to supply. In this scenario, we will have to look towards technology solutions like remote control of demand, smart storage of energy, intelligent insights from usage data, intelligent processes, and many more evolving technology solutions. We also expect community level cooperation where people within a community, like neighborhoods, pool their energy sources together to balance supply and demand.
Brace yourself and be future-ready
- • Be carbon conscious: To stay on top of these trends, one of the most important steps is to optimize energy. One way to do this is to reassess logistic chains and identify areas of energy wastage, unnecessary carbon emissions, and heat expenditure. Accordingly adjust the supply chains to reduce and optimize. For example, most industries use combustion-based processes which generate a lot of heat that gets wasted. Very few companies are monitoring their heat flows within their processes to identify wastage. Doing this can be the first step towards optimization. It is also essential to have continuous discussions along the whole supply chain to understand the impact of emissions reductions at every point of the supply network. Although we see this trend taking off within a few organizations, it is not yet being done at the required levels. Organizations should also get into sourcing from renewable energy. This is not only because of the increasing regulatory requirements from the European legislations, but also to attract consumers who are increasingly making sustainable choices. Additionally, this sends a clear signal to energy suppliers that they should offer a higher proportion of renewable energy.
- • Price is passe, seek specialist advice: Traditionally, buying energy, be it gas or electricity, used to be a simple option based on pricing. This price-based choice is no longer relevant as there are many kinds of technology and intelligent processes that are coming into play. Although some of these technology-driven choices might seem expensive at first, they will go a long way in significant carbon reduction and cost savings. A good example is Capgemini’s Energy Command Center which aims to manage the energy demand of a building in a smart way. It is built on an IoT based architecture for intuitive resource management that harnesses a data-driven approach and digitalization to monitor and manage performance of energy assets. For a building like a large office block, or maybe a hospital which covers different areas requiring different energy usage patterns, this command center is an effective way to manage energy. There are many new technology solutions that are being developed at this moment and it is important that one takes an informed decision through consultation with the right experts while making energy choices.
- • Upskill and Re-skill: As we have already mentioned, the energy sector is undergoing major transition and there is a lot of new and evolving technology that calls for new skills and talent. Currently, the sector is facing a shortage of skilled people as the transition has created an increasing need for people with specialized electrical and mechanical skills. There are not enough people required to meet the transition ambition that Europe, and the rest of the world has. Talent, or lack of it, will not only create a bottleneck in the energy transition, but be a real threat to the swiftness with which we can install the technologies needed for the coming years. To ride over this challenge, firmer political action coupled with re-skilling initiatives are required. The efforts by the Dutch Government to address this skill gap through retraining is encouraging. Industry wide re-skilling will be one of the top priorities for this year.
- • Embrace an open data architecture and be Cybersecure: The transformation in the sector has made the entire energy ecosystem extremely data centric. Each of the many distributed sources of energy generation is measuring and collecting huge amounts of data within this ecosystem. Ideally, this data should be exchanged between different players involved in the energy supply chain, and datasets should be matched with the wider market. This calls for a fresh look at the whole data architecture of the energy sector and organizations should not shy away from embracing an open architecture. To be successful in the future of the energy market, organizations need to ensure ease of sharing data with other players. As the sector becomes increasingly digitized through smart grids, autonomous systems, and connected devices, they will be a possibility of vulnerability to cyber-attacks. To protect against these threats, businesses must invest heavily in cybersecurity measures such as encryption technologies, from Day 0 to keep their data secure whilst also ensuring compliance to regulatory standards.
It is crystal clear that the sector is transitioning towards Zero Carbon. However, there is a huge uncertainty within the industry on how fast this is currently going, the swiftness of action expected from the players, and the ideal way to go about it. To clear the uncertainties, governments and political players should step in to ban fossil fuels. An instant ban is not practical, but a certain amount of firmness on this issue will go a long way. In this context, it is worth mentioning that from January 1, 2023, all non-residential buildings in the Netherlands need to have an Energy Label C. Whilst everyone knows about this regulation, it is still uncertain how many buildings were ready by the stipulated date. What is certain, is that the energy transition is here to stay, and energy players and large consumers of energy need to brace themselves up fast, starting now.
