Electricity: generating value through digital transformation
Digital transformation could unlock $1.3 trillion of value for the electricity sector – if it embraces digitalization.
The electricity sector is ripe for realizing value from rapid digital transformation. By leveraging the building blocks of digitalization, such as service platforms, smart devices, cloud and advanced analytics, companies in the industry have the opportunity to increase the asset life cycle of infrastructure, optimize electricity network flows and innovate with customer-centric products.
Yet the maturity of digital initiatives in the industry is varied – from projects using advanced analytics to optimize assets and the widespread implementation of smart meters, to early moves by some utilities to manage and integrate distributed generation resources. As the sector continues to adapt to the various transformations taking place, digitalization must be a key priority, and, indeed, can support the development of new business models to respond to these industry shifts.
Digital technologies have tremendous potential to contribute to growth in the sector and help deliver exceptional shareholder, customer and environmental value. Four themes emerge for creating value:
|Asset life cycle management|
Technology solutions can enable real-time remote-control or predictive maintenance to extend the life cycle or operating efficiency of the generation, transmission or distribution of assets and infrastructure.
|Grid optimization and aggregation|
Grid optimization is possible through real-time load balancing, network controls and end-to-end connected markets, enabled by connected assets, machines, devices and advanced monitoring capability.
|Integrated customer services|
Innovative, digitally enabled products and services relating to energy generation and management are bundled into an integrated customer service.
|‘Beyond the electron’|
Hyper-personalized connected services beyond the electricity value chain that adapt to the consumer. Electricity moves from being a commodity to becoming an experience.
Calculating the value of digitalization in the electricity industry
Our value-at-stake analysis is a quantitative model that aims to assess the cumulative value impact over the next 10 years of digital transformation initiatives on the electricity industry, its customers, society and the environment.
There is immense opportunity for the electricity industry to unlock new value from digital initiatives. We estimate that from 2016 to 2025, there is $1.3 trillion of value to be captured globally. Of the 11 initiatives included in our analysis, five are worth at least $100 billion over the next 10 years and should be prioritized for investment (see graphic below).
Value creation for both industry and society has become a win-win and electricity players have an important role to play in translating the $2 trillion opportunity into tangible benefit. Our estimates of the societal benefits are modest and include just three factors: value creation for customers (worth $986 billion); reduction in carbon emissions ($754 billion); and net job creation ($271 billion).
Electricity: value at stake for industry and society (2016-2025, by digital initiative)
Source: World Economic Forum / Accenture analysis
These digital themes have the potential to create significant value for industry and society:
Asset life cycle management
This innovation has the greatest value potential among all the digital initiatives, to the tune of $480 billion over the next 10 years. Utility firms are likely to improve margins from lower repair and maintenance costs, lower downtime of assets and fewer critical breakdowns.
Grid optimization and aggregation
This digital theme is worth a projected $440 billion to industry and $1.2 trillion to society. These innovations enable smarter saving choices for customers, create jobs and reduce peak demand, thus lowering carbon emissions.
Unlocking societal value real-time supply and demand platforms
By monitoring and communicating real-time supply and demand, and pairing it to a discriminatory pricing framework, these platforms change behaviours through tariffs, localized pricing signals and interconnectivity. New behaviours could save customers $559 billion over the next decade. They could also lower peak demand situations, thus reducing CO2 emissions by 1 billion tonnes. For this initiative to be successful, system operators must put in place the necessary infrastructure.
Value at stake from real-time supply and demand platforms
Source: World Economic Forum / Accenture analysis
Integrated customer services
This digital theme could be worth up to $440 billion to industry, with value migration driven by consumer renewables. There is significant value to be captured by developing plays in integrating renewable resources and investing in digital channels that empower the consumer to manage their electricity consumption.
Beyond the electron
Initiatives in this theme could not be quantified and are excluded from the value at stake analysis. Such initiatives could be described as ‘unknowns’ to industry. Nevertheless, big wins in customer value are expected for those that move quickly to market such services.
Implications for employment and skills
Current estimates of global job losses due to digitalization range as high as 2 billion by 2030, but there is considerable variation in these projections. Our analysis points to significant opportunity in the electricity sector for digitalization to create jobs. Digital initiatives will create up to 3.45 million new jobs between 2016 and 2025 – translating to 10.7% job growth in the electricity industry. Job creation potential is highest in the consumer renewables sector, with energy storage integration creating up to 1.07 million new jobs. New jobs in smart asset planning (925,000 new jobs) and asset performance management (596,000) more than address job loss from automation or more efficient technologies.
A significant problem that utilities are facing is an ageing workforce, with a weak pipeline of new talent and a potential productivity gap as new employees are recruited and trained. Digital initiatives go some way in ensuring that experience is captured as the workforce retires, with significant productivity gains expected.
Building a sustainable energy system
Digital initiatives offer immense opportunity to decarbonize the energy system, with the potential to realize an estimated 15.8 billion tonnes of net avoided CO2 emissions. When viewed as a product of the social cost of carbon emissions and inflation forecasts, this could translate into $454 billion value for society over the next 10 years. If smart asset planning and management, and energy storage integration were universal, we estimate that up to 8.8 billion tonnes of CO2 emissions could be saved by 2025, creating $418 billion of new value for the economy.
Business models for a digital industry
Four business models become clear from this analysis of the digital themes emerging from the electricity industry: low-carbon energy producers, distribution platform optimizers, energy solution integrators and beyond the electron providers. Enterprises will need to decide which of these growth platforms to plan for and invest in, based on a review of existing capabilities and infrastructure, and coupled with an understanding of how digital fits into their overall corporate strategy.
Low-carbon energy producers
Electricity firms must build a low-carbon supply portfolio, optimizing both central and distributed generation sources through digital technologies. Successful players will achieve scale by balancing a broad array of generation assets on a digital platform that is low-carbon, cost-efficient and safe. Growth will come from expanding to a broader range of assets, penetrating new markets and using real-time analytics to manage assets more effectively.
Distribution platform optimizers
Utilities will become empowered to serve as energy clearing houses, creating an optimized grid with interoperable standards. This will only be possible through a long-term commitment to partner with both peers and competitors. Engaging with regulators will be essential to redesign the market, so that it becomes a performance-based model for distribution that works for all of its participants.
Energy solution integrators
The energy management market is highly fragmented with multiple actors – from energy utilities, facilities management, building and industrial, to IT or pure-play energy services. There is value to be created through a brokerage model that simplifies energy provision for the end user. Success in this market will be driven by the ability to provide customers with solutions that have the flexibility to control, monitor and switch between different energy sources. An integrated solution will help close the ‘trust gap’ between utilities and customers.
Beyond the electron providers
Electricity companies will move beyond traditional industry boundaries to provide innovative cross-industry services. Success will depend on inter- and intra-industry partnerships, as industries and experiences come together.