Digitalisation and the energy sector

Andy Compton, director at Compton Energy Associates and Matthew Brown, energy lawyer at LexisNexis, examine the opportunities and challenges presented to the energy sector by digitalisation.

The advance of digitalisation is evidenced by our increased use of buzzwords, such as data analytics, machine learning, Industry 4.0 and the internet of things (IoT). This has been accompanied by an explosion in the quantity of commercially useful data, and the introduction of artificial intelligence (AI) derived tools to analyse it in great depth. This is presenting ground-breaking business opportunities across the economy. Few doubt the transformative powers of digitalisation, not least in the energy sector. However, in common with all profound technological changes, there are risks and concerns.

An indicator of the growing importance of digitalisation in the energy arena is demonstrated by the International Energy Association’s (IEA’s) assessment that in 2016, energy companies invested almost 40% more in digital electricity infrastructure ($47bn) than in gas-fired generation ($34bn) worldwide [1]. Whilst the energy sector has utilised digital technology for decades, the sector has historically been risk-averse in its approach to adopting truly cutting-edge technology, governed more by its responsibilities to maintain energy security and ensure safety. Yet, as the energy market becomes increasingly fragmented, it is clear that digitalisation is presenting opportunities and threats at a number of points in the value chain, from smart meters to tools for managing the entire system.

Digitalisation arrives at a critical time. The energy system, designed and built around different technologies, and for different purposes, requires transformative change to respond to a highly distributed network of largely renewable energy projects, with an increasing number of smaller generators and/or storage providers, including ‘prosumers’ (consumers who also produce power). This change means increased complexity, with more interactions between energy vectors, increasingly variable supply and new sources of demand.

At present, perhaps the greatest changes are occurring in utility-scale power generation, where combined cycle gas turbine (CCGT) power plants are progressively becoming unable to operate as