The energy business is changing - digitization is one of the key ingredients of the shift happening. How do you perceive the status quo of the interplay between the traditional hardware side and the new digital energy business?
New digital business models are clearly making inroads in the energy sector, but the development is not yet as fast as many had expected just a couple of years back. A key driver for data and platform technologies moving to the fore is the upcoming trend towards a more distributed energy system coupled with greater penetration of renewables. Matching supply and demand will become a lot harder and will require more machine smartness once today’s fleet of centralized power-generation plants – be they fossil-fueled or nuclear – are retiring. Expect the role of digital technologies and data-based services to strongly gain in importance over the coming 5-10 years.
Where do you see the biggest innovation opportunities for the big energy players?
Starting with the power-generation side of the energy industry, cost reduction will remain an important topic for the foreseeable future. This can mean e.g. predictive technologies for better maintenance and less downtime of assets, operations optimization for entire fleets, or business optimization through smarter scheduling of plant dispatch etc. On the grid side, i.e. in the regulated sector of the electricity market, solutions for ensuring or improving system stability are becoming more important. This may include better forecasting of supply and demand in a decarbonized world, and new services for demand-side management on a larger scale. Obviously, in all of the above opportunities data, analytics, and digital capabilities play an essential role.
So, options for a successful change are there. However, it is often difficult to start. How do you think energy companies can tackle the challenges of the future? Where should they begin?
When you look only a couple of years back, the idea of ‘wholesale digital transformation’ was on everybody’s mind. That meant redefining a business from the ground up. Not much good has come out of it for large industrial companies, other than expensive learning from failures. In my view, the more appropriate approach to digitalizing also in energy companies is to progress ‘one app at a time’. How can a data-based service help a company do even better what it already does well? How can it help fix long-standing weaknesses? There are obvious and near-term opportunities in every company that should be tackled first. Quick wins will then help a digitization initiative to build the credibility and track record it needs for long-term success.
Which role, do you think, will hardware business play in the future of energy?
Let me phrase it like that, our world is and remains fundamentally material. Improvements in hardware and how it’s being operated will be as critical in the future as they were in the past. The difference is the extent to which software and data analytics will be needed to support these future improvements in generating, distributing and consuming electrical energy. The physical and the digital will co-evolve going forward, both needed and none able to deliver the necessary changes in efficiency and sustainability on their own.
How do you perceive the role of the customer in the changing energy sector?
To me, the advent of the so-called ‘prosumer’, who is both a producer and consumer of electricity, is possibly one of the most disruptive developments in energy markets. It’s not a major force today, to be honest, but it will no doubt change the balance of power in the energy space moving forward. Consumers so far have remained fairly passive. Few even bother to change their electricity provider in order to save money – even if a better offering is just a mouse click away. But I’m quite certain that attitudes will change once a large enough group of individuals or households are starting to sell energy from their roof-mounted PV panels to other users.
Change also requires companies to look at themselves and their processes. Where do you see the biggest needs for organizational development in the energy business?
Personally, I’m taking it as a given that the whole energy sector will remain in flux and will have to come to terms with fundamental uncertainty for many years to come. The ability of companies to continually adapt has become a core competency in this industry, for small and large players alike. In my consultancy work, I often find that a perceived lack of organizational flexibility is too quickly attributed to cultural factors. Sometimes the mindset of an industry is blamed, sometimes allegedly narrow-minded middle managers. I’m not disputing the role of company culture or attitudes, but much more critical are structural factors. Every organization that has gone through years of continuous improvement has inevitably traded flexibility for efficiency. I would recommend any company to analyze themselves in terms of operational interfaces between teams, functions and also external stakeholders. Many of those may turn out to be so hard-wired that the way how business can be done becomes hard-wired too. A flexible organization can’t afford that. And, yes, flexibility comes with overhead and the need for more and better leadership. But there’s just no way around that.
Our world remains fundamentally material. Improvements in hardware and how it’s being operated will be as critical in the future as they were in the past. The difference is the extent to which software and data analytics will be needed to support these future improvements in generating, distributing and consuming electrical energy. Going forward, physical and digital will co-evolve, both needed and none able to deliver the necessary changes in efficiency and sustainability on their own.
Looking into the future - energy and mobility will need to grow together even more. What are the three key areas both sides should focus on to make this collaboration work?
I’d put openness first. Across industries we’re grappling with inefficiencies which often have to do with an unwillingness to share information with external parties. If we want to make the sector coupling between energy and mobility work, we need to have a lot of data sharing. Second, we need to figure out how profit pools and revenue streams can be made attractive to all participants. If we want everyone on board, there has to be enough in it for everyone. It’s as simple as that. Third, regulation will play a major role in how sector coupling will progress, or even if it will happen at all. Traditionally, the energy and the mobility sector have had their own regulatory regimes, which covered the specific risks and needs of each domain. I cannot see how energy and mobility can really evolve in tandem without the regulatory bodies getting synchronized too.
About Dr. Carlos Härtel
Dr. Carlos Härtel is a strategy advisor to private companies and public-sector organizations and holds a number of board assignments. In Spring 2020, he also joined Futurice as a board member. His operational career in industry spans about two decades in a variety of senior leadership roles, most recently as CTO & Chief Innovation Officer for GE Europe and previously as President & CEO for GE Germany. Carlos Härtel has extensive experience in organizational development, industrial R&D, and innovation management. He studied Aerospace Engineering at RWTH Aachen and TU Munich where he also received his doctorate. Carlos Härtel is past President of the European Industrial Research Management Association (EIRMA).