The energy sector’s digital transformation and data blockers
In late May a couple of dozen British energy sector specialists crowded into the Churchill Room in the Houses of Parliament – desperately hot despite the cool of the day – and celebrated the January release of the Energy Digitalisation Taskforce’s (EDiT) recommendations – Covid and other crises had held back the launch event.
EDiT chair Laura Sandys, and her report co-author Richard Dobson of the Energy Systems Catapult (ESC), summarised their six areas of recommendation – and made it clear why digitalising the energy sector is so critical: “We’re going from 400 players in the energy sector to hundreds of millions, and [associated] actions and assets. That will not be delivered in an analogue way – [or] actually the system will collapse. The system requires a totally new approach to connectivity to interoperability, to visibility,” Sandys told the event.
The Energy Digitalisation Taskforce recommendations:
- Unlock value of customer actions & assets
- Deliver interoperability
- Implement new digital governance approach & entities
- Adopt digital security measures
- Enable carbon monitoring & accounting
- Embed a digitalisation culture
The EDiT recommendations build on the Department for Business, Energy and Industrial Strategy’s (BEIS) Energy Digitalisation Strategy, published in 2021, and recommendations from the Energy Data Taskforce (also chaired by Sandys), published in 2019. Unlike the BEIS strategy, the EDiT recommendations cover a detailed set of action points, categorised as quick wins, iterative improvements, or strategic interventions.
As the event’s attendees were frank in admitting, however, the energy sector is far behind many other verticals when it comes to digitalisation. Energy has not seen a shift to the use of electronic systems for widespread data sharing and coordination; the kind of digital transformations seen in retail or healthcare or fintech are a long way off.
“The energy industry is not particularly digital, compared to many other segments of the modern economy. It really hasn’t needed to be, to be blunt. The bits that needed to be were, and the rest was not – we did not historically need to digitalise copper wires and transformers necessarily,” said Doug Cook, Ofgem’s deputy director of digitalisation and decentralisation, talking to The Stack on the sidelines of the EDiT recommendations event.
“[But] there’s now very rapid deployment of a very large number of very small things that are very smart… [And to capitalise on the data being produced] we need to move to interoperable data that is transparently shared, that is clearly demarcated; so you know its provenance, you know its history, you know who’s done what to it in the interim period. [It also requires a] change of culture… that has yet to percolate through a lot of the institutions and industry, because there are many who are pretty vested in the status quo.”
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David Sykes, head of data science at Octopus Energy, agreed: “I think people often paint a picture of lots of people shuffling papers. There is a digital infrastructure within the energy sector – but it’s definitely lagging behind where it needs to be in terms of the digitalisation, or the way we’re going to operate the system.”
Octopus is cited as one of the most innovative energy suppliers in the UK market, and operates its own technology division – Kraken – which also supplies other energy providers. Octopus is one of the few UK providers which offers dynamic energy pricing based on wholesale rates, for example, along with an API to allow customers’ smart devices access to the rates: “If you just think about all the assets that are going to hit this system, a lot of them are going to be controllable – EVs, heat pumps, home batteries – and then all the markets that you really need to operate like those assets in an efficient manner. A lot of that stuff needs digital architecture to make it work. You need to be able to address assets, and you need to be able to have protocols for communicating – and you need digital standards for the assets themselves,” Sykes told The Stack.
Energy digitalisation’s biggest challenge: ‘No-one has the remit’
One approach is to centralise data collection, as has been done with the UK’s smart meter system, which is operated by the Data Communications Company (DCC), operated by Capita.
But while the UK’s smart meter roll-out has been plagued by its own problems, a bigger issue is the scale of the data which will need to be processed: “National Grid ESO, or any central body, have absolutely no chance of being able to ingest all of the data about the energy system, synthesise it and create actionable insights that can be used to operate the whole energy system in real time. Not least because energy moves as fast as, if not faster than, data,” Dobson, co-author of the EDiT recommendations, and head of digital and data at the ESC, tells The Stack.
“We can’t have all the data coming in, being processed, creating the insights and operating the system from a centralised perspective. It needs to be somewhat decentralised to work.
“And ultimately,” he adds, “there’s no one that’s got the remit to do it right now…”
The issue of remit is significant. From a technological standpoint, the main considerations for digitalising the UK’s energy system are standards and guidelines – the actual technology already exists.
“Frankly, our needs aren’t unique. There are lots of existing tech stacks that we can just pick up and reuse and enhance to meet the needs,” says Dobson.
“So the approach that we think would be best to take in this area is for government to help kickstart a project, an open source project. So it’s developed from the ground up utilising existing open source technology.”
Developing what EDiT calls a “digital spine” is one of the key recommendations of the taskforce. The digital spine would be publicly owned, and operate as “a thin layer of interaction and interoperability across all players which enables a minimal layer of operation-critical data to be ingested, standardised and shared in near real time” according to the taskforce.
“What we’re really trying to aim for is the lowest, lightest level of intervention possible, that creates just a level of interoperability that’s necessary without going further,” says Dobson. He and the ESC are mindful of concerns around over-regulation – which Octopus’s Sykes raises – and emphasises the need to keep the interoperability layer as minimal as possible.
“Critically, we think it’s really important that you have a challenge group that is constantly pushing back to say ‘that is commercially viable territory, don’t go into that’. So we’re constantly tried to keep it in its box, keep it as small as possible, and allow innovators to develop on top of it,” Dobson explains.
Culture: ‘soft, wishy-washy’; critical
Innovation is happening in the energy sector at the moment, but mostly on the periphery.
As the EDiT report and multiple industry figures say, a large part of this is down to the culture within energy – and changing that culture is a priority, and one of the recommendations of the taskforce.
Felicity Jones is chief growth officer at LiveDiligence, a startup focused on digitising the risk review process for investments into renewable energy projects. LiveDiligence’s SaaS platform allows all the data and documentation for the due diligence process to be done online, making the process more structured and less dependent on manual processes.
“Investors and lenders love it,” Jones tells The Stack – the challenge comes from organisations and people who aren’t used to this type of platform, and don’t have time to get to know it.
She adds: “I think procurement teams are pretty new to onboarding SaaS platforms. And so being comfortable in for them to know what the right cybersecurity questions are, or what else they need, how to trial to get comfortable around user experience. They haven’t got a process – they know how to procure stuff, they know how to procure services, but Software as a Service is a newer model.”
She sees the “overarching challenge” for energy to be cultural: “The sector tends to be the latest of all the sectors to adopt new technologies, or at least that’s historically been the case. And the structure of having regulated utilities or monopolies, so the distribution network operators, for instance – there are cultural challenges there. And that might seem fuzzy and soft and wishy washy, but actually, it’s really important.”
Jones believes the sector has seen progress, particularly in the last year. And she cites National Grid specifically as having a more flexible and innovative culture than some of its peers, and being more willing to have an “open dialogue”. She also notes National Grid has more women in leadership positions than other organisations – in what can be a very male-oriented sector, with roots in traditional engineering backgrounds.
“it’s really important for the leaders of these big companies to recognise the digital transformation that’s needed – and it is transformative. And to realise that means fundamentally different ways of approaching their business, around adopting more of a product culture, having people like product managers, not just relying on engineers. Around the kind of best practice that’s been developed for 20 years in the tech sector, that’s belatedly entering energy,” she says.
Tinder for turbines
Octopus Energy, and its Kraken tech subsidiary, are also innovating; speaking to The Stack, Lara Beers, Kraken’s vice president of global sales, cites the firm’s “Plots for kilowatts” and “Fan Club” projects, examples of what the ESC calls Smart Local Energy Systems. The Octopus projects allow willing communities in the UK to have a wind turbine installed on a suitable site, in exchange for up to 50% off their electricity when the turbine is spinning. Octopus describes the approach as a “dating-agency type platform”, and Beers says the project is unofficially known as “Winder” (as in Tinder).
The Fan Club has two turbines up and running, and aims to have 10 more viable sites identified in the next few months – from a waiting list of 5,000 communities, far more than Octopus expected, according to Beers.
“Usually people don’t want a fan in their backyard, a wind turbine. You’ve got government policies that have been pretty traditionally against onshore wind, because people are concerned. And now I think what’s really interesting, technology is now advanced enough to say, if you have local renewable generation, people in that neighbourhood can actually benefit from it. And it’s a direct correlation,” she says.
On the UK supplier side, Beers sees a lot of the customer-facing technology such as websites as being “pretty slick”, but believes utility providers are still missing a trick when it comes to true digital innovation. She cites the process of doing research for electric vehicle charging and tariffs as “so confusing”, where they could instead offer “a single cohesive ecosystem for an EV experience”.
“What the utilities are missing is that if they don’t lead in this way, they will get disintermediated by the other technologies that are out there, and that are all looking for a piece of that consumer. Nest, Google – it’s literally a battle for consumer mindshare. And the utilities are kind of in pole position, if they could just realise that, and see that they can and should own that customer experience. But again, you have to have the tech that can enable that, you have to try to figure out how to stitch it together,” says Beers.
Innovation around energy digitalisation is happening at the periphery she suggests – because anything else requires resources which just don’t exist. Octopus’s Sykes describes it as a “circular problem”: innovation needs data, data needs infrastructure, and infrastructure needs innovation.
“For instance, in the local networks, we wanted to do really intelligent stuff around like constraint or congestion pricing, to make sure we didn’t blow the feeder at the end of your street. For that, you would need to understand every phase that each house is on, you need to understand the capacity of the feeder itself, need to have live monitoring on that feeder. But to do that you need to get the data. And then you need the data monitoring, and you need persistence to do it,” Sykes explains.
“So it’s a bit of, oh, we can’t do that, because we don’t have the data, and we can’t evaluate it because we don’t have the data. So we’re kind of stuck.”
How do you eat an elephant?
And this is where the UK government comes in. New legislation and regulatory direction is needed to slice through the gordian knot of energy digitalisation.
At the EDiT recommendations launch event in May, the energy minister Greg Hands wasn’t able to attend – the soaring cost of gas was a pressing concern at that moment and called him elsewhere. In his stead, Teresa Camey, deputy director for electricity systems at BEIS, spoke at the event, highlighting the department’s energy digitalisation strategy published last year and emphasising how important digitalisation is.
“In terms of responding to the task force recommendations in government, work is already well underway to support and facilitate this transformation. The prime minister unveiled at least £1 billion to be spent on accelerating the commercialisation of low carbon technologies in the early 2020s as part of his 10 point plan [for a Green Industrial Revolution], and that included £65 million for the Flexibility Innovation Programme, of which digitalisation is a key pillar,” said Camey.
But the main Green Industrial Revolution plan, published in November 2020, doesn’t mention energy digitalisation – or even the word digital – once. The Flexibility Innovation Programme, which falls under that plan, does address energy digitalisation, primarily through a series of competitions, with funding ranging from £1 million to £14.35 million, to develop systems for “vehicle-to-everything” bi-directional EV charging, “interoperable demand-side response” smart appliances, smart meter data and IoT projects, and more.
These competitions will be in phases, with initial phases focused on business models and prototypes – later stages, starting in 2023, aim to see participants deliver working models, on a small scale.
As for those critical EDiT recommendations, a BEIS spokesperson told The Stack that the government, Ofgem and Innovate UK are “currently considering the recommendations in detail… The digitalisation of the energy sector will help maximise the use and supply of clean renewable energy and support network companies in making effective planning decisions. This will increase the efficiency of the changing energy system, with savings passed onto consumers through energy bills,” said the spokesperson in an emailed comment.
John Wilson, a partner at Energy Growth Momentum, an investment firm focused on renewable energy, told The Stack the UK “hasn’t seen the pain” of having to deal with the much more volatile grid that comes with a higher mix of renewables – he mentions the threshold of 20% solar generation as a tipping point.
“I think the UK at this point in time has got the luxury of actually reviewing what everyone else is doing, taking stock and actually putting in place as foundations to facilitate a market.
“Whereas you look at like Australia, and you look at California, they’re having to deal with problems in real time. And then react and retrofit in turn,” Wilson tells The Stack.
LiveDiligence’s Jones agrees, and says it’s “early days” for the government energy digitalisation response.
“How do you eat an elephant? One bite at a time. You need to start somewhere, and so it’s partly about getting stuck into projects, pilot sandboxes, getting on and doing stuff. And in the very act of doing, your culture evolves – you become digital by habitually being digital in your approach.
“So I think rather than try to imagine the perfect future and conceptualise it and be paralysed by the impossibility – just get on with it.”