18 July 2019

5min

Energy and Utilities

Energy consumption cannot be separated from modern life. It allows us to have comfortable temperatures in both summer and winter, travel long distances, and access competitive products, equipment, and services that are becoming available for the first time and offered by automated and global industries.

The challenge of producing more and cleaner energy

During their entire life, a French citizen consumes the equivalent of 4 tons of oil. This figure rises to 7 in North America and drops to less than 1 in African countries.

The industry has traditionally been structured to be able to meet an ever-increasing demand for energy. Energy companies were to make sure that all taxpayers were provided with sufficient power at an affordable price. So far, then, their main focus was maximising the supply towards energy consuming countries. While this premise remains mostly true, given the rise in global demand due to population growth and higher living standards, it is no longer the only factor in the equation.

For the past fifteen years or so, new requirements have come into play and challenged this traditional operating model, particularly concerning the quality of produced and consumed energy. The first requirement is the neutralisation of the industry’s contribution to global warming by reducing greenhouse gas emissions from fossil fuels. The second one demands controlling waste and pollution, which are a by-product of energy production and consumption. This waste is essentially of nuclear origin and the associated pollution constitutes fine particles and visual pollution. Lastly, the third requirement concerns anticipating industrial risks more reliably, especially those associated with nuclear power.

The energy industry is caught at a crossroads and needs to deal with the contradictory expectations of its customers, who want to consume more but cleaner energy.

Challenges for energy players

Energy companies operate in mostly free markets, which means that they need to go out there and attract customers. In the short term, the transition from a monopoly to a competitive market means that they must retain customers while opening new national and international markets, but they will only be successful if energy remains economically accessible. This requires implementing complex mechanisms of taxation and state subsidies to control consumer prices and cover the overall costs of production, represented by the acquisition and conversion of equipment.

As a result, players in the energy industry need to reinvent their business models, and today they sell not only energy, but also energy services and saving schemes. This enables them to get a head start on new competitors who take advantage of digital technology and public incentives to promote sustainable consumption.

Energy companies also need to control their development as well as their efficiency and agility. Compared to the manufacturing industry, energy markets have long been uncompetitive. However, being efficient and agile is absolutely essential to successfully navigate the major transformations taking place in the industry.

On top of that, they need to score successes in big projects, in terms of both size and impact, and, to do this, they rely on increasingly ambitious industrial investments and information systems.

Lastly, they need to develop their human capital. Traditionally, energy companies could keep their teams stable over time, given the regulated and predictable nature of the markets. Today, though, they must strengthen the skills of these teams to be able to meet the challenges posed by increasingly complex and uncertain markets.

Challenges for consumers

The transformation of the energy industry does not only impact corporations. Consumers and public bodies are also compelled to participate in this transition and understand its challenges. As with any other economic player, the actions of energy companies will be essentially guided by the expectations of customers and regulators. So what to do next?

First, consumers must understand how energy works, its physical, and even chemical foundations. Like this, everyone will be able to articulate their expectations as accurately as possible. It is necessary to carry out large-scale, awareness-raising actions with consumers, businesses, and politicians. On the one hand, consumers are utterly lost as a result of the multiple and often contradictory messages they receive, which can be as positive as they can be guilt-laden. On the other hand, energy consuming companies are discovering and trying to understand a whole new area that goes beyond their core business. Lastly, political stakeholders struggle to implement an energy strategy that attracts widespread support. Energy is our collective responsibility.

Second, consumers have the power to start a movement, for instance, by asking companies to invest in the critical aspects of the energy transition. Since energy is an increasingly sensitive issue for both politicians and consumers, the former will make choices, while the latter will have the power to drive such choices and manage change by evolving their energy uses.

The transformation of the energy industry cannot be reduced to technological change: it implies a transformation of practices and lifestyles. It is not just a question of, for example, switching from a regular vehicle to an electric one, or from nuclear to wind or solar power. We are talking about complex dynamics having a direct impact on consumers’ private lives. It is not a low-key transformation that can be achieved through minor incentives and painless taxation policies, but a revolution that will require making tough political, economic, and philosophical choices, finding compromises, and securing the involvement of a social group that is, by nature, uncomfortable with change.

Success factors

At the crossroads of multiple domains, energy is related to science, technology, politics, sociology, and communication. Digital technology will be one of the keys to a successful energy transition for market players, but also for consumers and political stakeholders.

Systems of energy measurement, analysis, exchange, and management will need to be upgraded to provide real-time data. This significant evolution relies on physical, price control, and regulatory measures to support increasingly complex energy supply systems, give consumers control over their energy use, and maintain the critical balance between supply and demand.

Lastly, one of the major challenges for the coming years will be to help the stakeholders understand the scale of energy usage, as well as to visualise, simulate, and measure the impact of the initiatives that have been implemented so far. This is the only way to ensure that the chosen strategies achieve their objectives. It is also a prerequisite for the coherent mobilisation of a very diverse community of stakeholders, which range from businesses in the energy industry, such as producers, transporters, distributors, sellers, and service companies, to consumers, who can be either individuals, professionals, or companies, without forgetting political players like public bodies, political parties and the media, whose role is essential to the success of the energy transition.