POWERGEN

The new ecosystem: Where will winners come from in energy future?

The energy business consists of several multi-trillion dollar ecosystems that, depending on where you look or who you ask, are slowly evolving, being disrupted, or somewhere in between.

Questions persist: Who will make money in the energy sector of the future and who will fade from the scene?  Politics and regulation certainly matter, but how much? What will the global energy system of 2030 or 2050 look like? Will customers pay for “energy as a service,” similar to how they now pay for Internet access or cable TV? Will large, centralized, electrical grids be replaced by interconnected grids of smaller electrical power producers? What will be the impact of policies and climate change on energy sources and energy consumption?

A useful way to dissect the energy ecosystem around these questions is to consider the players in the ecosystem, how they interact, and the environment in which they reside. Indeed, the energy ecosystem and the political and regulatory environment in which it operates, is evolving quickly, with new suppliers, delivery methods, and energy sources gaining a foothold and new relationships developing between producers and consumers. For example, electricity’s role in the U.S. transportation system — today nearly zero- will grow significantly. Coal use will continue to decrease, while use of natural gas and renewables for electric power will increase.   Information technology, cybersecurity, and artificial intelligence will create significant value, both in improved performance of underlying technologies and in customer service.  What else could change in the next 10, 20, or 30 years? Here are some trends that could drive the energy ecosystem’s transformation.

New players, new ways of doing business

As noted above, a useful way to dissect the energy ecosystem is to consider players, interactions, and their environment — let’s consider these players first.   Of the dominant consumers, electricity users consume about 37 percent of US energy. The transportation sector, i.e., cars or trucks, consumes about 28 percent and is powered by oil, including a lot of imported oil.  The other main consumer, industry, consumes 26 percent and includes manufacturing, refining, and plastic producers who primarily use hydrocarbons.

New players will join the ecosystem – as Amazon, Google, and other tech companies have replaced General Motors, Ford, and GE as dominant U.S. corporate giants, their business models will play a role in the energy ecosystem. In many cases these IT giants make their money by operating platforms, rather than selling products, and create value by facilitating exchanges between independent groups (think Amazon) or by owning, aggregating, and ultimately monetizing large data sets (think Google).  

Moreover, the electricity needed by their server farms is turning into a major new energy consumer, hitting 10 percent of U.S. electricity consumption by 2030 according to some projections.  Also, transportation companies, such as automobile companies, will increasingly engage in the electricity system as more electric vehicles are produced.

From a centralized system to microgrids

How might the interactions between players evolve? Electric power delivery has historically been based on large centralized power stations. Increasingly, we see many microgrids and smaller electric power producers–even as small as rooftop solar panels. The cost of solar panels has dropped significantly,  and the deployment of energy storage on a large scale–a crucial factor when drawing power from variable renewable sources such as wind or solar–is also becoming cheaper and more diverse.

To what extent will small scale producers influence future energy business models and players? It could mean players who have traditionally been energy consumers will have the chance to become both consumers and providers, or “prosumers.”  Walmart, for example,  could sell extra power capacity back to the electric grid. Homeowners with solar panels could enter electricity markets, empowered by blockchain to facilitate transactions. Yes, someday your neighbor’s freezer might run off power from your rooftop photovoltaic panels.

Moreover, the service business model is fundamentally different than the business model of traditional players in the energy sector, and the growing role of IT and software companies in energy could change how it is sold as well as the strategies used to make money. For example, imagine a world where you pay for “energy as a service” (e.g., a lump sum to keep your lights on and house warm), rather than per unit energy delivered. We already see similar changes in transportation, where Uber and Lyft, companies based on platform business models, are ushering in a new way for people to interact with vehicles. This  “mobility as a service” model focuses on people getting from one point to the other, using a vehicle or scooter not owned by the user. 

Finally, cybersecurity considerations will influence these interactions.  As the energy system becomes more decentralized, with many more interconnects and players, many new points of access and vulnerability will be introduced. 

Energy policy and climate change

How about the external environment that governs who the players are and how they interact?  In the energy ecosystem, federal, state, and local governments exert a profound influence. Indeed, legislation like the Clean Air Act has already influenced the technology mix (e.g., making coal more expensive, and favoring natural gas). Moving forward, CO2 restrictions will reduce hydrocarbon usage because it will make it more expensive. This will happen through some combination of government actions and customer demand.

The electricity and transportation systems are the key contributors to CO2 emissions, but regulations will influence these sectors differently.  For example, carbon capture from centralized coal plants used for electricity production is a viable technology with large-scale demonstrations today.  Similarly, electric power can be produced via wind or solar energy.  In contrast, the transportation sector relies almost exclusively on hydrocarbons, and  it seems unlikely that we will capture CO2 from individual cars or trucks.  This implies either electrification of the vehicle fleet or using a decarbonized fuel.  Many scenarios call for using low-cost electric power when it is not needed to produce decarbonized fuels, such as hydrogen or synthetic gasoline.  Such a trend would add new connections between the U.S. fuels and electricity sectors, which are essentially decoupled today. 

Finally, data regulation and growing oversight of big IT companies is an interesting trend to watch.  Even as we see growing monopolization and monetization of personal data by large platform companies like Facebook and Amazon, there are forces in play to “democratize” data or even break up these big firms.  Schemes for monetizing energy services based upon consumers freely providing their data will certainly be impacted.

Interconnected transportation and energy sectors

Today’s energy ecosystem is really two systems that are almost totally decoupled. The electrical system is powered mostly by natural gas, along with coal and increasingly, renewables like wind and solar. In contrast, the transportation system runs almost exclusively on gasoline or diesel- powered internal combustion engines. As a result, transportation historically has been tightly tied to global energy geopolitics; electricity has not, as we produce it all domestically. That’s why geopolitics affects how much we pay for gasoline at the pump but not our electric bills. However, growth in domestic oil production and the interest in electric vehicles will make U.S. transportation less affected by these global influences.   As transportation electrifies, its relationship to the energy system will become more interdependent, creating new opportunities for arbitrage and offering new, cost-effective ways of providing and consuming energy.

A host of other factors will influence the evolution of the U.S. energy ecosystem. The deployment of large-scale storage will create new markets by enabling electricity storage, enabling arbitrage opportunities across fluctuating electricity prices, will change the “just-in-time” delivery model that drives electricity markets today, and make the use of wind and solar power more feasible. Decentralization, new players, and new connections between industry sectors will mean new points of access, and that translates into new cybersecurity threats.   Finally, CO2 emissions will loom increasingly large as a factor driving the system.

So, who will make money in this new world of energy?  The energy ecosystem will diversify and adopt new business models. The line between energy consumer and energy producer will blur and cybersecurity will become even more crucial.  Blockchain will facilitate new ways of interaction between large and small customers.  The U.S. transportation and electricity sectors will increasingly interact, and businesses will emerge that straddle these formerly disparate sectors.  The petrochemical energy sector will evolve to being a manufacturer of an array of energy carriers.  Ownership of high quality data will increasingly create value.  Platform business models will continue to change how infrastructure and energy systems are owned and operated.  Overall, these new winners will be those that understand how the players, their interactions, and the environment in which they work are evolving. 

Tim Lieuwen

About the author: Tim Lieuwen, PhD, is the Executive Director of the Strategic Energy Institute at the Georgia Institute of Technology.  In this capacity, he works closely with industry, government, and academics across the entire energy value chain.  Lieuwen is an international authority on clean energy and is founder and CTO of TurbineLogic, an analytics firm working in the energy industry. He holds the David S. Lewis, Jr. Chair at Georgia Tech and has authored four books and more than 350 other publications.  Lieuwen also holds board positions with Oak Ridge National Laboratory, Pacific Northwest National Laboratory, and the National Renewable Energy Laboratory. He is an elected member of the National Academy of Engineering, and was appointed by the U.S. Secretary of Energy to the National Petroleum Counsel.

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