Energy transformation 2.0
Analytics key to balancing supply and demand with economic and political realities
Imagine the discovery of a new primary energy source, one that could produce 45,000 terawatt hours annually – or 30 percent of global energy consumption – without depleting natural resources, without added pollution, and without political or economic ramifications. Imagine an energy source that is large and clean enough to stop global warming. What might this energy source be worth to the world?
While the economic crisis has overshadowed the energy discussion, the questions that recently demanded our top attention still remain. How much energy is available and in reserve? Who is entitled to use what kind, and how much? Who owns it and controls its distribution? There is an exponentially expanding gap between energy supply, energy demand, and what is culturally and politically acceptable, as well as economically viable. These three pillars of the energy debate will become increasingly divergent as time goes on unless we take a new approach.
It is clear that we have to move beyond the outdated business models of the past, which included one-way flows of power and information and unlimited access to inexpensive carbon fuels. With the collective knowledge of all humans at our disposal, we may find a viable solution to address the energy challenge together, but no individual person, corporation or government can. Public-private partnerships and collaborative initiatives will be essential in 2012 and the years beyond. Extreme change and innovation is needed on the demand side, supply side and the risk angle in order to narrow the gap.
We are fortunate to be able to leverage collective knowledge to make the best possible decisions and effect this type of transformational change, thanks to the advances made in the field of analytics. Transformational change, in turn, will enable us to reduce consumption, increase supply and enhance our ability to safely deliver cleaner energy in an increasingly complex environment.
SAS, as a pioneer in the field of analytics, has an exciting role to play as an enabler for energy evolution and the ultimate transformation of this vital industry.
Next to water and sanitation issues, I don't know of anything that can drive the increase of political tensions between countries like limited access to sufficient energy resources. Reliable access to affordable and socially sanctioned energy forms has the power to change every aspect of our lives – culturally, politically and economically. And although energy loss due to leakage is half that of water loss (which is in excess of 50 percent in most developed cities, like New York or London), it still sits at an unacceptable 32 percent, with a typical power plant in excess of 60 percent. For me, having the opportunity to influence the technology and strategy that enables these needed changes is as exciting as it is challenging.
At 18 percent of the global GDP, energy is the world's largest industrial sector. And its significance is set to expand exponentially as consumption rates continue to rise. Europe's consumption, for example, grew 5 percent during 2010, and China became the world's largest energy consumer (20 percent of the total), producing and consuming almost half the coal used in the world.
With expansion in consumption comes an increase in political tension. For instance, China doesn't understand why the US should be entitled to more oil, and the US doesn't approve of China's rapidly increasing carbon output. This tug-of-war is reflected in every economy across the globe. While technology vendors across the energy landscape have offered solutions to meet industry demands in years past, the role of technology is also evolving. Technology is now at the forefront of progress, with analytics taking the lead as the source of greatest optimism; and with that hope comes the potential to influence the future direction of the entire industry.
The energy sector of tomorrow will require technology that is integrated across the enterprise and the full value chain, and must also address the data deluge by providing energy companies with the ability to differentiate between information needed for strategic, factbased decisions from anomalies and noise. There is a huge opportunity to make health, safety and environmental protection (HSE) programs more effective. Through improved data quality, process automation and removal of data collection barriers, companies can become more responsive and agile by gaining insights previously hidden in administrative or even paper-based systems.
An area of debate both externally and within the energy sector centers on energy reserves and the widening gap between demand and supply. Industry experts are conflicted on this subject. Some say statistics indicate a low risk for energy shortages in the years to come; others say that without huge sustainability efforts, procurement of unconventional energy sources and efficiency gains, the future of the global energy grid to provide affordable energy is dim.
In his interview, industry expert Frank Møllerop explains how a dramatic demographic change – 3 billion people entering the middle class – will drive a significant increase in demand for energy. In China, energy use has more than doubled since 1990. Rapid growth of this kind will lead to a change in how energy is produced and distributed, affected both by socioeconomic shifts in supply and demand and potential changes from new regulations and technologies. Meanwhile, the increased use of smart meter and smart grid technology alone will not result in useful insight or competitive differentiation. Research is uncovering the importance of applying analytics and business intelligence to achieve reductions in energy consumption, peak power and CO2 emissions.
The EU has recommended the implementation of smart metering for 80 percent of the population by 2020. One byproduct of this recommendation will be increased awareness and willingness among consumers about energy savings as well as expectations for the commercial sector to follow suit. Yet green regulatory initiatives need to be financed. Revenue losses coupled with the added expense from reducing carbon outputs, identifying viable alternative energy sources and transitioning infrastructures for greener operations can severely affect affordability.
Research is uncovering the importance of applying analytics and business intelligence to achieve reductions in energy consumption, peak power and CO2 emissions.
This is where technology, and particularly analytics, can play a key role. Our experience with customers from other industries suggests that significant ROI is attainable using analytics to drive down costs and improve service delivery quality. Applying analytics for long-term demand forecasting, planning for integration of renewables or microgeneration, customer offer optimization, risk analysis and mitigation, as well as integrated operations, has the potential to make a huge financial impact and transform the business of utilities in general.
But are they ready? From our experience working with California ISO, North Carolina Electric Membership Corp., Endesa in Spain and EDF Energy in the UK, we've learned the answer is yes.
The race is on for technology companies to identify partners in the energy sector that are ready and willing to become the operators of the future. That's why SAS is working closely with companies such as ConocoPhillips, Vattenfall and E.ON to bring together the best innovators in the energy sector with the best innovator in analytics.
So can you imagine a new energy source, one that can produce one-third of the world's energy with no negative consequences? The answer is within our reach, and will be found with innovation driven by analytics. Analytics has changed what you can imagine into what you can innovate. As the front-runners and mavericks of the energy sector emerge in years ahead, SAS, as a pioneer in the field of analytics, has an exciting role to play as an enabler for energy evolution and the ultimate transformation of this vital industry. Change is inevitable, planned transformation is needed, and the desired outcome is one we can all agree on – an improved quality of life and sustainable global energy system from which we will all benefit.
Bio: As head of an expanding global team of more than 4,000 professionals in over 50 countries, Mikael Hagstrom is passionate about providing a culture where innovation can flourish, resulting in market leadership for the organization and its customers. He leads SAS' Europe, Middle East, Africa and Asia Pacific regions, which account for 54 percent of SAS' 2010 revenue, or $1.3 billion.