The Transformational Impact of Digital on Energy

The energy sector is being overhauled globally. Four external drivers are accelerating the shift to decarbonization, decentralization and digitalization. And there is no going back.

Driver one is the customer. Customers are focused on green and sustainable outcomes. They choose their energy supplier and the greenness of their consumption. They generate and sell their own energy. Their “wants” are informed by their experiences in other sectors, like finance, telecoms and retail. And now they expect the same from energy too.

Regulation and policymaking is driving take-up of solutions that incentivize and support green recovery. In pursuit of compliance with global carbon emission-reduction policies, utilities are forced to retire legacy and polluting assets and transition to alternative business models.

Investors take their cue from governments and consumers and are distancing themselves from carbon-intensive industries. As time runs out on current high carbon intensive utility business models, they are putting their money behind greener and renewable energy alternatives.

Accelerating these first three drivers of change is a fourth. Technology. Energy innovations, including affordable solutions for renewables, energy storage and electric mobility, are all made possible by technology. They coincide with advances in cloud computing, artificial intelligence and the Internet of Things, which make energy cheaper to generate, transmit and distribute.

While these four drivers are in full throttle, less predictable occurrences are forcing change on the sector too. The COVID-19 pandemic has both depressed and shifted energy demand and advanced the need for digital and contactless solutions by as much as a decade. When economies get back to work, utilities must be “hyper-connected” across assets, functions, systems and processes if they are to guarantee uninterrupted energy supply and support initiatives to build back better.

As the energy landscape changes, so too the characteristics on which utilities are judged. Beside conventional measures, like reliability, affordability and efficiency of energy supply, utilities are expected to demonstrate greater flexibility and agility and deliver exceptional user experience. And that, for a century-old industry, is no small ask.

Delivering on these shifting dynamics makes digital a critical and integral component of the utility of the future. Indeed, much of the transformation will not happen without digitalization.

Becoming a Digital Utility

Many businesses, utilities among them, mistake “doing digital” for “being digital.” If they are to derive long-term value from transformation and deliver everything expected of them within the new energy landscape, then utilities have to “be digital.”

EY believes that the future utility will be structured around its operations, assets, customers and employees. While digitalization of physical operations and assets will enhance performance, improved human experiences will drive utilities’ revenue growth. The outcome will be optimal performance today and sustainable growth tomorrow.

Getting to this future state hinges on the right building blocks – operating model, IT and data architecture – as well as governance and decision-making mechanisms to manage the entire transformation journey. Utilities that do this successfully, in EY’s experience:

• Put humans at the center by listening to customer and employee expectations and concerns, and harnessing their appetite for and acceptance of change.
• Leverage technology at speed and regard it as a source of creativity and competitive advantage.
• Innovate at scale, becoming nimbler and collaborating to implement major changes.

How Mexico Is Handling the Digital Transition

The digital transition is global, but challenges are local. To understand the drivers and barriers to digitalization in the Mexican market, and its future potential, EY undertook in-depth interviews with 10 energy businesses and eight other stakeholders, including government entities and trade unions.

We found impetus for digitalization in Mexico comes from imperatives to reduce costs, optimize the workforce and increase production. Utilities are alert to the need to remain competitive and ensure their future stability. They must also manage an influx of distributed energy resources onto their networks, which will be essential, post-pandemic, for economic and social resilience.

Our analysis found that barriers to digitalization are mostly regulatory. Data, in particular, presents significant privacy and security risks. To get around it, companies now distinguish between sensitive data, held on local private company systems, and the rest, which resides in hybrid cloud systems.

Private investment in some energy-related activities is on hold, pending policy changes made by the current administration. Until then, energy companies are operating as usual, incorporating no-regret digital solutions that prepare them for the energy transition.

Where is digital’s biggest potential?

In power and utility supply chains, our analysis found the biggest opportunities exist for:

• Digital twins in generation
• Autonomous technologies in transmission and dispatch
• Customer platforms in retail
• Cloud solutions in business management

In oil and gas company supply chains, the biggest opportunities exist for:

• Autonomous technologies in upstream activity
• Remote operations and asset monitoring in midstream activity
• Cloud solutions in business management

Entry to the Mexican Energy Sector
An industry in transition presents opportunities for existing business and disruptors. EY identified criteria for successful entry by digital companies into the Mexican energy sector:

• Know the market and ensure you can adapt to the local business environment.
• Know your customer and your customer’s customers. Who are they and how do their needs influence decision-making?
• Build a business case for Mexican companies based on proven digital solutions.
• Be conscious of regulatory restrictions relating to data usage and storage.
• Determine how digital technologies can enable remote working in the midst and aftermath of the COVID-19 pandemic.

Digital technologies are becoming entwined with physical systems and industrial processes, making them more productive, responsive and able to deliver better outcomes for producers, consumers and the environment. Digital is changing interactions and relationships. By accelerating their digital programs, energy companies will uphold conventional performance benchmarks, like reliability, cost and efficiency. And they will deliver on sought-after differentiators, like flexibility, agility and exceptional next-generation user experiences.