Complexity is often the first reason given. It’s true, there’s a lot that needs to come together to bring our kettles to boil in the morning. Before the solar panels on my roof can help replace a coal-fired power station, they need batteries to store energy, home infrastructure to connect it all, linked up to thousands of other like systems to create a ‘virtual power plant’. Not to mention all the grid connections, network, metering, monitoring and controls to allow all that to happen.
Capital intensity reflects financial investment in the physical elements of our energy system. From offshore platforms, supertankers and refineries, to pipelines, powerlines and power plants: this industry has lots of big kit. This holds back change in several ways. It creates an economic moat for incumbents. Any would-be challenger not only needs financial muscle to compete, but also commercial and operational big-project know-how. For example, replacing gas heating with district heating schemes in the UK not only means upgrading internal building systems and units, but also competing with the existing (sunk-cost) gas-distribution networks. There will always be a temptation for incumbents to defend their moat and ‘sweat their assets’ for as long as they can, rather than pursue change.
Culture for incumbents, steeped in physical assets and real-world operations, likewise detracts from a digital mindset. IT tends still to be viewed, hierarchically, as a ‘support’ function rather than a core capability or business enabler. Moreover, for an industry used to decades-long projects driving to eliminate any risks to safety or quality, it’s a mind-wrench to join a digital world of rapid change, fast-fail experimentation and learning.
Complacency is the classic incumbents’ trap. It’s difficult to challenge such a complex and capital-intensive system without the combination of size, financial muscle and expertise enjoyed by the established players. Not only have they been around for a long time, but – mostly – continue to make a lot of money. Surely, if it ain’t broke…
Finally, even with the best will in the world, any change can be cumbersome, due to sheer size and inertia in many incumbents. Aside from the cultural shift, the biggest impediment to change may well be legacy systems, built up over decades with little thought towards adaptability or replacement. IT infrastructure, architecture, code and data: all of it acting as a deadweight impeding and resisting change. Where to start in shifting to new digital environments? The phrase ‘trying to turn a supertanker’ was never more apt.
Finally, the lack of clarity or certainty as to the future shape of energy makes it difficult to take decisive action. Take EVs (electric vehicles), for example. It now looks like hey’ll replace combustion-motor vehicles. But what’s not clear, by any means, is exactly what this new world will look like. Will today’s petrol stations be replaced by ‘electric forecourts’ combining onsite renewables with fast-charge points? Perhaps we’ll all just plug into the nearest lamppost; call up a mobile charging station; or even use wireless charging pads under the road.
Then there’s the whole question of commercial models: who will own and install charging infrastructure, and how will this get charged back to users? Is it part of a blockchain-enabled future? All this assuming, of course, that EVs are not just an interim step pending the move to a hydrogen economy. This is likely to develop differently around the world, heavily influenced by government choices in regulation, subsidies or stimulus (particularly in response to Covid-19). WIth so many shifting variables, the path to action weaves precariously between the twin swamps of ‘analysis paralysis’ and ‘wait-and-see’.
So, there’s no shortage of reasons why – despite the clear writing on the wall – the sector’s finding it difficult to make the changes needed. Many of these aren’t specific to energy, but the combination of factors acting in concert is what gives them particular potency
However, it feels like the current global shakeup from Covid-19 may represent a tipping point, as all companies are forced into a new mode of rapid adaptation. The good news is that other sectors have already been through a similar reckoning, and while each organisation faces slightly different challenges, there are general principles from a tech perspective that can help make a successful transition…
[Read more in blog #3]