The first session of Day 2, chaired by Prof Ronnie Belmans, CEO of Energyville and Executive Director of GSGF, focused on the innovation challenge and the role of utilities in unlocking new business opportunities for both electricity companies and customers, ultimately spurring economic growth and social welfare. "Are utilities still ahead of the pack and the centrepiece of the innovation ecosystem?" Prof Belmans wondered.
Giving a keynote address on Europe's innovation policy, Dominique Ristori, Director General of the European Commission's Joint Research Centre (JRC), highlighted the challenges faced by the EU in steering a forward-looking policy that will help lay down the foundation of a sound business environment. "The electricity sector is set to become the strategic element of tomorrow's energy system," Mr Ristori emphasised, stressing how growth in electricity consumption would contribute to the EU energy objectives while actually reducing total energy demand. Investing more and better in research and science in all technologies - generation, transmission and distribution as well as flexibility tools like storage - was necessary for the EU and its businesses to act as a catalyst of innovation and seize growth opportunities beyond its borders too, Mr Ristori concluded.
Outgoing President of EURELECTRIC and CEO of Enel, Fulvio Conti argued for a strong role of utilities in the new innovation eco-system. He presented EURELECTRIC's findings and five recommendations to improve EU and power sector innovation, as outlined in the recently released report "Utilities: Powerhouses of Innovation". "There are three innovation imperatives: first, to master new technologies, second, to get closer to customers; and third, to develop new business models and services," Mr Conti said. Yet he clearly spelled out that policymakers' support would be needed to ensure a move towards an innovation policy based on a competitive, business-friendly, and risk-rewarding market framework. "Innovation never flourishes in isolation, it needs an enabling setting," Mr Conti concluded.
Christian Rynning-Tønnessen, President and CEO of Statkraft, shared with the audience his company's approach to innovation in offshore wind projects - delivering "green out of the blue". Statkraft and Norwegian oil company Statoil have combined their experience on wind power and offshore technologies in the UK. Learning from experienced partners was also the approach successfully adopted by the Norwegian oil sector in the seventies to master oil technologies. Using new technologies in new applications is one of the most common forms of innovation, Rynning-Tønnessen reminded the audience. Statkraft and Statoil now apply technologies that were previously used by the oil industry to offshore wind power. Rynning-Tønnessen concluded by stating that the power sector had to be ambitious in developing new business and new business models: to innovate commercially.
João Torres, CEO of EDP Distribuição, presented the InovGrid project, a 15 million euro smart grid pilot project launched in 2009. Mr Torres shared the experience gathered from the project and showed interim results from a technical, commercial but also from a community perspective. The first deployment of projects took place in Évora, a UNESCO heritage city in southern Portugal where 30,000 smart meters have been installed, and where an InovGrid store and communication office has been set up to provide local citizens with easy and simple information about the project's progress. Looking at key success factors, Mr Torres singled out one in particular and declared: "consumer engagement is the key factor to unlock smart grids' potential and promote energy efficiency". In Évora, as a matter of fact, an "InovCity effect" could already be felt, he concluded.
E-Voting Results for SESSION II
The panel debate was introduced by e-voting, presented by Serge Colle, Head of Accenture Utilities Practice for Austria, Switzerland, and Germany. The results showed that 60% of the audience deemed a sound and effective policy and regulatory framework essential to drive innovation in the power sector. As for technologies, the polling indicated that demand side management is receiving attention as one of the most attractive technologies for investors, totalling 25% of preferences - which compares to 12% in 2011 and 16% in 2012 - while smart meters and smart grids reduced their appeal, even though they remained the single most attractive technology with 33% preferences (down from 43% in 2011 and 42% in 2012). Respondents overwhelmingly (43%) indicated that to unlock business opportunities in the "smart downstream" utilities had to start offering new products and services beyond kWh.
Fulvio Conti, outgoing EURELECTRIC President and CEO of Enel, stressed that competition has been the single most important driver for innovation as the utility user has transformed into a client. "This new mentality is progressively gaining ground within our companies, challenging old habits and processes. If we disregard this switch into a client being a conscious consumer, deciding when he consumes electricity and how, we will make a terrible mistake and ultimately be swiped out by those who have reasons to be closer to consumers," Mr Conti concluded.
Dominique Ristori, Director General of the European Commission's JRC, pointed to the need to better promote innovation across the whole value chain "as Europe is excellent when it comes to basic research but it needs to establish better bridges between universities and business and develop skills and qualifications responding to the real innovation needs." Picking up on the technologies that are needed going forward, Mr Ristori stressed the necessity to "direct innovation efforts in the direction of smart grids, compared to wind and solar power", which have progressively become mainstream thanks to past efforts.
We need partners working on innovation together, emphasised Marta Sánchez Álvarez, Partner Energy and Utilities, SPGI IBM. In the past the industry had tried to innovate alone, but investments in innovation would be difficult if companies worked alone. Sánchez Álvarez also stressed the key importance of the regulatory framework and clear objectives for innovation, as these were the success factors in developing renewable energy sources in Spain. Specific for the energy sector, investments in regulated business also needed to be promoted. Although most investments had to be done by distribution companies, value would be in the retail companies, she stated.
Gabriele Riedman de Trinidad, Senior Vice-President Strategic Area Energy of Deutsche Telekom AG, considered regulation as an inhibitor rather than a facilitator of innovation in the telecoms sector, emphasising instead the importance of understanding the customers' needs. "Technology does not interest your customer, the benefits do," she stated. She advised the companies to listen to the market and recognise that customers differ from one another. "It is the customer data that helps us to understand what we should offer," she noted.
Christian Rynning-Tønnessen, President and CEO of Statkraft, stated that there was a need to align different objectives: "We should ask our politicians to align among themselves." The EU should come up with a solution for the EU Emissions Trading Scheme (EU ETS) and set new targets for CO2 reduction. He also encouraged his sector to embrace the capital that flows around the world.
Javier Ormazabal, President and CEO of Ormazabal Group, was keen to stress that innovation was actually starting from disagreement with and a real dissatisfaction with the ways things work in a too rigid setting. As far as the European power sector was concerned, the key challenge for innovation to advance started with understanding customer demands. "I don't believe new technologies will solve the problems if you don't understand the issue," Mr Ormazabal said. Urging the audience not to lose the sense of urgency, Mr Ormazabal declared: "We are competing with the rest of the world. It is important for the industry to keep the leadership. Innovation is not an issue we can discuss for too long as the rest of the world is not static; they have money and they are growing."
Alberto Marchi, Director of McKinsey & Company, pointed out that regulation was crucial for innovation especially in Europe and that, considering the scale of the challenge, there was probably a need to rethink it from scratch. He also highlighted the need to "avoid the risk of fragmentation" in innovation spending. He therefore saw the necessity to focus industry's efforts on a few selected partnerships, ensuring that knowledge and innovation efforts were concentrated to avoid duplication, lack of focus and ultimately, intangible results. Mr Marchi also highlighted the key relevance of small and dynamic actors as incubators for innovation and the importance of encouraging those very companies with the right size and good ideas to grow and thereby support the wider change of the energy system.
João Torres, CEO of EDP Distribuição, emphasised the collaboration efforts needed to achieve innovation on the scale needed to transform Europe's energy system. Leveraging on the global experience of the EDP Group, Mr Torres said that his company, for example, was in close connection with labs in Brazil as well as working with several start-ups. "To share is the key," Mr Torres concluded, pointing towards the need to disseminate results of innovation projects and ensure synergies between various sectors.
This year's EURELECTRIC Award went to Dr Fatih Birol, Chief Economist of the International Energy Agency (IEA), for his outstanding contribution to improving understanding of the opportunities and challenges facing the power sector. The winner was announced at the EURELECTRIC Annual Convention in Bologna by EURELECTRIC Electricity Ambassador and Chair of the award panel Paul Bulteel.
"Under Dr Fatih Birol's direction, the IEA's World Energy Outlook has become the most authoritative source of forward-looking energy market analysis. It has drawn attention to the huge challenges that will need to be overcome to maintain electricity supply in the decades ahead. Its finding that 2.6 trillion USD needs to be invested in the EU's power sector through to 2035 has become an iconic figure for the industry. Fatih Birol has made a unique contribution to raising awareness among policymakers, the financial community and other stakeholders of the issues the power sector has to deal with," Mr Bulteel said in his laudatory speech.
Thanking EURELECTRIC for the award in a live video link from Paris, Dr Birol highlighted several examples where the World Energy Outlook's analysis had anticipated sector developments. The Outlook had for instance foreseen the rise of oil prices at a time when the barrel price was hitting a low and had brought forward the attention to the upcoming US shale gas revolution. The 2013 edition focuses on competitiveness and the impact of energy prices on the economy and energy intensive industries, he explained. In addition to the Outlook, Dr Birol and the IEA are about to issue a special publication on how to address climate change without harming the economy.
For the third year in a row, the conference also featured the granting of a student award for the best essay on a topical energy issue. This year's winner was Hjalmar Braemer, studying for a Master's degree in Sustainable Energy Systems at the University of Applied Sciences Pinkafeld (Austria), for his essay on innovation. The award was presented by Dr William S. Kyte, OBE, Chief Advisor on International Climate Policy for EURELECTRIC and Senior Advisor on Climate Change at E.ON UK. Mr Braemer used the opportunity to emphasise that innovation was the best way to "replace and renew vanishing businesses and jobs."
Matias Alonso, Global Managing Director Utilities Industry Group of Accenture, delivered the keynote speech of the final session on the drivers for innovation in the electricity business. While the utility sector originally had an innovation tradition, R&D intensity had waned since the last oil crisis, he warned. Although a new innovation cycle had started since the 2000s and R&D expenditure was growing (with a focus on renewables), it had yet to meet the requirements for the new context. "One of the key issues to solve is the innovation culture of our organisations," Alonso underlined, stressing that the sector must go beyond pure engineering approaches and overcome "silo thinking". "We need to understand: innovation is everyone's job, not just R&D. The challenge is to infuse innovation into the DNA of every employee." At the same time, regulators must do their best to create the right context for the private sector by increasing collaboration and providing a strategic view with a stable regulatory framework that promotes R&D and new investments. Mr Alonso concluded by reminding the audience that the key to successful innovation are people and leadership - not the size of the budget.
E-Voting Results for SESSION IV
Serge Colle, Head of Accenture Utilities Practice for Austria, Switzerland, and Germany, introduced the panel debate with a final round of e-voting from the audience. Participants overwhelmingly considered an unclear regulatory framework as the single greatest challenge to investments in the power sector. Management culture and the openness to new ideas were deemed by voters as the main drivers for innovation. Asked on the scope of innovation, electricity storage came out on top, followed by distribution.
As moderator of the final panel debate, Prof Frank J. Convery, Senior Fellow of UCD Earth Institute and Chair at Publicpolicy.ie used the e-voting results to kick off the discussion in the convention's traditional CEO debate. On the one hand, what should the regulatory framework ideally be? On the other hand, if the regulatory framework remains unchanged, what other actions should the utility industry prioritise?
"What keeps me up at night? Maybe most of all it is the strange relationship that our sector has with customers: we are long-distance, absent, a source of problems. We need customers to see us as part of the solution instead," said incoming EURELECTRIC President and CEO of E.ON SE, Johannes Teyssen. Simple spending on R&D would not create new business value in itself, he argued. Getting the spending right was not easy and short-term revenue was not the best guide for good results. Also, being a fast follower was often easier than being a first mover. "In order to win new business and create new value we need to work on a cultural change within our companies: culture comes first, and business opportunity and success will follow - not the other way around. Our sector lived for a long time in a monopoly environment: this is deep in its DNA. But in a monopoly environment all the knowledge in the company faces inwards. Today we need to live in a competitive environment and we need to look outwards more for ideas, opportunities, and knowledge," Mr Teyssen stated.
Øystein Løseth, CEO of Vattenfall AB, remarked that industry decision-makers should not panic about statistics reporting low R&D spending in the power sector, as key innovations such as smart grids were being implemented. "My main concern for Vattenfall is reduced margins in production," he added. He underlined that regulatory interventions should focus on providing a lean framework. "As long as we have a strong ETS and innovation, we will be able to take the right decisions and take up the risk," Mr Løseth made clear. Commenting on the possible future business model of utilities, he indicated that he expected downstream services and products to move into focus, with investment moving further from fossil generation to renewables.
"Innovation is not only a spending issue - it means a shift in the company," remarked Wolfgang Anzengruber, CEO of Verbund AG. The key challenge lay in convincing management that the old times were over and new answers needed to be found, he added. Speaking on the regulatory framework, he argued strongly in favour of keeping regulation at a minimum and moving to a competitive generation market. More regulatory interventions such as capacity payments were the wrong signal, Anzengruber underlined. "Our sector has to accelerate the transition to adapt to the new situation to be successful in new fields. No-one is going to wait for us," he concluded.
EURELECTRIC Secretary General Hans ten Berge challenged the panel to look at the customer side of innovation, where innovation in metering, billing and IT services has already taken effect. "I have no doubt that this trend will continue in the future," he said. His biggest worry was the lack of a level playing field in Europe, where an increasing share of generation remained outside the market, he said. He called for a level playing field where suppliers were responsible for making sure that a contract to deliver power would be 100% fulfilled.
Jean-François Cirelli, President of EUROGAS, said that the world of nice margins, performance and hesitance on renewables was over and might never come back. In this new world however, new business opportunities were difficult to find and their profitability remained uncertain. It was therefore critical that energy industry employees understood the urgent need to adapt. He saw such a cultural change as the first priority for our sector.
António Luís Guerra Nunes Mexia, CEO of utility EDP and new Vice President of EURELECTRIC, pointed to the need for a new market model, moving away from a pure marginal pricing system to one that better considers fixed costs and incentivises the building of additional capacity. Considering that Europe is moving away from a pure 'energy-only' market, he felt that there was a need to redefine what should be the risk borne by investors upfront of a new plant build-up.
Following up on his earlier keynote speech, Matias Alonso, Global Managing Director Utilities Industry Group of Accenture stressed the need for innovation, given the difficult financial situation for energy companies. Innovation was however not the only requirement for the sector, which also badly needed a more stable regulatory framework, the removing of subsidies, market reform - to name just several points.
Closing the two-day conference, Johannes Teyssen, new EURELECTRIC President and CEO of E.ON SE, concluded by thanking gold sponsor Accenture, silver sponsor Pöyry, bronze sponsor Ormazabal and supporting sponsor IHS Global, as well as conference host Enel. He warmly invited delegates to attend next year's EURELECTRIC Annual Convention on 2-3 June in London.