Opening the 2016 EURELECTRIC Annual Convention and Conference, António MEXIA, President of EURELECTRIC and CEO of EDP, highlighted the importance of electrification for the EU decarbonisation agenda. “Switching to electric cars, buses and vans would cut Europe’s transport emissions roughly in half and could be done without any additional capacity,” he said. “In the buildings’ sector, responsible for 40% of the EU’s energy consumption and 35% of its CO2 emissions, above 70 million heat pumps could be installed by 2020 and contribute to almost 20% of the EU’s efficiency target,” he underlined. He then stressed that innovation in the EU electricity sector is well underway and could be worth € 70bn in 2030. With an increasing enhancement of digitisation and the Internet of things, “utilities are today focused on customers and society as a whole, and no longer merely on assets,” he stated. He however warned: “to move forward with the decarbonisation of the electricity sector and with electrification, massive investments are however needed: some €1.94tr must materialise by 2035 (with more than half of this in renewables), which require a holistic market design and a stable regulatory framework”, he stressed.
Dalius MISIUNAS, CEO of Lietuvos Energija and President of the Lithuanian energy association NLEA, welcomed participants to the first EURELECTRIC Annual Conference taking place in the Baltics. He shared his vision on how digitisation will impact the sector through smart solutions, increased productivity and the automation of the back office. Digitisation, combined with smart technology choices, will lead the European industry toward attaining the ambitious EU decarbonisation goals. He also anticipated increased competition and integration as a result of digitisation and stated his conviction that regional integration must happen soon. Mr Misiunas stressed that it is urgent to review business models and operations in the new digital context: “The energy industry is no longer reliant solely on technical engineers. It now depends equally on its digital competence,” he stated. Attracting digital talent is therefore a key success factor for utilities. He concluded in saying that the future is digital: “Maybe one day we will be in a position to say that our business is a data business – and this is something we should be excited about”
Welcoming delegates to Vilnius, Algirdas BUTKEVICIUS, Prime Minister of the Republic of Lithuania, explained that his country is increasingly moving from being an energy island to become an integral member of the European energy market. “Lithuania has been a real success story: the interconnection between the Nordic and Baltic countries has resulted in more trade between partners, which has resulted in change of flows and competitive prices,” he underlined. Prime Minister Butkevicius identified the digitisation of the energy sector, the EU climate and environmental objectives and the changing public expectations regarding the quality of services as the main challenges which the European power sector will need to find answers to.
SESSION I: DECARBONISING IN AN INTERCONNECTED AND DIGITAL WORLD
Accenture-EURELECTRIC video on decarbonisation
Michael LIEBREICH, Chairman of the Advisory Board of Bloomberg New Energy Finance, explained that new records in clean energy investments are being set all around the world. Yet, in Europe, investment has stalled over the past year even though the cost of renewables has reached levels below three cents per kilowatt-hour. “The cheap energy that is out there is not being reflected in the final customer’s electricity bill,” he stated. “There is a lot of pain all over the system and today, energy policy is what is setting the destiny,” he said. “If there is one safe strategy for utilities today, it is to try to get as close as possible to the customer as it is him who decides on the value of the product.” That value can only be discovered if all new and innovative solutions are managed digitally and smartly, and if they are properly integrated into Europe’s markets.
Speaking on technology and innovation, Carlos HAERTEL, CEO of General Electric Germany and Head of GE’s Global Research Center, connected remotely from Munich. told participants that digitisation cuts across all of GE’s businesses with the digital rollout underway. Mr. Haertel also revealed some of GE’s estimations on market opportunities for digitisation, which lie above €200bn for 2020 for the industrial internet, of which €90bn are for the utility sector alone. With examples such as the bundling of different generation assets to digital power plants via cloud based services, or the digital clustering of wind turbine operations to increase their overall utilisation, he demonstrated how efficiency and the economics of generation assets can be increased through digitisation. “Digitisation is not about selling customers another box or a software application, it is about proving them with an outcome which has value for them, ” he said.
SESSION I: Panel Debate
The first panel session, moderated by Hans ten BERGE, Secretary General of EURELECTRIC, focused on the energy policy and climate challenges following the Paris Agreement in an increasingly interconnected and digital world. Panellists shared their views on how the digital revolution can enable and accelerate the further decarbonisation of the power sector. Two thirds of the audience believe that digitally-enabled grids and virtual power plants are the most interesting digital technologies that can help decarbonise the power sector. More than half believe that interconnected energy solutions will become mainstream in the next ten years in the European energy sector.
Jean-Bernard LEVY, Vice-President of EURELECTRIC and CEO of EDF, expressed his concerns that after more than ten years the EU-ETS is still not providing a relevant price signal for the decarbonisation of the power sector in Europe. “We cannot wait another six to eight years before it might work,” he stressed, adding that for decarbonisation to happen, this must not only take place on the generation side, but it will require innovation across the value chain. Mr Levy said that he saw strong emission reduction potential with increased development of storage, digitised solutions and energy efficiency management services. “These developments will also requires us to rethink the way we charge our customers,” he concluded.
Peter TERIUM, CEO of RWE, said that the Paris Agreement on climate change was but an important milestone as business is now sitting around the table and seeing value in addressing the global climate challenge. Recognising that the changes in the power sector, and in particular in Germany, are drastic, he stressed that “the direction of travel is all about business innovation”. “The power sector has woken up and is now trying to deal with the digitisation supported by the young generation, the ‘uberisation’ of traditional industries and the bottom-up initiatives that are popping up.” In the context of growing shares of renewables, and distributed generation that need to be integrated by network operators, he underlined that a framework needs to be put in place that can deal with the integration challenges. “Maybe we should rethink unbundling and allow for grid operators to take up market risks,” he said.
Marta GAJECKA, Vice-President for Market Development and International Relations at PGE, acknowledged the importance of the Paris Agreement but also called for adequate recognition of the very diverse starting points for different countries. “The key enablers for decarbonisation in Poland are technological progress and innovation to unlock clean coal and storage,” she argued. She also stressed that the Polish power generation mix is diversifying with a share of renewables rising from 4% in 2010 to around 16% today. When asked about the future of the EU-ETS, Ms Gajecka emphasised that the instrument must be cost-efficient to allow the modernisation of power plants. Artificial interventions to alter the carbon price are in this regard not helpful. Finally, Ms Gajecka underlined the need for a functioning European market by comparing the utility sector to the telecommunications industry, where success depends on adapting the business models according to changing circumstances.
Pekka LUNDMARK, CEO of Fortum, gave his views on the future of the Finnish power sector. Nuclear power will remain a key enabler for full decarbonisation in the decades to come, working along with renewables. He expressed confidence on the role of digitisation, which will inevitably mean increased competition to the benefit of customers. “Customers are changing and ‘millennials’ are already used to a digital world, I feel optimistic about our ability to move towards this new reality,” he stated. Mr Lundmark placed strong emphasis on the internal energy market: “We need a functioning, technology-neutral and integrated European energy market. Otherwise, we will never attract the investments that we need.” Regarding the EU-ETS reform, he criticised the proliferation of national measures that undermine the integrity of the European-wide system and the achievement of cost-efficient emissions reductions in the EU.
Alistair PHILLIPS-DAVIES, Vice-President of EURELECTRIC and CEO of SSE, explained how engaging with changing consumer habits is critical for customer relations in a more digitised environment. This included identifying the points of contact with customers beyond the electricity bill. Specifically with younger customers such as ‘millennials’, the push for increased sustainability and more control offers opportunities for utilities to redefine their relationship with customers. When asked about how the power sector can attract the much needed digital talent, Mr Phillips-Davies warned that it can be challenging for large businesses to integrate small and innovative entities but that SSE is deeply engaged in such a process: “We do have the assets but now is the time to utilise data and information to remain relevant for our customers and for the market.” He stressed that it is essential to integrate assets with information and software to develop the products that the customer wants and that provide value for money.
SESSION II: ATTRACTING AND EMPOWERING CUSTOMERS IN SMART NEW WAYS
Accenture-EURELECTRIC video on electricity customers
“Companies like Uber, Airbnb, Alibaba or Facebook are now setting the benchmark for customer expectations,” said Wytse KAASTRA, Managing Director, Utilities Netherlands and Accenture Energy Consumer Services EALA. “Just like them, energy companies also need to start thinking in terms of end customers - pleasing them is not an easy task”. Most people today do not want to spend time thinking about their energy and those interested in new energy solutions like electric vehicles, storage or photovoltaics are switching providers more frequently. Companies therefore need to invest more time and effort to keep their customers. Mr. Kaastra concluded that “the energy industry is faced with three main imperatives: segmenting customers carefully, providing them with a fantastic digital experience and looking for innovative business models and partnerships with service providers from other industries”.
New digital products and services being offered by utilities were demonstrated in live demos by four utilities.
Luis Miguel MURUZABAL
Trond THORBJØRNSEN, Business Developer in the R&D department of Lyse, Luis Miguel MURUZABAL, Marketing Director at Energía Endesa, and Wolfgang PELL, Managing Director at Verbund Solutions, together with Christoph PRASCHL, Innovation Manager at Verbund Solutions, successively showcased examples of smart devices developed by utilities, which provide consumers with new types of digital services ranging from real time data access and optimisation of energy consumption to home automation and security services (smart doors and windows, smoke and leakage detectors, etc.). These sophisticated products and services already available on the market are empowering customers in smart new ways to play a significant role in contributing to innovation across the industry value chain. Thorsten MARQUARDT, Marketing Director at E.ON, gave an insight into the company’s strategy to market new consumer services. He mentioned that “the key is to involve consumers from the start, test new products and solutions with them, adapt the products according to their feedback and allow early failure if new products do not work out.” He also gave several examples of new products such as home sensoring systems for elderly people.
Wolfgang PELL (left)
Christoph PRASCHL (right)
Dirk VANSINTJAN, President of REScoop.eu (the European federation for renewable energy cooperatives) and Associate Member of Cooperatives Europe, explained that their business model is based on citizens investing in energy companies and participating in the energy transition. He argued that as a retail customer of a utility, people pay the price of the energy transition in their bill and that cooperatives can represent an alternative to this. In his view, “the energy transition means that consumers are more conscious about what they do and that they want to feel engaged in decisions of their energy companies.”
SESSION II: Panel Debate
Interview of retail electricity customers
Moderator of Session II, Erwin van LAETHEM, CEO of Positron, Former CEO of Essent BeNeLux & Chief Innovation Officer of RWE, focused the panel discussions on a wide range of topics: the implications of technology developments, customers’ shifting preferences and the political push for a single digital market for utilities and for the downstream business. He also introduced a number of video interviews of household customers showing different customer profiles with the view to gaining a better understanding of consumers’ energy knowledge, habits and priorities.
Antonio COUTINHO, Chair of EURELECTRIC’s Retail Customers Committee and Member of the Executive Board of EDP Commercial, stressed the importance of consumer engagement and pricing. He underlined that “consumers will only engage if it makes economic sense and it can be fun for them.” He stressed the particular importance of bundled products where e.g. consumers who install solar panels are offered their energy management. At the same time, he acknowledged that “today, digital technology is too remote from many people and that consumer trust must be further enhanced.” This requires for example to address consumer needs on an individual basis. At the same time, he insisted that the root causes of retail prices going up while wholesale prices go down must be addressed. He appreciated the fact that the European Commission now understands the issue but called upon it to concretely address it.
John HIGGINS, Director General of Digital Europe, highlighted that digitisation is mainly about bringing external expertise into companies. This includes two main tracks: the incremental increase of the consumer base and reduction of costs, and the re-imagining of things (e.g. looking for less obvious solutions). “The power sector should further exploit data. The key question should not focus on data ownership but on identifying who is ready to use consumer data for value creation,” he said. At the same time, he recommended that suppliers regularly assess consumer sensitivities regarding data, considering the fact that acceptability regarding data is different across Europe.
Till SCHICKE, Head of Business Development of tado°, said that “competition to enter the smart home is fierce and that utilities should therefore start from what they know best: the provision of energy services.” Utilities should first help consumers for example in reducing their energy consumption, controlling their heating etc. This is how they will create trust with consumers and be able to grow their business.
Ad van WIJK, Professor of Future Energy Systems at University of technology of Delft, underlined that “the younger generations today think in a different way. They do not think about energy but about their comfort and the concrete everyday actions such as bringing kids to school, cooking etc. That is why utilities need to think beyond the delivery of energy to offer energy services and see how to provide them together with other useful services.” Today’s customers may choose not to stay with traditional suppliers if they do not provide them with the kind of services they require. He therefore argued that utilities must be prepared to team up with players from other sectors and offer combined products.
Carolina GOUVEIA, Legal Adviser in the Legal and Economic Department of the Portuguese consumer association DECO, stressed the need to include all consumers in the digital revolution. She said that with the deployment of new technologies there could be a risk of consumer exclusion. In this context she quoted a Portuguese study according to which 35% of citizens in Portugal never use the internet. Ms Gouveia called for improvements in basic customer service: invoice transparency, comparability of offers, including bundled packages etc. She agreed on the importance to create more consumer awareness around energy services. “This is a task for us all: utilities, policy makers and consumer associations,” she stated.