Driving digital strategy for the rapidly changing energy future

As the world embraces a new energy future, digital transformation of the energy industry has become critical. Energy future will be defined by ability to handle political and economic crisis, incredible growth in energy needs, value for green sustainable energy including cleaner part of the carbon spectrum, ability to handle disruptions in production and transportation, and last but not the least, ability to accurately forecast demands and prices and serve customers better.

Digital Transformation is a business-led initiative with IT as partner

Such a complex set of factors calls for increased use of sophisticated digital technology to gather, process and analyze data faster and smarter to drive automation, improve decision making and better cater to customers and counterparties. The problem in that scenarios is not to hunt for new and more sophisticated technology but to understand the domain, absorb the usecase and need and better design the right solution, leveraging the right technology.

Hence, driving digital strategy will increasingly involve having the right understanding of the business domain, its use usecases as also understanding of the technology options to devise the right path forward. Getting the digital strategy right will be critical to the success of any company in the future, successfully predicting and addressing customer and counterparty needs and getting a leg up on the market, running operations efficiently.

In short, digital strategy will define a company to its customers, counterparties and partners. Company should have that as a clear high priority for success. This calls for a digital ambassador to partner with business. Digital transformation is NOT just an IT initiative – the foundation of digital transformation is a close partnership between business and IT, driven by business goals.

Data driving customer centricity

Every company under the planet can potentially leverage digital technology to gather more information about what the customer needs, what type of goods or services they want, gaps and positive feedback and many other critical information. Key component of the digital strategy must involve gathering data to value customer needs better and continue monitor customer engagement and feedback to make their experiences better.

Data and Analytics leading to better decision making

Business world is now much more integrated with a global supply chain with challenges in one area potentially impacting the entire chain. It is imperative to have sophisticated models evaluating process, demand, supply, logistics and transportation in analyzing disparate sources of data and making optimal decisions. A sound digital strategy should involve integrated data platform and advanced analytics tools, including AI / ML.

Automation driving efficiency

Key feature of the business process landscape is the exposition of processes all through the day. That has opened a universe of opportunities to automate them and save human effort on more valuable tasks, requiring human intervention. A digital strategy should look into processes and tasks, which can be automated – from gathering data, creating reports, triggering jobs, monitoring alerts etc. Digital Twin is now helping organizations with running, maintaining, monitoring processes, evaluating simulations and acting as a digital assistant to an onsite expert. These automations will drive efficiency across the organization.

Conclusion

Technological advances like cloud computing, data and analytics, AI/ML, automation/RPA, blockchain and others have significantly impacted the solutions landscape. There is a plethora of tools available to address various problems. It is critical to have a business strategy, starting with a clear understanding of business goals and knowledge of the business domain. That should enable one to devise the right strategy and technical solutions to help deliver value for business.

Having a digital ambassador to clearly articulate the value of digital technology to business and then partnering with business in delivering solutions will be key to successful digital transformation of the energy industry. With a solid partnership between business and IT, delivering right solutions for the right business problems in an agile way, digital transformation will indeed change the organizational landscape and help deliver tangible and consistent results.

Future of energy – where energy transition and digital transformation converge

 

Future of Energy is evolving at a rapid pace – where soaring global energy demand, increased volatility as also energy transition and digital transformation converge.

In that context, I attended and spoke at the Energy Risk USA event on May 11, 2023, the annual gathering of experts across the energy industry, involved in trading, supply and risk management of energy commodities. It spans all the commodities – oil, gas, refined products, natural gas, LNG, and power, in all forms including renewables.

The summit had great relevant topics, thoughtfully designed. There was top notch engaging discussion and presentation and such a fantastic interaction with a diverse group of experts on the future of energy, from energy transition to digital transformation.

 

Key highlights across sessions:

·       Energy demand - With more gadgets, increased use of technology, energy demand is supposed to rise, across the globe.

·       Market prices/volatility – Expect higher volatility as economic/political factors, supply constraints, interconnected global markets, energy transition mingle.

·       Credit Risk/Margin – As a result of increased volatility, there may be requirement for higher margin and collateral. Credit agency and regulators will have to work hand in hand as the energy future evolves and need to invest in new energy projects rises.

·       Environment/ Clean energy – There is significant focus on environment and clean energy. That is driving not only interest in renewables like wind, solar, hydrogen, biodiesel and geothermal but also in cleaner spectrum of carbon fuel – natural gas and LNG.

o   There are significant constraints in energy storage to handle hours when renewable will not be prepared to produce power. This will create more volatility even though battery storage is somewhat of a hedge.

·       Balancing between various forms of energy – In order to meet increased demand for electricity specially when renewable energy is not available, it is critical to balance traditional sources of energy with the renewable sources.

·       Investment in new energy – New energy investment, calculating Risk Adjusted Rate of Return, managing capital need to be sorted out. New models handling future investment specially in renewables must be developed.

·       Modelling and Quantitative tools - There will be need for sophisticated modelling to properly track and quantify risk and margin. It will be needed to forecast price, demand, supply and properly address demand in the most efficient way. There will be need to manage risk, margin and working capital as volatility increases.

·       Data and Analytics – There will be need for leveraging more and diverse types of data, running analytics and help make better decision. Usage of cloud technology and advanced technology will be a key for energy future.

·       Artificial Intelligence, Machine Learning, and tools like ChatGPT

o   As world moves to an integrated supply chain, with more volatility related to rising energy demands and different supply curves based on energy source, more logistical constraint, there will be increased demand to leverage advanced technology to solve problems, make better decisions. AI and ML will be used to handle and model huge amount of data, leveraging AI running sophisticated models, using Machine Learning to tweak models and help better outputs.

o   In addition to using structured data and numbers, it was important to extract value from unstructured data, existing information in the public domain. ChatGPT can be leveraged as a natural language processing tool to mine huge amount of public data, even unstructured data like social media comments to help model the future and do analytics. E.g., People talking about big events, incoming demand in Asia can be mined to help develop forecast for demand. Again, this will be in addition to the quantitative models and predictive analytics.

·       Domain knowledge and Digital tools – It was universally clear that it was not enough to just deploy the smartest and coolest technology. Domain knowledge, understanding the business problem to pick the right model and right tool was critical.

o   It means there has to be close collaboration between business and technology; importance to have data scientists with domain knowledge, business experts with access to digital tools.

Energy Risk USA provided the platform for deep discussion around not only energy, environment, market factors but also how to automate, digitalize the future as resources become scare, logistics become complex and demand soars. It is an exciting time to plan for the smart and green energy future.