Investing in Digital to go Green
- Sep 28, 2020 2:01 pm GMT
Digitalisation: a new buzzword
The EU Commissioner for Energy Kadri Simson recently talked bout the Europe’s dual transition: digital and green. However, a causal link between digitalisation and decarbonisation is not always evident at leats at the first glance. Going online and using various tools of information and communication technologies requires incremental energy consumption, which also leads to incremental carbon footprint. However, paving the pathway towards carbon neutrality can’t be conceived without digitalisation. Reasons for this can be summarised in three points : (i) digitalisation is pivotal in the promotion of new forms of energy supply (eg. solar panels and electric vehicles); (ii) it contributes to energy efficiency; (iii) it assists markets in cost optimisation. Below, the three points are briefly explained.
Promotion of New Energy Supply Systems: ‘3Ds’
A large part of expert communities recognises the impact of digitalisation on new energy technologies. As an example, Frauke Thies, executive director of SmartEn pointed out that digitalisation is essential to keep this increasingly decarbonised, decentralised energy system running in a stable and affordable way. With no doubt, she's referring to the 3-Ds process, an abbreviation after ‘digitalisation-decarbonisation-decentralisation’ process.
The 3Ds process amplified the attention to the smart city concept, a model of a sustainable and carbon-neutral society. The Finnish Technical Research Centre VTT defines a smart city by a model for the carbon neutral future, where energy applications – such as wind and solar – would form a basis for decentralised, peer-to-peer electricity trading, automated pricing for e-mobility and other ways of smart metering. At the energy innovation conference in Tallinn in September 2019, VTT senior scientist, Pekka Tuominen, convincingly introduced this point to the audience.
Among 3D solutions one may find #wepower, a Blockchain platform, recently introduced by Estonian developers for peer-to-peer power trade allowing households trade solar energy. Why using a Blockchain? In fact, a Blockchain platform provides a ground for contractual interrelations in repetitive transactions such as selling power generated by solar panels when sun provides too much energy. This way the purchase of solar energy becomes easier and attractive for consumers, whereas households with solar panels gain additional profits from energy supply. Smart contracts consist in an automated execution of the contracts’ terms without involving any centralised authority. Automated contracts exist at a local peer-to-peer level and do not require a large market pool. In this manner, the contract is concluded between a group of energy supplier and distribution companies, where none of them has full control of the market and of information about the market. The platform transforms the physical value of kilowatt-hours – either produced or consumed – into decentralised tokens exchanged between prosumers and consumers without any traditional market platforms.
Within a similar line of innovation efforts, European electricity grid companies recently initiated a new Blockchain platform for vehicle-to-grid exchanges. Expansion of e-mobility in road transport requires building new charging points and therefore expanding the power grid. The more users connect to the grid, the bigger a pressure becomes. In a smart system, if a supplier fails to deliver electricity, the system automatically connects another supplier to the network. The system will detect disruptions in the network and automatically solve issues with electricity flow. What is more, development of electric vehicle market opens a pathway to vehicle-to-grid flows, when a car serves as an electricity storage which can be connected to an individual house to provide energy. Ultimately, the new Blockchain platform for e-mobility would then make sense in validating thousands of transactions between electric vehicles and the grid – either to charge a vehicle or to use the vehicle as a power supply to an individual house.
Picture adapted from Aaurhus University (2018), adapted by author
Digitalisation for improving energy efficiency
Digitaslisation leads to energy efficiency also beyond the new energy technologies such as solar panels and e-mobility. In fact, any step in increasing optimisation of business chains, which is mostly stimulated by digitalisation, would have a positive impact in terms of carbon footprint. To prove this point, the Industrial Energy-related Technologies and Systems – a programme organised under the International Energy Agency auspices – organised a research agenda indicating how digitalisation and concentration of data management improve energy efficiency across energy-consuming industries. Evidence shows that automated energy efficiency (eg heating and cooling control), detection of deficiencies, introduction of automated industrial processes lead to a better rational energy use.
Automation enhances rational energy use in residential sector. Scholars of American Council for an Energy-Efficient Economy revealed that introduction of advanced lighting control leads to 45% of energy saving compare to the traditional buildings; automated window shading cuts down energy consumption between 20-38% depending on types of buildings; cloud-based energy information systems decrease energy consumption by 5-10% as well. Economic rationale related to smart buildings gains grounds since automated controls and sensors become cheaper over time. In addition to the economic benefits, the report also concludes about a better individual comfort resulting from the automation: Smart building owners and tenants enjoy nonenergy benefits along with the energy savings. Tenants are increasingly demanding flexible, controllable workspaces, and some building owners are installing smart technologies to attract and retain tenants. In addition, improved indoor air quality and temperature control can lead to greater worker productivity.
Digitalisation of fuel supplies is another factor leading to better efficiency of the overall energy supply chain. Automation enhances processes in onland truck delivery of natural gas in either compressed or liquefied form. This business segment will further expand to new gases, such as compressed biomethane, liquefied biomethane and hydrogen. In this fast-growing field, digital solutions are essential for monitoring safety and realtime delivery. There are companies who develop trucks for deliveries of gases in either compressed or liquefied form (eg. Linde from Germany, Technoimpianti APM Srl from Italy), and then are companies who provide digital solutions for containers’ shipment. For example, Valmet from Finland developed innovative solutions for LNG 5 G tracking solutions for Unloading control (Real time unloaded volume validations), reporting of troubles (eg Safety and delay reporting in real time).
Data sharing: digitalisation in gas markets
Data sharing is an important element in the digitalisation process and it positively affects various commodity markets worldwide. In 2019, a specialised portal Smart Energy International issued an article with a very explicit title ‘Data sharing: a new source for the Energy Transition’ emphasised the correlation between easy access to information and sustainable balanced markets. The data sharing system facilitates coordination and exchanges between geographically dispersed facilities and traders, and generates incentives for cost optimisation.
Example of natural gas markets may reveal the magnitude of the problem related to insufficient access to data. In fact, with the European gas markets liberalisation, natural gas sector proceeded to unbundling between gas supplies and network companies in order to ensure higher market liquidity and, consequently, higher competitiveness. However, the new modus operandi also engendered some additional transaction costs for gas companies. In order to secure sufficient pipeline capacity to satisfy various spot, forward and future contracts, suppliers tend to overbook transmission lines in different points, and, sometimes, to have their positions in underground gas storages and slots in liquefied natural gas terminals. Since capacity and supply markets operate under different contractual positions, suppliers tend to overpay for the capacity use. As a result, a gap between contractual and physical flows increase particularly in the capacity markets.
This context reveals a need for new digital solutions because all the data on market positions (eg. supply and capacity) can actually be collected and monitored. An interesting step in this direction is proposed by Route4Gas, a startup for an innovative software for an online trading system. The system automatically combines physical positions on capacities and positions in trade flows, and then matches different segments of the market, eg. positions in supply contracts, in booked transmission capacity, underground storages etc. As a result, the software users upload their capacity and supply positions into the system and enter into swap enquiries. This automated data sharing system reduces unnecessary expenses and contributes to enhancing the market liquidity. A solution is now live since 1 September this year and soon we may hear results from the system’s participants. As the natural gas industry needs to find solutions for decarbonisation, digital solutions in the gas markets will also be needed to monitor new decarbonised gases and to account companies’ fugitive methane emissions.
Conclusion: Catching up with digital revolution
Digitalisation is an irreversible process. Catching up with digital revolution becomes vital for businesses, whereas digitalisation-decarbonisation nexus in energy is a pivotal element in the current transition towards low carbon economy. The public perception of the digitalisation is now changing, as the Covid19 pandemic revealed a societal demand for digitalisation of the workspace. The climate crisis will only contribute to the trend.
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