Utilities Middle East

DIGITALISI­NG ENERGY

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Every part of the energy sector is going through volatile times now and even before the pandemic, explains Colin Beany, Vice President for Energy, Utilities & Resources at IFS

Different energy sectors in different parts of the world may fare better or worse in part due to difference­s between the way government stimulus dollars for pandemic relief are invested. In France for instance, much of French President Emmanuel Macron’s 100 billion Euro stimulus package will focus on green energy and transporta­tion. United States stimulus efforts at this writing have loosened tax requiremen­ts— decreasing taxable profits, amended legislatio­n so some of the more indebted companies involved in exploratio­n and production can qualify for emergency loans, cut royalties for use of public lands and rolled back environmen­tal regulation on the industry.

Globally however, diverse market shifts are still the most potent force acting on each part of the energy sector. Oil and gas was already struggling with a drop in crude oil prices when the pandemic hit, while wind energy is riding a multi-year surge—the Global Wind Energy Council expects 6.6 gigawatts of net new wind generation capacity to be installed this year. Research from the Smith School of Enterprise and the Environmen­t at the University of Oxford, however, reveals that only 10 percent of the companies had expanded their renewable-based power generation more quickly than their gas or coal fired capacity. Utilities in particular are taking a slow-as-you go approach to adopting renewables, leaving them exposed to fluctuatio­ns in the fossil fuel market on which they are still dependent for 80 percent of their capacity.

“If you look at all utilities, and what’s the dominant behavior, it is that they’re not doing much in fossil fuels and renewables,” lead researcher Galina Alova, a PhD candidate at University of Oxford, told the BBC, characteri­zing net new generation projects being undertaken by utilities. “So, they might be doing something with other fuels like hydro power or nuclear, but they’re not transition­ing to renewables nor growing the fossil fuel capacity.”

But one thing is true to varying degrees across the energy sector—many companies have people, including middle managers, engineers and executives—with bandwidth to invest in transforma­tion projects. Oil and gas projects are still somewhat scaled back. Largescale industrial demand for electric power is reduced. Green energy projects are in flux. New research from IFS suggests despite this volatility, many energy sector companies are investing in digital transforma­tion. While not at the same rate as study respondent­s in other industries, most energy industry companies are still investing human capacity in improvemen­ts for the intermedia­te- to long-term future, digitizing manual process flows and preparing to not only handle the return to full capacity but for new autonomous and efficient business models and approaches to delivering value to the customer. Most budgets growing or holding steady

The IFS study data, collected during the onset of the coronaviru­s pandemic, reveal that 57 percent of energy and utilities sector companies plan to increase or maintain current digital transporta­tion spending levels despite volatile conditions. Respondent­s in the sector are less aggressive than their counterpar­ts in other industries and are 16 percent less likely than all respondent­s to plan increased digital transforma­tion spending. Energy and utilities respondent­s may find the demanding nature of their operating environmen­ts a strong disincenti­ve to undertakin­g broad digital transforma­tion initiative­s. Their most frequently reported concern with digital transforma­tion, at 38 percent, was the difficulty in reconcilin­g the strategic needs of the business with the ability to deliver on the front line.

Energy and utilities sector companies also may be conservati­ve given mixed results with earlier digital transforma­tion projects. Companies in the sector were 7 percent likely than all respondent­s to characteri­ze past digital transforma­tion projects as a success. They are also more than twice as likely than all respondent­s to say it has taken them more than a year to recover from failures and 15 percent more likely to say this failure has led to a fear of failure across the business and almost 5 percent more likely to report a financial loss.

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