From Smart Cities to Smarter Services: The State of the Energy Industry in 2020
How the energy industry and the cloud can partner to meet the challenges of smart city development.
More than half of our global population resides in urban environments—and by the end of this century, the United Nations projects that 11 billion people, or 85% of the world’s population, will be urban. This growth rate is fueling the rise of megacities—urban areas with populations of 10 million or more. By 2100, the world will be home to as many as 20 megacities with populations of more than 60 million each.
Clearly, the future of our world and our cities are intertwined. Cities are the engines of the global economy and the destination for the largest continuing global migration in human history. And it’s not just population growth that makes cities so central to our collective future; it’s the rising environmental costs of powering and delivering the services that allow cities to function.
Cities consume 65% of our primary energy sources and are responsible for 70% of total greenhouse gas emissions. From Los Angeles to Beijing, New Delhi to Mexico City, governments, private industry, and residents alike are striving to balance growth and sustainability. Cities and megacities are here to stay, but if we don’t make our cities smarter, humans may not be here to stay as long.
The Vision of the Smart City
It’s no surprise that the concept of the “smart city” is the consensus way forward to create the sustainable city of the future. It is an enormously attractive vision of using digital technology to transform and improve virtually every aspect of city life and operations for the better.
1. Smart cities use a complex network of interconnected sensors, devices, and software to improve efficiency, enhance reliability, and make systems more sustainable. Source: Shutterstock
The challenge lies in how to get to this parallel construct. “There’s broad alignment on where we’re going,” said Joanna Hubbard, co-founder and CEO of Electron, a UK-based company specializing in block chain solutions for the energy industry, “but no alignment on how we’re going to get there.” The foundation of the smart city is the creation of a parallel digital infrastructure that mirrors the real-world infrastructure of the physical city. It consists of an integrated system of automated networks, sensors, electronics, energy storage, and other devices that use artificial intelligence (AI) and machine learning (ML) to autonomously manage the city’s physical operations and services. The goal is to make cities more efficient and cost-effective, while significantly reducing pollution and improving the quality of life.
Challenge and Opportunity
The momentum toward increased urbanization makes our cities ground zero for the re-examination of environmental policies and solutions at scale. Like all great visions, the opportunity smart cities represent is immense, but the devil is in the details.
An International Data Corp. (IDC) report predicts that spending toward smart city development will grow to nearly $190 billion by 2023, one of the largest growth opportunities the energy industry has seen in decades. Realizing the potential of this investment will require levels of change management and execution that the energy industry has never before experienced.
Digital transformation can be a complex, multi-faceted challenge. In the energy industry, some liken it to a Rubik’s Cube with 54 faces. Adding further complexity to the challenge for energy providers and utilities in the U.S. is that, to a large degree, they must coordinate their digital transformation strategies with cities within their service areas.
The industrial future will be shaped by those who digitalize first and best
– Francois Laborie, president of Cognite North America
There are several major challenges confronting smart city development as 2020 begins. The first is how to obtain the data needed for the smart city’s central nervous system to function. That’s going to require a lot of sensors. To cite just one example, San Diego installed 4,000 sensors toward the goal of using real-time data to help with traffic congestion and other transportation issues. Although not insignificant, those 4,000 sensors are just one aspect of smart city development. One estimate suggests that the needs of all smart city developments will require trillions of sensors in the years ahead.
Now consider how we’re going to power these trillions of sensors. “We have not built one trillion batteries in the history of mankind,” Harlan Zeine, founder and CTO of Ossia, a wireless power company, points out. “Yet, we’re supposed to make enough batteries to power one trillion sensors within three years?”
Finally, there is the issue of who owns the data that will be collected by these trillions of sensors. Concerns over data privacy and data sovereignty are proving to be particularly thorny for smart city planning. Just recently, the City of Toronto halted Canada’s largest and most-prominent smart city development program over citizens’ fears that the digital company behind the development would have too much access to their private data, infringing upon their rights and usurping the traditional functions of municipal government.
The Toronto experience goes directly to the heart of the overall philosophical question of how to approach solving for any or all of the solutions involved with smart city development. In other words, which vision of smart city development? “Do cities adopt gradual, single-point upgrades?” asked Panagiotis Tsarchopoulos, the head of IRIS, the European Union’s major smart city research program. “Or, do they employ root-level master planning to holistically rethink infrastructure, transportation, and city services?” While the second approach might seem more sensible, as the Toronto example highlights, the real-world experience tends to be more complicated.
Collaboration and Customer Centricity
The good news for utilities and energy companies, however, is that they can provide solutions to all of these challenges. But only if they are prepared to make major changes to the way they do business. These changes include digitalizing operations and assets, and collaborating in new ways with city governments and companies with the digital expertise that many utilities presently lack.
“The industrial future will be shaped by those who digitalize first and best,” said Francois Laborie, president of Cognite North America, a data analytics company specializing in industrial applications. Laborie said that electrical companies are in the ideal position to take the lead because they “can utilize existing grid capacity to optimize assets while simultaneously becoming more dynamic.” In other words, utility companies can do both: keep the lights on and transition to a more agile and digitalized future.
Climate change is leading us into a world very different from the one we have known, one in which no one can say, “it’s not my problem.” We decided to be part of the solution by moving to zero carbon and helping others do the same.
– Isabelle Kocher, CEO of ENGIE
The second key to success is creating a new front-end to the energy business that brings the customer experience into the modern digital age of omni-channel communications, self-service options, energy on-demand, and simple, transparent access to information about energy sources and uses. This second dimension acknowledges that consumers expect a relationship that views them as partners with their energy companies. It recognizes that they expect a relationship that offers as many choices as they have when consuming media or selecting a healthcare provider. Simply put, the digital genie is out of the bottle and there’s no putting it back. Customer expectations have changed for good. For energy companies, the key for success is two-fold. First, they must continue modernizing their grids to make them more flexible and resilient. This is basic table stakes—a necessary technical challenge that is similar to upgrading the back-office operations in any business.
So, what’s the best way to solve for both? One way to think about this is to look at the history of the autonomous vehicle, that is, the driverless car. At first, traditional car companies pursued their own development programs while technology companies remained in silos and began their efforts the same way. Now, however, both industries realize that they don’t have the expertise, skill sets, and experience to do it alone. Automobile companies are not advanced software technology companies nor vice-versa. They both had to learn how to partner with each other to proceed.
This same dynamic holds true for energy and technology companies. By partnering with technology companies, energy companies will be able to capitalize on their digital experience to maintain control over their futures. The question for energy and utility companies then becomes: Which technology approach offers the best way forward?
A Platform Approach
There are a number of different technical approaches companies can adopt for their digital transformation. Some of these include continuing to upgrade or customize existing legacy systems by bolting on custom-built extensions, adding smaller, point solutions to solve problems like chat and social, or by adopting a horizontal customer relationship management (CRM) solution. All of these approaches fail in many ways crucial for long-term viability. They all tend to have short shelf lives, create integration issues, and most important, are difficult as well as expensive to maintain. I believe there is a better way.
Modern cloud-based software and CRM platforms like Salesforce.com are tailored to energy and utility companies to provide the kinds of customer-centric solutions and services that can save time and resources, and speed innovation. For example, the Vlocity Energy & Utility Cloud transforms Salesforce into a complete energy and utility customer engagement and customer experience (CX) platform for customer service, engagement, marketing, sales, and revenue generation. It also helps energy companies bring new solutions to market faster with pre-packaged integrations for easy plug-and-play with existing billing and front-office systems. An additional benefit is that this kind of broad-based, popular platform requires less specialized training or unique knowledge for IT staff to manage and operate effectively.
There’s broad alignment on where we’re going but no alignment on how we’re going to get there.
– Joanna Hubbard, co-founder and CEO of Electron.
And make no mistake, there is urgency to digital transformation. “Eventually, all of the value in the energy market is going to shift from the kilowatt-hour to the data and services that can be built upon that. It won’t be so much about what you use,” said Electron’s Hubbard, “it’s going to be about when and how you use it. If the energy industry wants a piece of that future services market, they’re going to have to cooperate to come up with efficient infrastructure today.” Or, as she concluded, “someone else will.”
A robust, front-end cloud platform will keep customers happy while their energy companies modernize their aging grids. It provides the bridge to offering the flexible, lucrative, and clean energy services consumers want and that are central to smart city development.
“Climate change is leading us into a world very different from the one we have known, one in which no one can say, ‘it’s not my problem,’ ” said Isabelle Kocher, CEO of ENGIE, a Vlocity and Salesforce customer and leading provider of low-carbon energy and services. “We decided to be part of the solution by moving to zero carbon and helping others do the same.”
Entering 2020, we have the opportunity to go from smart to wise. By providing the “smarter” services in the new business model that the future requires, we will make that happen.