Energy policy changes and stricter competition drive businesses to increase their digital transformation budget annually. And the energy sector is no different.
However, digital transformation rarely goes beyond deploying new technologies for many companies. And while their adoption is critical to success, the energy businesses should factor in other elements of digital transformation, such as changing their processes and management strategies.
For some enterprises, it can indeed be the beginning of a total makeover. So, what should one know about digital transformation in the energy industry to ensure its success?
N-IX has a few tips. But first, let’s start with the basics and discuss what digital transformation in the energy sector is and what energy businesses should focus on to achieve it.
What is digital transformation in the energy industry?
Digital transformation in the energy sector means adopting new technologies, updating management strategies, and approaching resource allocation to change how energy is produced, transmitted, distributed, and consumed.
As an energy business, you can achieve it by:
- Transforming your existing product or service, such as transition from traditional grid to smart grid or launching green energy production and trading;
- Creating more optimized workflows;
- Using big data for decision-making;
- Empowering employees with tools to streamline workflows;
- Strengthening engagement with the customers.
In the energy business, digital transformation can take the form of:
- Adopting data science solutions to increase visibility into fossil fuel collection and energy distribution;
- Integrating robotic process automation (RPA) to decrease manual labor;
- Creating a seamless user experience across all platforms and solutions (e.g., mobile tools to control house heating systems, platforms for renewable energy analytics);
- Modernizing legacy systems to achieve better scalability and prepare energy infrastructure for integration of new tools (e.g., moving part of the infrastructure to the cloud to process data from sensor devices);
- Creating effective resource management platforms;
- Enabling remote monitoring with supervisory control and data acquisition (SCADA) systems;
- Deploying IoT-enabled smart meters for energy grids;
- Strengthening security architecture to prevent system breaches.
This list will vary across companies, but regardless of what you plan to change, your transformation strategy should always revolve around products, processes, and people. Let's review what energy businesses should consider to start digital transformation.
Key aspects to consider when planning digital transformation in energy
The digital transformation of energy business depends on human, technological, financial, ICT, and infrastructure resources it has. But they are not the only factors that will determine the transformation journey. Here are a few other things that will influence your decisions.
Main stakeholders of digital transformation in energy
Before bringing innovation or modernization to any part of your energy business, you should identify the key stakeholders that are involved or will be affected by the transformation. This process serves two main purposes: to define the scope of work and to assess transformation impact.
In the energy industry, the list of stakeholders goes as follows:
- Energy businesses: traditional energy providers like utilities, power generation companies, oil, coal, and gas firms;
- Third-party suppliers and service partners: companies that supply hardware and do maintenance of the energy infrastructure;
- Tech vendors: businesses specializing in digital technologies, software solutions, IoT devices, and cybersecurity; tech consulting firms;
- Customers: residential and industrial consumers involved in energy transition and consumption;
- Regulatory and audit authorities: legal and regulatory agencies overseeing the energy industry, setting the standards and guidelines for processes, and ensuring compliance.
Identifying key stakeholders of the digital transformation in energy will help businesses adopt necessary changes business-wide and prepare for future innovations at scale.
Another thing energy businesses should look at before creating a transformation strategy is the state of energy and technology markets. Here's why.
Transformation doesn't happen in a business vacuum, so you should monitor the energy market shifts. For example, noticing changes in primary consumption by fuel type will help you prioritize digital adoption across your business and predict the domain where it will be most beneficial.
Adopting new technology is paramount to provide digital transformation in the energy industry. Sometimes, the motivation for this change is imposed from the outside. For example, in 2020, COVID-19 pandemic forced 77% of energy businesses to transform digitally, which triggered further adoption of digital solutions across the industry.
When planning digital transformation in the energy industry, choose the technologies that have demonstrated their effectiveness and continue to evolve. For example, if you need to improve connectivity between systems and devices, you'll need the Internet of Things (IoT) on your technology list. Here's why.
IoT share in the energy market is expected to grow from an estimated $44.7B in 2022 to $133.35B by 2032. It shows tremendous industry demand in the future, especially regarding new policies and incentives regarding digitalization.
For example, the European Climate, Infrastructure and Environment Executive Agency recommends adopting digital solutions to improve energy infrastructure processes that can help reduce energy needs and decarbonize urban energy systems. This incentive fits the European Green Deal, which calls for the EU members to work jointly on 55% carbon reduction by 2030.
Benefits of digital transformation in energy
Implemented at scale, digital transformation can unlock numerous benefits. Let's review the key ones.
- Cost reduction. Digital technologies help optimize operations, identify areas for cost savings, detect the need for maintenance early, and reduce fuel consumption in transportation.
- Creation of new revenue sources. Adoption of new technologies helps businesses explore new opportunities and predict market demands that will lead to the creation of new services and products. For example, your business may consider building a solar power plant in a partner country to diversify its energy production. Integrating SCADA systems as a tool for remote supervision and control will help you monitor the plant's operations without hiring extra workforce.
- Increased operational efficiency. Modern technologies allow energy businesses to streamline energy production and distribution, monitor equipment health, and avoid downtimes.
- Manufacturing decentralization. Remote communication and mobility help energy companies decentralize their facilities and resources and manage energy production more effectively.
- Competitive advantage. Adopting new technologies will enhance the end-product quality and streamline operations to help you gain the upper hand over the competition.
- Enhanced decision-making. Digital transformation in energy focuses heavily on data extraction and analysis to provide the stakeholders with valid information to make better decisions.
- Faster response to market shifts. Implementing changes business-wide will help you bounce back faster after the unpredicted market disruption.
- Culture innovation. Digital transformation involves redesigning processes, which will foster culture and policy revision. It will help companies modernize and update their business culture to new market standards and comply with requirements.
- Improved integration and collaboration. Digital transformation makes a company's IT infrastructure and related workflows more flexible, thus future-proofing your business for further tech adoption.
- Talent attraction. Unique tech challenges often catch the attention of niche experts who can join your team, help optimize your processes, and provide expert opinions.
The list of benefits will depend on various factors, such as the technology adopted, the business environment, and company goals. Here's what your business should focus on to secure transformation success.
What should digital transformation in the energy sector focus on?
The transformational needs vary across companies. However, there are a few common areas where digital transformation is no longer a nice-to-have. Here are a few aspects to focus on if you want your company to succeed in digital transformation and thrive in the market.
Digital transformation is only possible with scalable and secure operating systems and platforms. That's why 49% of energy companies focus heavily on system and platform updates in 2023–up 17% from 2022. Modernized legacy systems will allow energy businesses to implement new technologies business-wide, enhance security, and increase efficiency on various levels.
Data processing and analytics
More platforms and sensors equals more unstructured data. According to IDC Research INC., the global market will have 200,132 exabytes of unstructured data compared to 21,046 exabytes of structured data by 2026.
To harness the power of information, companies should implement data processing and analytic tools to get the most out of the data about their processes. That's why, for 26% of oil and gas companies, leveraging and utilizing data more effectively was a top priority in 2023.
Increasing data volume also requires expanding data storage capacity. It will lead to broader adoption of cloud-based solutions, legacy system modernization, and data extraction tools. It will also require more cybersecurity investment.
The broader adoption of connected devices calls for strengthening the company's cybersecurity efforts to protect the increasing network and customer data. As IBM reports, the energy industry ranks fourth among the top five most attacked industries by cybercriminals. In 2022, the cost of data breaches in energy reached $5.01M.
To become more attack-proof, 66% of energy companies invested in cybersecurity and information security in 2022 and considered increasing these budgets.
When planning your organization's digital transformation, make cybersecurity your top priority. This security-first approach will help improve your system's resilience, ensure availability, and prevent reputational damage.
Remote monitoring and control
Powering your business with remote monitoring and control provides real-time visibility, enhances operational efficiency, and enables predictive maintenance. These qualities are even more important for international businesses with affiliates around the globe.
Remote monitoring and control tools help optimize energy infrastructure, reduce downtime, and improve safety. They are also essential for meeting sustainability goals and ensuring competitiveness in the evolving energy landscape.
Smart housing and transportation
More customers are considering switching to autonomous energy production and usage. This demand pushes energy businesses to adopt solutions that allow private and industrial customers to optimize their energy consumption and trade. It can be achieved by renewable energy integration and smart grid connectivity. Digital transformation in the energy industry also facilitates the broader adoption of electric public vehicles. It will help communities reduce emissions and reach their sustainability goals faster.
Renewable energy integration and management
Increasing renewable energy sources is on the agenda of many countries and companies to elevate their sustainability efforts and reach more autonomy. For this, energy enterprises should ensure smooth transition and connectivity.
New digital solutions can streamline renewable energy production, storage, and transmission. In addition, they will help households and industrial entities trade the excess power produced, decreasing the reliance on fossil fuels.
More countries and organizations adopt policies to reduce their carbon footprint. The Net-Zero global initiatives and regional climate change strategies force energy companies to change their carbon emissions management and commit to actions that help global society become climate resilient.
The energy companies that have provided digital transformation stand a better chance of managing their carbon footprint. For example, adopting blockchain technologies can help companies manage their carbon offset. Plus, it will ensure better calculation, tracking, and reporting on the carbon footprint reduction across the entire value chain.
Decentralized energy systems
Digital transformation in energy and utilities is a must to build robust decentralized energy systems. Going from traditional large power plants to smaller and versatile power production units with smart grids can help improve energy availability, improve autonomy, increase system reliability, and meet specific regional demands.
Moreover, smart grids will help manage local energy storage, distribute energy on demand, and decrease manual work during maintenance.
Technologies and approaches that drive digital transformation in energy industry
The definite tech stack will vary, so it's better to examine your business case, consult with tech partners, and choose applications that benefit your organization. Here is the list of the technologies required for digital transformation in the energy industry.
According to Gartner's 2023 CIO Agenda Insights for the Oil & Gas Industry report, 94% of energy companies will adopt Artificial Intelligence and Machine Learning (AI/ML) technologies by 2025. No wonder the demand is so high: the AI/ML tools in the energy industry play crucial roles in key digital transformation processes.
For example, AI/ML technologies are necessary for:
- Predictive analytics: predictive maintenance, forecasting power supply/demand;
- Cybersecurity: fault detection, risk management, fraudulent patterns recognition, automatic shutdown algorithms;
- Data digitization and analytics: source-based analysis of historical and real-time data, fast data conversion into necessary digital format, automated data structuring;
- Renewable energy management: models analyzing the best location for station placement;
- Regulation compliance: process monitoring for local and international compliance, automated reporting.
Paired with other technologies, AI/ML will help your organization reach its transformation goals faster.
It's hard to imagine digital transformation in the energy industry without the Internet of Things (IoT). With the help of interconnected cameras, sensors, and platforms to store and process data, this technology benefits the following domains:
- Energy management: smart grid, smart metering, fraud prevention, equipment health monitoring, remote control;
- Manufacturing: industrial automation, asset tracking & management, predictive maintenance, equipment health monitoring, employee safety checking, inventory management;
- Energy logistics and supply chain: fleet tracking, connected vehicles, asset tracking, predictive maintenance, shipment condition monitoring;
- Security: enhanced drilling management, improved health and safety in energy production.
IoT helps connect people, production, and products, which helps solve various business issues regarding data visibility in processes.
Cloud solutions and services are necessary for energy software to harness the power of your organization's data, reinvent your legacy system, and improve scalability. The Сloud is essential for the following processes:
- Data analytics and management: store, process, and analyze sensor/camera data, real-time performance monitoring, quality data collection for ML algorithms and models, data migration;
- System architecture management: switching to microservice architecture, improved IT agility, faster release cycles, on-demand scalability;
- Grid management: demand optimization and peak load reduction for private and industrial energy consumers, IoT device connectivity;
- Environment testing: creation of digital twins and simulation models.
With Сloud solutions, energy businesses will improve customer experience, optimize costs, prevent downtimes, plan maintenance, and make informed decisions based on real-time analytics.
DevOps engineering is critical for energy companies to power their IT teams with tools to streamline software delivery and deployment. Here are a few benefits you can achieve with the DevOps approach:
- Reduced infrastructure cost: cloud migration, CI/CD automation, cloud cost and resources optimization, partnership with third parties;
- Streamlined cooperation with partners and third parties: integration of third-party solutions, secure collaboration with suppliers and partners;
- Enhanced grid reliability: continuous testing and monitoring of system and application performance;
- Faster development and adoption of new solutions: safe environment for development and deployment.
Here's a real-life example of how DevOps can improve the operational efficiency of an energy company.
Our client, one of the UK's largest energy suppliers, serves nearly 5 million homes and offers a range of home energy solutions, including smart meters, boilers, and thermostats, along with installation and maintenance services. They needed a robust platform to co-manage the boiler insurance operations with their affiliate partner.
N-iX's DevOps engineers established CI/CD processes to expedite the platform's launch. We also automated workflows using AWS Crossplane and improved the platform's availability, which enabled down- or upscaling whenever needed within minutes. Plus, our team improved security by switching to integrations via AWS IAM roles instead of AWS IAM users.
As a result, the DevOps team helped our client reduce infrastructure costs by 50% and operational costs by 70%.
Robotic process automation is an essential technology for digital transformation in energy and utilities. Here are a few of the most common applications of RPA in energy:
- De-siloing data: data extraction from information silos, improved data availability, automatic data segmentation for further analysis;
- Better compliance with requirements: automated reporting on processes;
- Decreasing transactional errors: automated and more stable transactional flow, reduced errors associated with manual input;
- Smoother transition to new systems: automated application linking.
RPA helps digitalize standardized processes and reduce manual work. As a result, the energy enterprise can cut operational costs and eliminate errors.
Blockchain technology can speed up digital transformation for energy businesses. According to the European Commission's report, Blockchain is already used in R&D, wholesale trading, metering, and other project types.
Here are three major applications of Blockchain in energy:
- Smart metering: system decentralization, control, monitoring, and troubleshooting; enhanced security due to smart contracts and immutable blocks;
- Energy trading: peer-to-peer decentralized trading, creation of token-based energy trading systems, streamlined bidding, and negotiation;
- Data monitoring and control: data encryption and immutability, elimination of single-point-of-failure that may cause data breaches.
Moreover, this technology is convenient for digital transformation in renewable energy and carbon offset management. Blockchain enhances transparency, accountability, and traceability of greenhouse gas emissions. With smart contracts, companies may track their carbon footprint reduction across the value chain in real-time and monitor their progress in achieving their Net-Zero goals.
Knowing what technologies can streamline the digital transformation in the energy industry is necessary to create a working strategy. However, you should also be aware of what can block the transformation's success. Let's review the most common challenges you may encounter.
Challenges of digital transformation in energy (and tips to deal with them)
For a digital transformation to go smoothly, you should be aware of possible roadblocks pertaining to the energy industry. Make sure to consider the following challenges and prepare your plan to deal with them.
- Industry's specifics. Costly network infrastructure, innovation-lacking natural monopolies, the complexity of energy production, and dependency on other sectors are a few major blockers on the way to digital transformation in the energy industry. Understanding their relations and using quality data and research is necessary to create an effective transformation strategy that would factor in all those peculiarities and help businesses reach their objectives.
- Dependency on laws of physics. Energy businesses dealing with fuel extraction depend on various physical conditions, which are impossible to control entirely. So, the energy operations–and digital applications that aim to facilitate them–must align with nature's laws, safeguard assets, and prove their worth for integration into these challenging operations, which is essential for profit generation.
- High health and safety risks. Any phase of the energy lifecycle bears potential risks for everyone involved, which is why this industry is heavily regulated. These regulations, however vital to ensure employees' safety, can also block the adoption of new technologies. That's why you should design digital solutions and workflows with safety and health regulations in mind and operate within their framework.
- Dependence on third parties. Smooth collaboration with every party along the energy supply chain is the basis for the company's success. However, sometimes, it takes a lot of work to track, manage, and even communicate with third-party providers because of the fragmented and often isolated operations. Digital transformation can decrease the downsides associated with third-party involvement, improve logistic management, and create a robust platform to ensure secure collaboration.
- Low interest in innovation. The energy industry is built on caution rather than innovation, which results in following the old playbook regarding technologies. To ensure market success, you should analyze where the digital transformation will be most effective with the minimum risks and then research opportunities for modernization. Moreover, you need to educate and update leadership on the benefits of transformation and possible risks to secure your strategy.
- Different legal and operational environments. International energy enterprises often find it harder to transform their processes as the modernized solutions should also comply with the legal and operational requirements of the target countries. To succeed, such enterprises should create solution designs based on the requirements of the partner country. Moreover, these tools should be easy to scale, maintain, and manage by every party involved.
Understanding these blockers before creating a digital transformation strategy will help you choose the best-fit tools, avoid unnecessary costs, and prepare your energy business for the future.
Digital transformation in the energy sector is necessary to unlock new economic opportunities and address global climate challenges. Adopting digital technologies and building company processes around digitalization enhances energy efficiency, enables the integration of renewable energy sources, strengthens grid resilience, promotes sustainability, and reduces reliance on energy providers. And that's just a handful of advantages a company may get.
If you want to explore the benefits of digital transformation to your energy business, N-iX is ready to be your reliable tech partner. Our experienced engineers will help you design a business-specific transformation strategy, develop custom platforms and solutions, and bring the necessary skills and expertise to your internal team. Contact us and let's discuss how we can get your business ready for future challenges!
- 2023 CIO Agenda Insights for the Oil & Gas Industry by Gartner
- Digitalisation of the energy system by European Commission
- Impact of Digital Transformation on the Energy Sector: A Review by Zahra Nazari and Petr Musilek
- Digitalization in Urban Energy Systems Outlook 2025, 2030 and 2040 by European Climate, Infrastructure and Environment Executive Agency