How to leverage digitalization for a clean and affordable energy transition?

August 4, 2017

The effects of carbonization manifest everywhere, from melting Antarctic icebergs[1] and accelerated sea level rise[2], to persistent desertification[3] and extinction of species[4]. Reducing the carbon footprint of energy production and consumption is a global ambition – embraced by most countries and increasingly apparent in our daily lives. Initiatives like the Paris Agreement and the exponential growth of green and clean start-ups[5] illustrate our efforts. Though not acting comes at the cost of climate change, acting is not costless either. An estimated 80-130[6] billion euros in investments are needed in the Netherlands by 2030 to make the transition to a clean energy economy. In addition to environmental and financial incentives, there is the increased connectedness of energy resources and networks. Leveraging this connectedness and further digitalization are key to optimize the transition to clean and affordable energy. Looking ahead, we see both challenges and opportunities in the clean energy transition towards the “Renewable New”. What challenges lie ahead of us and what are enablers in the transition to a decarbonized energy system?  


A complex evolution towards a new energy era


The current energy environment is changing, and it is happening fast. We see multiple (inter-related) waves of change, simultaneously shaping the future energy system, that need to be addressed to successfully arrive at the new energy era. The most acknowledged wave is decarbonization, which relates to the swift evolution of renewable energy production regarding electricity, heat and fuels.


The evolution of and shift towards these new forms of energy is also connected to the decentralization trend, which is the rapid growth in distributed renewable energy production. Examples include the increase in residential photovoltaics, wind farms and heat pumps. Then, another important wave is consumerization, or the growth of energy production and storage capacity as a consumer good. This initiates the transition to a demand driven marketplace, whereby consumers now proactively shape the energy system. This wave creates greater diversity throughout the system and it also attracts new players to the market with new offerings. Now, to make it even more complex, the connectedness throughout the energy systems has also increased, mainly through the evolution of digitalization, introducing new interaction models, as well as insight and control at more granular levels.


These developments considered illustrate the complexity that comes with the transition towards the new era of clean and affordable energy. Multiple solutions must be invented and developed to be ready for the next generation of energy systems and to ensure a smooth transition towards the Renewable New.


The energy system becomes more complex, hybrid and connected


We observe an increase in renewable energy production, ranging from harvesting clean energy at home to large scale wind parks. The costs to build new wind parks have dropped to an all-time low[7], making the technology ready for scale-up. At the same time, households and small businesses deploy decentralized (clean) energy resources, such as rooftop solar solutions, heat pumps, and electric vehicles (Figure 1), because rapid cost reductions make these forms of new energy more and more accessible and attractive to both individuals and organizations. This creates a shift in the energy system, towards a more hybrid system, where both centralized and decentralized energy resources feed into the energy network – contributing to increased complexity.


Figure 1: Adoption of Clean Energy Technologies in the Netherlands[8]


Transitioning in an increasingly complex system


A hybrid system can facilitate a swifter transition to clean and affordable energy, but the traditional organization of the energy system is not designed to accommodate the complexity of a hybrid system. This creates challenges at three levels:

  1. Policy level with regards to finding optimal incentives and target setting related to the various decarbonization options.
  2. Market level to ensure it is functioning effectively, with sufficient competition and market access to boost innovation.
  3. Operational level with regards to ensuring efficient investments, using flexibility to make optimal use of network and generation assets.


Challenges at the policy level to optimize the market’s energy portfolio


There are multiple options and technologies for decarbonizing the energy system. The variety in options and technologies can create diverse systems, and these tend to be more cost-effective and resilient. For this reason, the Dutch government’s energy policy aims to provide incentives that do not benefit any single technology, but let commercial parties choose the optimal solution. This requires the policy maker to ensure that there is a level playing field on which technologies can compete at equal footing. However, local factors, such as weather conditions, existing infrastructure (roads, canals, pipelines), and economic activity at both local and regional level partly determine the effectiveness of different solutions. In addition, other policy choices (e.g. taxation, permitting procedures) also affect the outcomes, making it very challenging to create a coherent set of policy incentives that creates a level playing field between low-carbon energy solutions. And the fast-changing nature of the transition makes this even more complex.


Challenges at the market level to ensure sufficient market forces and boost innovation potential


On the market level, openness and diversity are needed to come to innovative solutions. The transition brings various new participants into the energy system (e.g. home energy management providers, data platform operators, demand response aggregators), and these are active at different levels in the system. All these participants should have easy and non-discriminatory access to energy market places to ensure efficient market functioning. Transparency and collaboration is equally important to bring new renewable innovations and products to the market. This way, involved parties can learn from one another, and large companies and investors can discover and support promising startups.


Challenge at the operational level to optimize costs


The introduction of distributed energy resources creates new capacity patterns that are of a more fluctuating nature. Accommodating these peaks could be expensive, but the hybrid-system also has the potential capacity to create flexibility through the increased diversity in energy sources, which can help manage fluctuations in supply and demand. Additionally, the increasing connectivity and intelligence in the system enables network and system operators to access, use, and optimize this flexibility and cost through digital options like for example smart meters. To address this challenge, there are multiple start-ups that aim at optimizing costs and capacity through smart flexibility between different resources or energy providers. As the expanding landscape of connected devices and smart meters is forming the digital enabled grid of the future (it’s expected that 80% of the Dutch households will have a smart meter in 2020 (Figure 1)), more advanced business models, programs and services become available.

Flower shaped solar panel

Leverage digitalization to accelerate the energy transition


We now know the current situation and the corresponding challenges towards the new energy era, but how can the challenges along the road towards this new era be addressed? How can we leverage the increasingly connected nature of the energy system to ensure an efficient transition to a low-carbon energy system? Three renewable enablers are given below.


Enabling transparent and bottom-up data driven policy decisions


All involved parties should at all times have access to the available and uniform data, so that transparancy and openness is enabled, and service providers can use the datastream to achieve optimal use of assets in the system. Data that becomes available, through for example smartmeters and specific analytics software, will play an important role here. Data driven services can then be used to help explore different strategies for a specific area or region, which helps to optimize the portfolio balance between the different energy sources, providing tailored advice and an optimal energy balance.


Enabling open markets through neutral platforms


Open and neutral market platforms can facilitate healthy market competition and enables the different players to offer their services to the market in an as tailored and innovative way. An example of such initiative is TNO’s HESI (Hybrid Energy System Integration) lab which was opened in the beginning of 2017. This open laboratory makes energy knowledge and complex, large-scale IT-systems available to the wider public. Entrepreneurs can connect and test their innovative products and services and expose these to the market. This way, the HESI center aims to enhance collaboration and cost-effectiveness of (data-driven) energy labs in the Netherlands and to bring them in contact with other global leading energy-data centers. Looking ahead, similar initiatives will be the promising enablers for open and neutral market platforms.


Enabling and unlocking of flexibility in the system


Energy-data gathered in smart grids could in the future stimulate the storage of energy oversupplies with delicate demand-supply control via variable and dynamic energy prices, on both a central and a decentral level. In addition, energy-data rebate-type programs can be developed, in which consumers receive a refund on their energy bill for enabling the utility to control their energy consumption for a few hours each month. This way, a household’s energy consumption cycle could be managed to account for the status of the network, without compromising comfort for the end user. The use of energy consuming devices and charging electric vehicles can then be controlled by the utility and shifted to times of lower load. Lastly, flexibility can also be introduced by temporary storing electricity in batteries on a local level, to converting oversupplies in electricity into other renewable energy types, like hydrogen.


Pursuing the transition to a decarbonized energy system


Reducing the carbon footprint of energy production and consumption is a global and challenging ambition. In addition, the growing complexity and interconnectedness of the energy system creates new challenges, but combined with digitalization trends also creates opportunities for managing the complexity and uncertainty in the process towards a clean and affordable energy transition. In this process, there is an important role for leveraging the growing data volume in the system, resulting from connected assets, devices, people and companies distributed throughout the system. Neutral platforms will make this data universally available to further boost innovation and market forces. In other words, digital technology and data are key in a successful transition to a decarbonized energy system and the Renewable New.


Are you a startup with an innovative idea that will boost the clean and affordable energy transition? Excited to connect with the leading organizations in the industry? To pitch your innovation to the Netherlands’ key investors? To win the Blue Tulip award for best innovation in front of 2500 innovators? Are you up for a challenge? This is your last opportunity to register for the Accenture Innovation Awards 2017.


Authors: Koen Groot, Utku kucukosmanoglu, Rik Jacobs, Frans Willem Strabucchi

[1] Source: NASA (2017)

[2] Source: NASA (2017)

[3] Source: IPCC (2017)

[4] Source: National Geographic (2016) & WWF (2017)

[5] Source: USGreenTechnology (2012) & Green Tech Media (2017)

[6] Source: PBL (2016)

[7] Source: Rijksoverheid (2017)

[8] This illustration indicates trends in Dutch renewable energy production capacity (solar and wind – left vertical axis) from 2000 to 2030 (Rijksoverheid, 2017; NWEA, 2017), Note that the dashed lines are predictions based on the Dutch Energy Agenda 2016 (Rijksoverheid, 2016)  The vertical axis to the right reveals the number of smart meters (PBL, 2016) and Battery Electric Vehicles in the Netherlands over the same time interval (Van Westering, 2016; RVO, 2017; Accenture)


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