Transformation of the Energy Industry
The energy industry is experiencing seismic shifts which are triggered by the political agenda and transformative developments of energy and information technologies. In particular the German Energiewende (transition to renewable energy) and the increasing role of renewable energy sources are enforcing the decentralization of the energy production. There will be more and more energy producers and market participants. The volatility of energy production will increase and the overall energy systems will require more collaboration between all involved parties.
Furthermore, goverments are driving initiatives in relation to smart grids and smart metering devices (e.g. recently the Federal Council of Germany endorsed the Law for the Digitalization of the Energiewende).
Latest developments in energy technologies like battery and energy storage systems and electric mobility are introducing the next wave of changes in the energy industry.
Technologies like social media, data analytics and smart, connected devices are recent developments in IT that have a profound impact on the business models of the energy industry and are already used by some companies to turn existing business models upside down.
The political agenda especially the German Energiewende is driving the transformation to a decentralized model of energy production. Particularly the nuclear phaseout in which Germany is assuming a leading role is encouraging the production and usage of renewable energy sources. As a consequence there will be more energy producers and market participants. The scope and role of the network operators is changing and new collaboration models between existing and new market participants are required. Furthermore, new service-oriented business models are emerging. By implication business processes will be adopted and new ones will be established.
Those transformative changes entail vast changes with respect to the IT requirements.
The efficient management of the new energy world requires a seemless integration of all business applications which support collaborative processes across the various market participants. Assets like wind farms and smart meters are distributed across countries and even continents but require central management and operations. New products and services might be offered to customers across single countries – for example within the European Union or the Amercias. This means that served customers are no longer located within a single country but spread across a region.
Due to the distribution of assets and customers, IT systems have to be distributed too. Access to customer/partner portals, mobile applications and integration of distributed assets require deployment options and communication channels across the bounderies of single companies, countries and even continents.
In particular public cloud providers like Microsoft, Amazon Web Services and Google support global data center infrastructures and thus the deployment and integration of applications across all continents. Additionally they support fast market entrance because the global infrastructure of the provider can be leveraged to provide access and integration of applications close to the asset and/or customer.
In addition to the political agenda there are various market trends affecting the transformation of the energy industry.
As with any other product or service, customers require to manage products and services in real-time (24 hours a day, 365 days a year) and based on multiple channels (e.g. web, mobile, phone or store). They are used to the service models from companies like Amazon and are expecting the same level of service from their energy supplier.
Furthermore, the energy industry is also embracing the concept of Industrie 4.0 that is to say the increased adoption and usage of smart, connected devices that can be leveraged within the operations of assets (e.g. sensors of a wind turbine) or serving the customer (e.g. smart meter). It also enables new data-related products and services (e.g. home energy efficiency management) and the management of smart grids.
Those trends lead to the IT requirement to integrate and manage all smart, connected devices deployed to assets and/or customers. As a consequence of this integration, vast amounts of data are produced and have to be dealt with.
In addition to the global data center infrastructure, the public cloud providers offer the main building blocks to build multi-channel architectures supporting the customer/partner and managing the potential huge number of smart, connected devices that are related to assets or customer sites.
Developments in Energy Technologies
The recent developments in energy technologies encompass for example energy storage systems, electric mobility, smart grids and smart metering devices. All technologies share the nature of being distributed which is also reflected in the general IT requirements of those technologies.
All technologies require integration and central management. They require support for ad-hoc and real-time analysis of consumption and production data. This is the foundation for value-added services like for example the support energy efficiency or flexible reaction to dynamic requirements of industrial customers.
Depending the specific role of a market participant, each participant has to be able to collect, process and store vast amounts of data. In addition, the participant has to cope with the workload of market participants accessing the data, including the transformation of various data formats.
Developments in IT
Developments in IT encompass already established and emerging technologies. Both could represent a major impact on existing business models or enable new ones.
Data analytics is the process of inspecting, cleaning, transforming, and modeling data aiming at discovering useful information, suggesting conclusions, and supporting decision-making. It involves the processing and storing of vast amounts of data from assets like e.g. wind turbines or customer-related devices like e.g. smart meters.
In particular by introducing smart meters and smart grids we have to expect a strong increase of data that must be stored and processed. Those IT requirements usually cannot be handled efficiently by using an existing on premises IT infrastructure. The public cloud providers, although, offer specialized cloud services across the whole data analytics process.
Mobile devices and apps are a part of the communication channels a typical customer requires from his energy provider too. In addition, they leverage existing internal business processes like maintenance and collaboration. The public cloud providers support the enhanced development of mobile apps and management of mobile devices.
All those technologies require cloud computing as a fundational technology. The public cloud providers support the development and deployment based on their global datacenter infrastructure.
Positioning and Role of Cloud Computing within the Energy Industry
The challenge of the energy companies is to proactively address the changes introduced by the digital transformation of the energy industry. Those changes include changes to market roles, business processes and IT applications. There are a lot of technologies available that support those changes (e.g. data analytics and mobile technologies to integrate and communicate applications on a global scale).
All those technologies are based on the model of cloud computing and are provided by various public cloud providers like e.g. Microsoft, Amazon Web Services and Google. Therefore, cloud computing is an enabling technology for the digital transformation of the energy industry.
Energy companies are already leveraging cloud computing to support the business requirements. Embracing the cloud computing model means that they have to grapple with technology-, legal- and regulatory-related requirements too.
As a lot of energy companies are operating in various countries across the EU (and even other continents), they have to deal with varying legal and regulatory requirements.
On the strength of past experience I would like to address a set of legal and regulatory requirements that currently slown down the adoption and usage of cloud computing in the energy industry.
Cloud-related Legal and and Regulatory Requirements of the Energy Industry within the EU
Harmonization of Data Protection Regulation
Although the harmonization of the data protection regulation is already on the agenda of the EU, the energy industry is still facing strong local differences within each member state. This increases the complexity with respect to all cloud-related contracts. This includes contracts between energy companies and cloud providers but also between energy companies and customers/partners that are located in different member states of the EU. In particular, the diversity of data protection regulation in the EU thwarts the development and roll-out of EU-wide products and services. Therefore, a EU-wide harmonization is required to operate across countries efficiently.
Standardization of Contract Terms and Conditions
The public cloud providers currently support standard contracts but with a varying scope and contents. Those contracts have to be extended to establish an enterprise-ready contract which implements all relevant legal, IT security, and data privacy requirements. Therefore, setting up an encompassing legal agreement currently requires a lot of effort and there are only few synergies between different cloud providers. In addition, the diverse data protection regulations in the EU further increase the effort depending on specific requirements of an EU member state.
Security and Data Privacy Certification of Cloud Providers
To testify their security operations, all major public cloud providers are engaged in a certification processes that aim at regular security audits by third parties (e.g. ISO/IEC 27001, ISO/IEC 27018, SOC Type 1 & 2). In addition, the resulting certifications are the foundation to achieve compliance for the infrastructure and applications that are running in the cloud. Although a certification process conducted and documented by third parties is a valid approach to regularly assess and document the security operations of a cloud provider, energy companies currently grapple with the diversity of the compliance standards on which this process is based. There is a broad set of compliance standards on international and local level. In addition, there are specific standards for some industries. Initially the energy industry requires guidance with respect to the jungle of certifications on EU-level. There are a lot of standards already available but there is no agreement within the EU which standards are supposed to be mandatory and which ones are optional.
Although cloud computing is leveraging a lot of open, Internet-related protocols, the fast development cycles of cloud service offerings also lead to propriertary protocols and technologies that can represent a vendor-lock-in situation for some cloud services. To support agility and flexibility, it could be useful to migrate an application or service to another cloud provider. Depending on the cloud services used, this is not easily achieved due to usage of propriertary protocols and technologies. In addition to the varying technical implementation of the cloud service, each service provider defines his own service level agreements (SLA) which might differ from the definitions of other providers. Therefore, the energy industry requires interoperability and portability of cloud services. Furthermore, the SLA definitions should be standardized to support the comparison and assessment of cloud services beyond the technical implementation.
Facilitation of European Cloud Adoption
Although the major public cloud providers already offer datacenters in the EU, the energy companies within the EU would like to leverage cloud services deployed in the EU. This supports the EU-wide data protection regulation and the deployment of cloud services close to the customers and partners within the EU. Additionally, due to the distributed nature of the future energy system and cloud computing, the energy industry requires EU-wide access to broadband Internet to support the fast and reliable access of all customers, partners and market participants.
Alignment on International Level
The ongoing discussion with respect to the Safe Harbour Privacy Principles which enables US companies to comply with privacy laws protecting the EU, is threatening the adoption of cloud computing by promoting uncertainty. Thus, the energy industry requires an alignment beyond the EU that is to say on international level.
Cloud computing is fundational technology for energy companies to proactively adress the changes introduced digital transformation of the energy industry. Although a lot of energy companies are already leveraging cloud computing to support the business requirements, they have to grapple with technology-, legal- and regulatory-related requirements which currently slown down the adoption and usage of cloud computing. Therefore, the EU should focus on harmonization, standardization and facilitation of the aforementioned aspects and support the energy companies in the EU.