Artificial Intelligence set to revolutionise energy & utilities industry

23 April 2018 Authored by Consultancy.uk

Artificial Intelligence will change the way many industries create and deliver their products and services in the future, and energy provision is one of them. A new study from consultancy Roland Berger predicts that AI can reap efficiency gains of a fifth in utilities within five years, yet less than a quarter of industry respondents said their company had a plan to harness the technology.

Picture the future of energy provision: smart homes to match your smartphones and smart (automated) cars. Wireless washing machines and home heating will learn adapt to what consumers want, optimising energy use and reducing waste. Your home will do the dishes and wash clothes at night to take advantage of lower market prices. At power plants, self-regulating, repairing, and optimising turbines will utilise AI to enhance performance, reduce wear and tear, and lower emissions. Smart grids will be able to control supply and demand by monitoring power consumed in real time. AI will take on tasks in utilities and learn to do them more efficiently. And indeed, these technologies are already being piloted by first movers in a cautious industry.

The utilities sector is currently undergoing a shift from a stable, reliable, and regulation-shaped environment to a tech-driven, volatile one. Firms have to adapt to a new landscape of renewable energy and falling wholesale electricity prices in Europe. And with the emergence of wind and solar – which have intermittent supply – and new carbon emissions targets, firms need to be better able to balance volatile supply and demand. A recent study from Roland Berger remarks that analysing and responding quickly to real time data on energy supply and demand will be crucial to the survival of utility firms – and AI will be doing the heavy lifting.

What is strategic priority with regard to ai

"Companies will need to exploit the possibilities of new technologies, such as AI,” said Torsten Henzelmann, Partner at Roland Berger. “Failure to do so could cause them to fall behind in the race to remain relevant in the fiercely contested energy market."

Utilities executives are clearly aware of the landscape shifting impact that artificial intelligence will have on their sector. 83% of respondents reported a medium or high strategic priority in regard to AI within the next five years. Very few executives are willing to say that their firms have little interest in AI, since pilot technology is already showing that it is the way of things to come in the industry.

The technology was already used in a project by a car sharing company in Amsterdam to boost profits by 7% through energy saving. AI algorithms were able to cut the company energy bill by calculating the most cost efficient time to charge their electric cars – taking into account factors like periods of cheaper energy, the weather, and holidays.

Impact on value creation and strategy definition status quo

Industry respondents are under no illusion that their industry will be insulated from revolutionising effects of AI. 43% said AI will enable new business models, while 81% said that AI will change or completely replace processes along the value chain. 33% said that AI will offer the ability to develop a competitive edge. Respondents also believe that the technology will also reap efficiency benefits with the next five years. 53% said that AI would bring efficiency gains of 10-30%, while 11% said it could even result in a 30-50% efficiency improvement in the industry.

Even though they see the strong impact that AI will have on their industry, and view the technology as a strategic priority for their firms, only 23% of utilities executives answered that they had a defined strategy for incorporating AI in their companies. A full 40% replied that they had no strategic targets or strategy defined. There is, therefore, a strong disconnect between executive appreciation of AI’s importance and pro-active planning for its implementation.

Wait and see

Roland Berger believes many in the industry seem to be taking a wait-and-see approach, adopting a “follower” mentality despite acknowledging the potential effects of AI. "Utilities firms are waking up to this potential, but their approach is still very cautious and risk averse," said Henzelmann.

Make-or-buy-and-data-quality

Further evidence of the follower mentality in the industry is shown in the categories of AI product development data collection. In Roland Berger’s survey, more than 70% of respondents said that they would adopt mature products from elsewhere rather than develop them in-house. Only 18% said that they intended to develop customised AI solutions with their own specialists.

While improvements can be made to firms’ operations with off-the-shelf and non-customised AI technology, Roland Berger points to “first mover” success of AI implementation in FinTech and other sectors. The report further argues that “establishing a competitive edge in more specialist areas of utilities' business will require internal solutions, however, meaning longer development times.” Roland Berger suggests that firms move quickly on implementing more innovative AI strategies in order gain an advantage over their industry rivals.

The survey also reveals that the potential of harvestable data is not being taken advantage of by industry players. 73% responded that data was either not collected or unknown, and only 17% rated their firm’s data quality and availability as “good.”

Roland Berger is concerned about the industry’s lack of concern over harvestable data – a key driver of AI. To fully utilise the technology, firms need to collect, understand, and use the vast amounts of data they generate. And utility companies need to act soon, the report advises, “because data harvesting requirements need to be identified early in the strategic process.”

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