What you need to know about tech and energy: a sectoral revolution with policy consequences

by

Sectoral Revolution

In every sector the influence of the tech industry has increased in parallel with the improvements in technology, and over the past decade this influence has led the technology and energy industries to have grown closer and closer – with parallels much more important than the tired claim that ‘data is the new oil’. New technology will revolutionise the energy industry, requiring the energy sphere to carefully analyse traditional ‘tech’ policy areas like data protection, blockchain, peer-to-peer trading, and cybersecurity. This underlines why it is so important for actors in both sectors to pay attention to one another in Brussels.

The connections are seen across the political but also the business landscapes. There is a serious business case for both industries to pay attention to one other and large companies know it. Tech companies’ data centres are huge consumers of energy, leading them to make large investments in technology to reduce consumption, while at the same time leading the charge for corporate purchasing of renewables. In 2017, Google used their DeepMind Artificial Intelligence (AI) technology to analyse the consumption of one of its data centres and managed to reduce it by 40%! It is becoming apparent that many big tech companies are the new major actors in the energy industry. Similarly, the fastest growing area of investment by energy companies is in digital technologies.

Just how far could cooperation (and competition) go between the two sectors as they become more intertwined and face increasingly similar issues?

The ‘digitisation’ of the energy industry is probably the sectoral-synergy whose effects are most speculated on. Whilst still in relatively early stages, increasingly grids are being equipped with a large number of sensors that measure temperature, voltage and current. This will create a huge amount of data to be processed and facilitate a deeper assessment of the grids operation, leading to incremental improvements in efficiency. More importantly, this vast quantity of information will be used to automatically monitor energy flows and adjust to changes in energy supply and demand accordingly throughout the grid – thus creating ‘smart grids’. This is useful for reducing consumption but also because, as an increasing amount of intermittent renewables creates volatility in the grid, the grid must become more flexible in managing supply and demand. The EU’s electricity market regulation will provide technical and market conditions for energy management, including the introduction of smart grids and smart meters.

For consumers, another growing aspect is smart devices and smart meters, where Internet of Things (IoT) technology would create greater cooperation between appliances and energy suppliers. This could reduce energy consumption by allowing suppliers to turn off appliances (like a fridge) when they aren’t in use, or in response to power surpluses or shortages on the grid. All consumers would now be active participants in the energy system, sharing data on their usage habits, and altering when they consume energy! It is estimated by the IEA that by 2040, 1 billion households and 11 billion smart appliances could actively participate in interconnected electricity systems, allowing them to alter when they draw electricity from the grid. In addition to this, smart demand response could provide a huge 185 GW of system flexibility and save on investment in new energy infrastructure.

Policy Consequences

This brings us to some interesting questions. With all of this data about consumer habits being processed, who really owns information on your usage of household appliances? Is this data personal or non-personal? And where does the liability lie  if something goes wrong in a grid operator-to-appliance (or machine-to-machine) transaction? On a more consumer focused level, how could a revised product liability directive assign responsibility for faults in IoT devices that are subject to complex data and production supply chains? Perhaps the most important question, however, concerns the data protection and security elements of a digitised grid infrastructure.

Well, the tech industry has undergone all of these issues in depth and legislation such as the Free Flow of non-personal Data (FFOD) Regulation, the General Data Protection Regulation (GDPR) and the Network and Information Security (NIS) Directive already have implications for the energy industry. Collectively, the GDPR and FFOD cover all data, both personal and non-personal. Accordingly, the energy sector must be aware how data sets are structured and how anonymised personal data could be used best. On a more granular level, the GDPR’s requirements to identify ‘data controllers’ or ‘data processors’ can be difficult in a modern energy market system which requires frequent data sharing between several different market players ranging from IoT providers to the central system.  Under the NIS Directive, the energy sector is identified as being an ‘operator of essential services’ and therefore certain companies are required to report significant cybersecurity incidents. However, national governments have the power to define which operators should comply with provisions, meaning energy companies could face different legal regimes in different EU countries. The issue has not gone unnoticed at EU level, with the European Commission creating an Energy Expert Cyber Security Platform (EECSP) in association with DG CNECT. In industry the pressure is also for companies to reassure investors that they are aware of the threat of a cyber-attack to an energy grid and not-for-profit member organizations like the European Network for Cyber Security (ENCS) have made it their prerogative to secure critical energy infrastructure in Europe. With the future of the EU gas and electricity networks becoming increasingly interconnected, a central authority on cybersecurity or a cyber response framework may become necessary for the EU energy sector.

While a single piece of legislation addressing all of this is unlikely, what we are currently seeing is more connections being made between the parallel policy initiatives of the Energy Union and the Digital Single Market. In fact, mutual tech and energy industry projects are already being outlined by the EU under the upcoming funding programme HorizonEurope. In it, there has been 2 million euro of funds allocated specifically to a project on the use of big data for energy efficiency. In the energy industry, a piece of legislation dedicated to technology would undoubtedly grab the industries attention. As it stands, huge implications for the energy sector and a mirrored regulatory framework for energy could be made in DG CNECT or strictly through tech policy. In practice, we’re already seeing this in the development of connected and electric mobility for example.

Looking to the future, the influence of new technology on the energy sector could transform humanity’s ability to mitigate climate change. However, the potential for Europe to lag behind in such important technologies is a real possibility. In a 2017 briefing by the European Parliament on developing supercomputers in Europe, the Parliament outlined that the scope of post-digitisation on the energy industry could lead to simulations of energy grids and climate modelling by quantum supercomputers which, according to a US Department of Energy research centre report could halve the unsubsidised cost of wind energy by 2030.

The tech industry is about to revolutionise the energy industry but it must be remembered that digitisation is not the blind objective of the energy industry – it is decarbonisation. More specifically, decarbonisation in a cost-effective manner whilst maintaining security of supply. Whilst the tech industry can help achieve these goals it is not without risk. That’s why a stable and comprehensive regulatory framework is needed on technologies impact on the energy industry and why, today, we see so many crossovers between tech and energy in business and policy.

  • Cillian Totterdell

    Cillian Totterdell specialises in climate, chemicals and energy policy. His clients have included GasNaturally, an association representing companies from the full length of the gas value, the Titanium Dioxide Manufacturers Association, who he advises on affairs related to REACH, and the Institutional Investors Group on...

    See profile

  • Crispin Maenpaa

    Crispin Mäenpää is an Account Executive that works in the Technology team and supports clients in copyright and consumer policy. Before joining FleishmanHillard, he worked in the European Commission’s DG Competition where he gained experience in inter-institutional relations and competition policy. Further experiences include working...

    See profile