What is this fourth industrial revolution (4IR) that people are raving about? It’s a digital revolution that will transform the way people live, work and relate to each other. Societies will be ‘hyper-connected’, where digital interfaces such as the internet of things (IoT), big data, robotics, mobile devices and artificial intelligence will trigger connection with everything – including electricity grids.
The traditional model of utilities being responsible for generation, transmission and/or distribution has allowed for the provision of affordable electricity to a large part of the global population. Electricity is typically generated at large facilities using fossil fuels such as coal and natural gas or from large nuclear power plants. Subsequently, the electricity is transmitted through international and national high voltage grids to local distribution networks. However, this model has also resulted in a lack of flexibility, restrictive and archaic regulations and the externalisation of many environmental costs, such as environmental pollution. Furthermore, this structure has restricted the interactive participation of customers in the sector.
Trends in the electricity sector
The electricity landscape will transform significantly as a result of the 4IR, and essentially there are three noticeable trends in the electricity sector; namely Decentralisation, Digitalisation and Democratisation (also referred to as the 3D trends).
a) Decentralisation: Significant technological advancements in the past decade have drastically decreased the cost of renewable energy technologies, on both a large and small scale. This has enabled the generation of electricity to become more localised and decentralised. Currently, customers still need grid connection to fill in the gap where renewable energy cannot meet energy demands; however, decreasing costs in storage technology will add a new dimension to this.
b) Digitalisation: Increasing integration with information and telecommunications (IT) networks has permitted electricity systems to become not only connected but also ‘smart’. Digitalisation of both the grid – with smart metering, smart sensors, automation and other digital network technologies – and beyond the meter. The advent of the IoT and a surge of power-consuming connected devices will be the norm as a result of the 4IR.
c) Democratisation: The convergence of both decentralisation and digitalisation will enable customers to freely access electricity according to their preferences from multiple sources such as their own generation or storage, their neighbours or utilities. Consumers will have greater control over the management of their consumption.
The 3D trends have the potential to unlock significant economic, social and environmental value that will increase the efficiency of the overall electrification system, optimising capital allocation, and also driving a customer centric culture in the supply of electricity.
Realising the potential of the 4IR
The 4IR introduces a new dynamic for customers, which will enable them to be the centre of the system. Consumers will have enhanced energy management capabilities that will allow them to use electricity when they need it and perhaps at lower prices. One example of this phenomenon is ‘demand response’, whereby massive companies reduce their energy consumption during peak periods and receive financial compensation in exchange
from electricity companies. Smart meters, connected devices and grid sensors will result in increased efficiency of network management and, more significantly, enable customers and electricity generators to access real-time information regarding the electricity supply and demand across the electricity system. Appliances will be able to react to energy prices and perform functions when it makes financial sense. This clearly demonstrates how customers will increasingly be involved in essentially operating the grid.
With the freedom of customers to produce their own electricity, store it using batteries and consume it later, sell it to the grid or even trade it directly among each other, people will have the power of choice. Crowdfunding and blockchain technology already allow customers to own solar panels and sell the electricity, even though the systems are virtual. As customer preferences and expectations increasingly shift towards lower carbon mission sources, customers will not only be able to choose how their energy is produced, but also from whom it is sourced. The highly decentralised and connected nature of energy generation will allow multiple customers to enter the marketplace and, critically for poorer societies, stimulate localised economic development. This revolution provides opportunities for environmentally conscious choices to enhance social development and inclusive economic growth, so desperately needed in society.
Electricity utilities will benefit from the 4IR as these innovations will enable automated coordination and control of the grid, optimising consumption in relation to production and customer needs. Considering that peak generation is quite expensive and inefficient, the 4IR could assist with balancing the system whilst reducing costs associated with electricity generation grid infrastructure. Smart grids infused with artificial intelligence are envisioned to efficiently deliver electricity and optimise power quality and also assist distributors to forecast unpredictable demand for electricity. In these instances, localised energy storage can be accessed to fill this demand. Infrastructure optimisation, real-time diagnosis (through system analysis images taken by drones or imaging camera) and overall system integration introduced by the 4IR will support long-term operation of the infrastructure, real-time performance optimisation, integrated visualisation and maintenance, which will reduce the risks of electricity outages. Smarter and decentralised electricity systems are envisioned to increase reliability, security, and asset optimisation.
The road ahead for utilities
Electricity utilities need to react to these changes in the system if they are to actively take part in this revolution. Customers strongly desire to play an interactive role in the energy space; hence it is crucial for utilities and government to create an enabling environment that will allow this kind of participation. Grid infrastructure alone, without the correct regulatory frameworks and targeted innovative business models, will not suffice. New approaches and skills are needed within utilities to ensure innovative electricity services to customers and the integration of digital technologies in the design, operation and maintenance of infrastructure.
The 2018 World Economic Forum adequately recommended that, in the midst of the 4IR, the following actions should be undertaken if society wants to embrace the potentials that the 4IR has to offer:
• Reform of regulatory frameworks: It is important that the regulatory framework is flexible enough to enable new players in the distribution network operators, innovation and integrated electricity systems.
• Investment in infrastructure: The 4IR introduces new technologies and smart infrastructure, which is meant to permit new business models and future electricity systems. Therefore it is important to invest in such infrastructure.
• Redefine customer interaction and experience: The 4IR positions the customer as the centre of focus. It is important to incorporate the reality of a digital-savvy, empowered customer and an interactive approach in the electricity system.
• Embracing innovation and new business models: It is important for the electricity value chain to pursue new revenue sources through innovative distribution and retail services whilst also creating business models that will ensure a smooth transition to the 4IR.
The 4IR is characterised by the development of artificial intelligence, decision support systems and analytical analysis, which creates a number of advantages when compared to older electricity systems and assets. Similar to other industrial revolutions (see info block), there will be consequences for the entire value chain and those that are not prepared will be left behind.
In the case of Africa, it is important to recognise the energy disruption, and engage on a vision for the future that drives sustainability, efficiency, inclusive economic growth, job creation, transformation, development of local communities and less carbon-intensive electricity sources. This means reconfiguring the energy business model and redefining the role of government, state-owned entities and other sectors.
About the authors
With over 10 years’ experience in the field of sustainability, Lungile Manzini is a recognised international GHG reviewer for the energy sector under the UNFCCC and has worked for MTN, SALGA, and the Department of Environmental Affairs. She has an MBA from GIBS and an MSc in Environmental Management from the University of Johannesburg.
Ryan Roberts is an energy advisor at GIZ working in the South African-German Energy Programme. He is seconded to the South African Local Government Association where he focuses on sustainable energy within municipalities.