Distributing the surplus – how digitization will help prepare Germany’s energy sector for the future

Distributing the surplus: How digitization will help prepare Germany’s energy sector for the future

Distributing the surplus: How digitization will help prepare Germany’s energy sector for the future

Executives in many industries perceive digitization as a threat. In the energy sector, there is no need for that. On the contrary. In Germany’s energy sector, digitization will help executives address a series of pressing challenges.

Power consumption is set to increase because of the electrification of transport, heating, and a growing number of industrial processes. At the same time, the share of energy derived from renewable sources, such as wind and sun, is growing. As a result, power supply is becoming more volatile. These developments make it more difficult to manage and balance the power system. Digital technology is the catalyst that will allow the sector to make the power system ready for the future.

Demand is set to grow

Electrification could increase Germany’s electricity demand to much beyond 1,000 TWh

Power generation from renewable sources drives volatility and complexity

Power generation from renewable sources will help cut carbon emissions and make the energy system more sustainable, but it also brings two challenges: volatility and complexity.

Volatility

Assuming we had enough capacity to satisfy the bulk of today’s demand from renewable sources even on overcast days, at night, or during periods of low wind, there will inevitably be a power surplus on sunny, windy days. According to a thought experiment, this surplus energy generated from wind and sun could eventually exceed current annual demand by a factor of two.

Renewable-energy-dominated supply implies energy surplus on majority of days in a year

Complexity

In the past, the common currency was GWh, reflecting the output of large coal or nuclear power plants. In the future, the dominant unit of measurement will be kWh, reflecting the output of wind farms and residential photovoltaic systems. Very soon, today’s grid architecture will no longer be able to handle the growing complexity. The effects are visible even today. The cost for congestion management has risen from an average of EUR 33 million in the years 2007 to 2009 to EUR 592 million in 2016. The growing complexity calls for more flexible, adaptive solutions.

Digital technologies enable lower system management cost by smart steering with connected devices

Taking advantage of the surplus

The excess energy that will arise from the coming increase in decentral power generation from renewable sources has to be put to immediate use or stored. There are currently five approaches to handle the growing surplus:

  • Heat. Surplus electricity is used to create heat, which can be stored.
  • Hydrogen. Surplus energy is used to produce synthesized fuels, such as hydrogen.
  • Batteries. Surplus energy is stored in chemical batteries until it is needed. See our article on battery storage for details.
  • Smart consumption to match peaks in supply.
  • Smart distribution, enabled by digital platforms.

Smart consumption will help match demand to supply

Smart power-consuming devices are always connected and use the Internet to send and receive information (“Internet of Things”). Examples of relevant data include power demand, status, electricity prices, and other environmental variables. Based on such information, smart devices can optimize their own consumption. Thus, they contribute to balancing the overall power load and can take advantage of peaks in energy supply. Examples include:

  • Smart appliances. Remote-controlled electrical water heaters have been used in some countries for decades.
  • Smart homes. The number of smart home systems in Germany is projected to grow from less than 1 million in 2015 to 5.5 million in 2020.
  • Smart industry. Industrial players are investing in innovation that will enable them to buy power when it is cheap and abundant, thus saving money and relieving the grid.

Digital platforms enable the system to handle growing complexity

Today, the energy sector is on the brink of a revolution. Decentral generation of power calls for bundling, and the high number of players at both ends of the power line calls for coordination to achieve critical mass. This is where digital platforms come in. Digital platforms will enable the system to handle the new complexity, and they will give rise to new forms of collaboration and more trading relations.

Trading relations will proliferate

Outlook: electrifying prospects

The future is bright. The increasing electrification of mobility, heating, and industrial processes in Germany will bring opportunities for utilities, as the overall number of kWhs to be sold will grow. However, the digitization of power distribution will also create inroads for new players with digital credentials, such as equipment manufacturers, technology companies, and start-ups. As value pools are being redistributed, companies that want to keep or start playing a leading role in tomorrow’s energy system need to find new answers to old questions:

  • In which segments or industries should we compete?
  • What is our future business model? Will we be a generator, a distributor, a retailer, a broker, or a provider of advanced solutions?
  • How can we help customers create more value, or make the lives of consumers easier?
  • To what extent can we develop our workforce, and in which areas do we need to hire new talent?
  • Which stages of the value chain should we own, and in which areas can we create more value through collaboration?

For utilities, there is a growing threat to be sidestepped as customers interact directly with independent power producers, aggregators, or specialized trading platforms. Utilities need to embrace digitization, overcome their fear of cannibalizing their existing businesses, develop new propositions, and forge new partnerships.