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The Next Revolution of Energy: Energy as Services

30 May 2017

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By Yanfei Li

Modern life can be characterized as a constant quest for energy. We make it a daily routine to refill our gas tanks, charge our phones, and replace the batteries in our remote controls. This need for energy escalates to anxiety when we look for power plugs to charge our laptops in classrooms, libraries, conference rooms, cafés, and restaurants. And there must be times when you find yourself wondering: Have I switched off the stove or air conditioner before leaving home? I haven't even touched on the big problems like energy bills and the accompanying environmental impacts caused by energy production and consumption. We enjoy consuming increasing amounts of energy all the time, but so far, the experience of using it is hardly satisfactory.

Over time, new energy technologies have been relieving us from some of these concerns. But for the most part, progress in the energy sector has focused on quantity over quality--in other words, the physical supply of energy. For instance, today we consume a much higher amount of energy per capita than our parents' generation, partially due to better mining technologies such as offshore and deep sea drilling, unconventional oil and gas, and in part due to continuous and significant investment in modern energy supply chains and related infrastructure around the world. At the same time, thanks to progress in renewable energy, we now have much greener and cleaner electricity. Higher storage capacity and longer battery life allow us to do more with our electronic devices or gadgets. Moreover, regarding energy efficiency and conservation technologies, we now have more fuel-efficient furnaces, engines, air conditioners and other energy-consuming equipment. The next energy revolution must focus on the 'quality' of energy: how green or clean it is, how safe it is, and how efficient the supply and consumption is. These characteristics will and should emerge, as the relevant technologies are ready or close to being ready to enable the concept of the 'Digitization of Energy'.

Today, Information and Communication Technology (ICT) and its next evolution, consisting of components like robotics, the Internet of Things (IoT), Big Data, and artificial intelligence (AI) are penetrating every industry and digitizing business procedures as well as products and services. Recently, the most phenomenal examples come from China, where smartphone apps have literally conquered every aspect of life and business. Everything that can and can't be found at the department stores and supermarkets can be purchased online and then delivered in the same day. Services ranging from movies and haircuts to medical and government-related can be arranged or booked by these apps. E-money is increasingly used in this kind of transaction; young people survive in cities without carrying a wallet but just a smartphone. As such, 'energy as services' could become the next thing to be digitized.

To achieve that, we need to upgrade from smart grids to the Internet of Energy, which is a realization of IoT and Big Data in energy systems. Smart grids initially started as a set of technologies for power grids and consisted of the generation/supply-side grid system and the distribution/demand-side grid system. Besides bringing more stable electricity supply, the former enables optimal integration of new renewable energy, especially the intermittent ones, to deliver greener and cleaner energy. Meanwhile, the latter enables real-time demand responses and demand-side energy management for energy efficiency and conservation. It generates savings in peak generation capacity and thus could contribute to reducing the total cost of energy.

The Internet of Energy is the next stage to finally redefine energy products as energy services. For the first time in the history of energy world, technologies will enable widespread access to energy services. For example, electric vehicles (EV) will be able to give drivers an estimated amount of battery charge needed for roundtrip. At the same time, the system will try to match a renewable source to meet this need for energy, according to the estimated time of arrival, distance to the nearest charging post, as well as possible grid costs. In a competitive energy market, an attractive and optimal pricing will also be calculated by the system, giving incentives to the driver to charge when renewable energy is available. Ideally, fully digitized energy systems allow the A.I. of your vehicle to do all these automatically. Following this line of thinking, the Internet of Energy is, to a considerable extent, a substitute to large battery packs in the vehicle, which will lower the barriers to entry for EVs.

Or imagine phone-charging on the go: charging stations or wireless charging hotspots are distributed in public areas. In this case, the system should be able to provide options and recommendations regarding the recharge time, charging locations and payment plans. Customers can choose pay-as-you-go or monthly plans according to their daily activities. No more carrying heavy power banks - your phone will recharge itself while you wait for the bus or at your favourite café while you enjoy a coffee with a friend.

And businesses benefit as well. By collecting and analysing real-time energy consumption data, companies will be better able to understand and predict their own energy consumption patterns, making it possible for them to choose suppliers and pricing schemes that match them best. Distributed power generation as well as energy storage could be better integrated into a community energy management system (EMS) and enable businesses to act as active prosumers to minimize the energy bill. In a mature market with developed emission trading or clean energy certificate trading, the economic implication of the Internet of Energy will be even stronger.

Clearly, such developments require not only new types of infrastructure embedded with the new technologies, but also innovative business models in energy services. On the policy side, there needs to be sound planning that considers the digitization of energy systems, development of competitive and integrated energy service markets, and integration of digitized energy systems with business and social activities. Another equally crucial point is that regulations, taxation and legislation on energy services should be updated to encourage innovative business models.

These are not just the privileges of developed economies. Although many developing economies are still struggling to provide basic energy supply, they should also be aware of this trend because they may actually be able to leapfrog into the new energy technology and infrastructure, as the technologies used to digitize the energy system are getting more mature and affordable, thanks to standardization and commoditization. Doing so would not only benefit energy efficiency, energy conservation, and energy security, but also create new business opportunities in the energy sector and enhance the competitiveness of energy-intensive industries in developing countries. This is because more advanced energy technologies and infrastructure means higher quality of energy services that support the development of higher level economic activities in manufacturing as well as services which require uninterruptible energy supply, precise temperature control, precise time of service, or pre-cooling/heating of machineries and equipment. Fresh grocery, fruit and seafood supply chains; petroleum and chemical processes; medical treatment and surgery; data and computing centres; modern logistics, and many others are examples.

Both conventional and emerging high-end economic and social activities could benefit from intelligent and responsive energy networks, which are forever chasing after the needs for energy as services. However, to reach the full potential of these technologies as well as the concept of energy as services, reforming and liberalizing the energy markets is a prerequisite.

The Next Revolution of Energy: Energy as Services

Dr Yanfei Li

Dr Yanfei Li is an Energy Economist of the Economic Research Institute for ASEAN and East Asia (ERIA), an international economic policy think tank based in Jakarta, Indonesia. He is also currently a senior scientist adjunct to Energy Research Institute at Nanyang Technological University, Singapore. He specializes in energy markets, energy policy, and economics of technological change, serving the interests of both academic and public sectors. Dr Li’s current research covers oil prices, regional natural gas trade and market integration, regional power infrastructure planning and electricity trade, economic and environmental assessment of energy technologies, and energy-economy-environment modelling. His academic research appears on top journals such as Energy Economics and Energy Policy. He also regularly contributes opinion articles to public media such as South China Morning Post and the Diplomat. He acquired PhD in Economics from Nanyang Technological University in Singapore and Bachelor’s degree in Economics from Peking University in Beijing.

This opinion piece has been published in Nikkei Asian Review. These opinions are his own and do not necessarily represent ERIA.Click here to subscribe to the monthly newsletter.

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