The Architecture of the New Decarbonised Energy System, Laura Sandys CBE

On Thursday, 7 September 2023, in the third instalment of this year’s REthink Energy lecture series, co-organised by ESB and the Institute of International and European Affairs (IIEA), Laura Sandys CBE reflected on The Architecture of the New Decarbonised Energy System. In her address, Ms Sandys focused on the two essential components of well-functioning energy systems: the customer and digitalisation. The decarbonised energy system of the future will be distributed in nature, disruptive in character, and will require a new way of delivering stability, resilience, and cost reduction for customers. In her remarks, Ms Sandys explains, that while some of her ideas are “contestable”, what is certain is that the necessary system changes will demand the adoption of new business models that will inevitably incorporate both digitalisation and modernisation. Following on from this, Ms Sandys began by saying: “The energy sector continues to deliver one of the most successful consumer confusion programmes of all time.”

The Challenge: A New Cost, Value & Price and The New Complex Energy Experience

According to Ms Sandys, one of the major characteristics of the new decarbonised energy system will be the overall cost of the system. She remarked that in 1990, a Terabyte of data cost $1 million whereas in the present day, it would only cost around 5 cents. In Sandys’ opinion, the more the system is distributed the more resilient it will become – if it is set up correctly. This in turn helps when demand and supply become of equal value in the system. Once the challenges of the new energy system had been established, Ms Sandys explained that the “new energy experience” will incorporate a lot of different variants in terms of actions and assets This includes but is not limited to asset optimisation, storage, cybersecurity, data management and flexibility assets.

Preparing for a Supply and Demand Balance

Ms Sandys explained that every time you put demand assets into the energy system, you lower whole system costs, which is critical to customer-focused planning. Ms Sandys stated she is endeavouring to incorporate this in her work with the World Economic Forum.  According to Ms Sandys, the energy sector is far behind in understanding customers, and designs products and propositions based on their own needs, rather than the customer’s.

Ms Sandys drew on examples of other sectors that rely on long-duration storage to deal with the balance of supply and demand, such as the food sector. In the food sector the refrigerator is a common, widely understood example that showcases long-duration storage that optimises system design.

In acknowledging that demand and supply will become equal in value in they system, not necessarily scale, Ms Sandys agreed that a just transition should play a big part in the new decarbonised energy system. A just transition will require changing the nature of interactions between providers and consumers through a new level of visibility, knowledge, analytics, and algorithms. According to Ms Sandys, the key components of changing that nature will include multiple and changing customer preferences, significant interactions between different asset classes, just-in-time (JIT) data to new actors, new business models based on interactions and blended propositions, more dynamic and bi-directional system needs, dynamic constraint management, and interacting and dynamic markets. All of these components will require high rates of digitalisation. Therefore, it is important when planning out the new decarbonised system that digitalisation and data are understood as “much more than just the IT department”.

Significant System Changes and Key Drivers of Change

According to the UK’s National Grid Electricity System Operator, by 2030 60% of electricity balancing costs will be calculated based on demand. There is new competition and pressure between actors who deliver optimised demand and those who deliver optimised supply, which in turn helps to create a new market design. According to Ms Sandys, there are five sections of “risks and opportunities” in this new design we can look at: “The Big, The Difficult, The Clever, The Small and The Different”. “The Different” details the importance of the customer, including different forms of fuel, being mindful of biodiversity, and communications within the system. Ms Sandys highlighted that communications in a digitalised system have to be co-planned and have to be as resilient as the energy system itself. For Ms Sandys, key drivers of change that will help with such resilience include: new market players, in this case a higher level of demand that will require a better understanding of the customer; new business models and processes that are embedded with digitalisation; and people and skills where talent comes from outside the energy sector to gain a fresh perspective.

Key Takeaways:

For Laura Sandys CBE, the ‘Decarbonised Journey’ must be a digital one.

This brings together six variables that allow for whole systems visibility, interoperability, and automation:

• Customer Control and Consent
• Automated Asset Registration
• Digital Spine[1]
• Network Data Shared
• Flexibility Exchange
• System Operator Visibility

People and Culture are Crucial to Success

Connectivity and interaction with customers are both essential in achieving success in a new energy system. Ms Sandys explored the idea of taking consumer-centred policies from outside the energy sector, and highlighted the likes of DHL or Amazon where the customer has visibility and control of the process throughout.

Losers and Winners

Ms Sandys concluded the event by reflecting on the idea of energy no longer being just a commodity. According to her, it now must include the selling of both commodity and optimisation services. This will especially require the sharing and use of data to create both products and services in the energy sector. Those who focus solely on commoditisation and profitability, without regarding optimisation, co-creation and data sharing, will be left behind as the “losers” in this process. By incorporating the ideas from this self-styled “tour of a crazy vision” that Ms Sandys outlined in her remarks, the energy sector would be giving the customer and society a “decarbonisation dividend”, an important pathway to a successful decarbonised energy system, and a strategy for now to ensure the customers are the “winners” of this process.