Why can expect decentralization in the energy and utilities industry

An interview with Gil Shaki, Senior Director of Energy, Sustainability & Infrastructure at Israel Innovation Authority, on digitalization and decentralization of the energy sector.

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October 14, 2018
New York

In light of our Powering the Future - Energy & Utilities Tour in Tel Aviv, we were delighted to pick Gil Shaki’s brain as to what the energy and utilities industry might look like in the near future, and how traditional utilities will need to adapt to remain relevant and profitable. It became clear during our conversation that a disruption of the traditional energy supply chain is underway, due to technological innovations in the sector and as a response to climate change concerns. Gil sees a gradual move towards the decentralization of the energy and utilities industry, particularly as off-grid, renewable and storage solutions change the producer-consumer dynamic. “Traditional consumers can become producers, selling energy to the network,” he said.

The role of utilities companies in the new energy sector

So where do the utilities companies fit in? Are they at risk of becoming obsolete? Well, it goes without saying that they will need to become more agile. “The utilities will have to find a way to be comfortable in a variety of scenarios,” said Gil. “More and more, we are seeing business model changes in the industry, particularly as it goes through digitalization processes, whether in terms of better operations, better maintenance, or better economics of the energy sector.”

As we begin to see different sources of energy, different consumers and suppliers of energy, different storage solutions, and even different energy supply times, “someone will need to manage this increasingly complex system”. Gil foresees utilities moving from the position of energy providers to offering energy management solutions in a large-scale and highly complex system. “As well-placed managers of the system,” he added, “they will be in a position to create efficiencies and add value and, in so doing, remain relevant and profitable.”

Gil believes governments can do two key things to support utility providers to survive the upcoming changes. Firstly, from the supply side, he advocates a sustained, ongoing effort to support the development of innovative technologies. “The energy market doesn’t fit the classical VC model; this is not an AI company. For a company doing energy storage, for example, the time to market could be as much as 10 years. Governments should therefore help developers and establish public-private partnerships (PPPs) to support breakthroughs and the long cycles of development in this field.”

Secondly, from the demand side, governments should encourage the adoption of innovation within utilities, particularly when it comes to key transformational areas like digitalization, decentralization and energy storage. “They can encourage the utilities to be actors that absorb innovation and change business models to adapt to new realities, and therefore have a better offering to the world and to the consumer.”

A word on water

Israel is known as a leader in water management innovations, which have enabled a largely arid country to have a sustainable water supply and become a net exporter of agricultural produce. The country reclaims or reuses about 85% of its water (the first phase of its water management program being a focus on better usage of the water that it has) before introducing desalination plants (the next phase recognizing the need to create more water) – both of which require innovative solutions for filtration, separation, treatment and other associated processes. The country also “put the price of water in economic terms”, Gil explained. “Combine these initiatives and you have a reasonable, sustainable water market sector, driving innovation forward.”

Whether we’ll see the same level of decentralization in the water utilities sector is up for debate. Acknowledging that it is currently more complicated for traditional consumers to become providers of water than it is to become providers of energy, Gil nonetheless believes the sector will become more agile and less centralized in time. “Small-scale purification and/or desalination solutions that are more local and more decentralised makes sense economically and from a resilience point of view. But I think this will happen at a much slower rate than in the energy world.”

Energy storage: the game-changer in today’s market

When it comes to the main technological challenges facing the energy world today, Gil is emphatic: “Energy storage is the holy grail. Once solved, and once we have economically and environmentally viable storage solutions for different layers – grid layer, micro-grid layer, transportation, etc. – it will be a game-changer for every aspect of energy. Without energy storage, there is a limit to how much we can improve through other technologies, like AI for example.”

Gil also believes that mass introduction of the electric vehicle (EV) could dramatically influence the energy system, leading to crucial changes in the grid and its requirements. He elaborated: “Once you have a significantly large fleet of EVs, the vehicles can effectively become one large energy storage unit. During the long hours a vehicle is not in use, it can become a contributor of additional energy to the grid. This is not just a better technological solution, an energy storage solution, but also a better energy management solution – if we enable existing energy storage solutions (like EVs) to supply to the grid, we may require less energy production units during peak energy use times.”

Transforming the global energy landscape

According to Gil, decentralisation of the energy industry has the potential to create a more efficient, equitable and resilient energy network. “We may be able to close the gap between rural and urban areas as well as between developing and developed countries – or more specifically, between areas that have existing infrastructure and those that have less infrastructure or a higher cost of building and operating infrastructure.” Currently, any projects that aim to connect villages to energy utilities in, for example, Sub-Saharan Africa, require big infrastructure projects with installation of high-cost transmission lines. “However, if you have decentralized solutions, this could of course be more efficient and feasible and enable those who are off-grid to become connected, with far-reaching consequences for education, health, sanitation…”

Israel continues to be a part of this change, according to Gil. The country has a vibrant energy innovation ecosystem, with around 300 tech companies active in "classic" energy fields such as renewables, storage, efficiency and smart grid, as well as in digitalization and automation technologies as applied to the energy sector, such as industrial IoT, big data and analytics, AI and machine learning, AR/VR, predictive maintenance, unmanned systems and industrial cyber security. Since Israel is a small market, Israeli start-ups are addressing global challenges and needs from early stages of the activities, targeting both developed and developing regions.

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October 14, 2018
New York