Digital Transformation Initiative World Economic Forum Digital Transformation Initiative The electricity industry: uncovering value through digital transformation Copenhagen, June 2016 The views expressed in this summary of a White Paper are those of the author(s) and do not necessarily represent the views of the World Economic Forum or its Members and Partners.

The traditionally stable electricity sector is being transformed by distributed and digital technologies and a push to decarbonize Three big trends disrupting the sector: Decarbonization Decentralization Digitalization Source: Annual Meeting in Davos; 2016; Governors meeting Survey of 35 CEOs from leading companies in the Electricity sector 1. DECARBONIZATION: Energy production and use account for two thirds of global GHG emissions. The energy industry is under pressure to decarbonize. Policy and regulatory action have been driving decarbonization, however economics is becoming the main driver as clean technologies become more competitive. Wind costs have fallen 50% since 2009; solar module costs have fallen 80% since 2008; PPA for wind: $30 / MWh (Morocco); PPA for solar: $36 / MWh (Mexico) 2. DECENTRALIZATION: At the same time, rapid technological development is making decentralization possible through distributed generation and storage solutions. Decentralized energy will grow 40% faster than global electricity demand to 2020. EV lithium-Ion battery pack prices will have fallen 77% between 2010 and 2018; Global distributed solar PV grew ~16% annually since 2011 . AMI adoption is currently ~40% in the United States (>60% in the West) 3. DECRNTRALIZATION An explosion in the number of connected power-consuming devices and of smart sensors on the power grid now enables data and electrons to flow both ways along the grid, allowing in return consumer decision making based on dynamic prices.

The convergence of physical and digital technologies across the value chain enable power and data to flow in multiple directions Technology trends: Mass Personalization Platforms Intelligent enterprise Data Points: 7.4 billion devices across the power value chain by 2020 Cost of bandwidth decreased x40 in past 10 years Cost of processing decreased x60 in past 10 years Generation and fuels Transmission Distribution Retailing Customer Electrification Meter Energy e f ficiency Distributed generation Flexibility Mass Personalization The ‘Internet of Me’ is the personalization of applications, products and services. placing the end user at the centre of every digital experience. Every intelligent device provides a channel for engagement with a customer Platforms Leading companies are bringing together digital initiatives onto the same platform to create next-generation products and services. While factories were the platforms driving the Industrial Revolution, computer and communications platforms have driven the information and connectivity disruptions of the past 30 years. Now, digital platforms are the next wave of change. The platform revolution will offer an opportunity to develop an entire system for electricity and beyond, spanning the digital and physical worlds. Intelligent enterprise Software intelligence is being embedded into machines, turning big data into smart data,. As machine-to-machine communication becomes prevalent, cloud-based analytics enable significant cost and process efficiencies Source: World Economic Forum / Accenture analysis

Commercial & Industrial Uncovering value in the electricity industry through digital transformation We assess four digital themes with great potential to unlock value and to transform the electricity sector: Asset performance management Digital field worker Smart asset planning Real-time supply & demand platform Real-time network controls Interoperable devices Energy storage integration Energy aggregation platforms Energy management Digital customer model Energy solution integration Digital Initiatives Generation Market Trading Transmission Distribution Smart Meters Commercial & Industrial Residential 1. Asset lifecycle management 2. Grid optimization and aggregation 3. Integrated customer services Digital transformation of the electricity system could deliver $ 3.3 trillion of value, in OECD markets in the 2016-2025 time horizon: Value to industry: unlocking $1.3 trillion of value for the electricity sector through digital initiatives Value to society: unlocking $2.0 trillion by creating 5.3 million jobs and reducing carbon dioxide emissions by 6.7 billion tons 4. Beyond the electron Source: World Economic Forum / Accenture analysis

Value at stake ($ billion; 2016-2025) 1. Asset lifecycle management Optimizing asset life cycles: from generation to distribution What: Technology solutions to enable real-time monitoring, remote-control or predictive maintenance. Impact: Will increase operating efficiency of generation, transmission and distribution infrastructure. Digital Initiatives Value at stake ($ billion; 2016-2025) • Asset performance management Monitoring and predictive forecasting enabled by analytics and robotics. Lower repair & maintenance costs, lower assets downtime • Digital field worker Digital technology to empower field workers with data and tools to drive operational efficiencies. • Smart asset planning Predictive analytics, machine learning and robotics to improve capital project execution, installation and decommissioning. Case study: Iberdrola (asset performance management) 75% percentage of breakdowns eliminated through implementing predictive maintenance in the US. «digital twin»: Digital wind farm: use of analytics for wind turbine adjustment to maximize wind farm --- 20% output increase Case study: Iberdrola deploys a technology to monitor and operate renewable generation facilities from a single dispatch centre called CORE, which centralizes the control and operation, in real time, of 7,000 megawatts (MW) of installed power. Information from sensors is fed to the central control centre, which monitors in the region of 2 million operational signals. With improved insights into areas such as fault detection and both reactive and active power regulation, the quality of renewable energy and the management of the grid is improved. By taking preventive measures remotely, both operational risk and maintenance expenses are significantly reduced Source: World Economic Forum / Accenture analysis

Value at stake ($ billion; 2016-2025) 2. Grid optimization and aggregation How can digital help build a more flexible and resilient electricity grid? What: Real-time load balancing, network controls and end-to-end connected assets, devices & advanced monitoring and V2G (vehicle-to-grid) Impact: Real time info on energy usage (consumers) and production (utilities). The system can dispatch the most economic, reliable and sustainable sources to meet demand, delivering higher efficiency Digital Initiatives Value at stake ($ billion; 2016-2025) • Energy aggregation platforms Bringing small-scale distributed resources onto a single platform, enabling clusters of end-users to act as one large power plant. • Real-time supply and demand platform Monitoring and communicating current load supply and demand, paired with a discriminatory pricing framework. • Real-time network controls Enabling real-time adjustments to changing loads. • Connected and interoperable devices Device-to-device connectivity, and the collection and display of energy consumption, linking devices to the distribution network. Case study: Alliander (real-time supply & demand platform) Case study: Alliander, a major energy distributor in the Netherlands, is currently piloting projects that match supply and demand at the local level in real time and has launched a Realtime Energy eXchange (REX). An example at the municipal level includes smart controls for switching street lamps on and off at optimal times, leading to energy savings. At a household level, REX enables nonessential appliances to be run at times when supply is abundant and power prices are low – for example, overnight. By acting as an aggregator, the exchange allows surplus energy to be traded on the energy trade market Source: World Economic Forum / Accenture analysis

Value at stake ($ billion; 2016-2025) 3. Integrated customer services Reinventing customer service through digital innovation What: Innovative, digitally enabled products and services relating to energy generation management and consumption, bundled into an integrated customer service. Impact: Will empower consumers to manage their electricity, creating new revenue streams through add-on services. Electricity shifts from a being commodity to a service. Digital Initiatives Value at stake ($ billion; 2016-2025) • Energy solution integration New services from integrators that help customers optimize energy production and use. Supports integration of renewable resources. • Energy management Energy information displays and controls to allow prosumers to manage generation, storage and flow of energy. Customers can benefit from lower costs and re-selling excess energy back to grid. • Digital customer model Multiple channels – web, mobile and social – for customers to interact with their electricity supplier, improving customer engagement. Case study: PowerShop (energy solution integration) Case study: PowerShop is an integrated energy solution provider, offering consumers the ability to view, monitor and purchase electricity online, on mobile and via social media. Launched in 2009, the disrupter offers a differentiated, modern service by providing convenient, cost-effective and personalized access to energy packages at a range of price points. From their smartphones, customers can monitor home energy consumption and choose the source of their electricity, such as from alternative energy projects including wind, solar or landfill generation. Source: World Economic Forum / Accenture analysis

4. Beyond the electron Creating new value through ultra-tailored non-energy services What: Sensor-rich objects, smarter devices, and seamless nature of connectivity – all of the above will create a wealth of consumer-related data. The use of cloud computing and analytics will allow for the creation of non-energy services tailored to the consumer needs. Impact: Services that move beyond the electron will have a meaningful impact on consumers’ quality of life. Developing an ecosystem of partnerships will be a critical success factor for electricity companies in ‘beyond the electron’ initiatives. Digital Initiatives • Living services A new integrated consumer experience can be delivered by combining sensors, the cloud, connected smart devices and real-time analytics. The connected home is a key location for the provision of living services. • Industrial services These services cover areas such as manufacturing and industrial processes, energy, power, data security, lighting and safety. All operate from a single platform and continually evolve using insights from data analytics. • Municipal services Citizens will experience real-time interactions with service providers and receive a tailored service (food, transportation, emergencies, sanitation, etc.). Case study: Singapore (municipal services) Case study: Singapore is planning to install thousands of sensors across the city to monitor water levels, traffic congestion, crowds and air quality, allowing for monitoring consumer movement and behaviour in real time. SingPass is a gateway to hundreds of e-services that provides convenience and a more individualized service. Singapore continually ranks highly as one of the world’s safest, healthiest and digitally secure cities. Ultimately, improved data will lead to safer and more efficient living spaces and transport options in the city, boosting economic growth and improving its citizens’ living standards Source: World Economic Forum / Accenture analysis

How can electricity companies become digital champions? ‘Developing No regrets’ capabilities Bold plays Develop a digital strategy and roadmap Accelerate the pace of digital innovation Capture, understand and leverage data Design a delightful customer experience Build and maintain a high-quotient digital team Partner and invest in the electricity ecosystem Build a digital talent strategy Engage regulators around market redesign “Data first mentality” - launch a change programme for corporate culture Seek industry consortium to discuss interoperability, data privacy and cybersecurity

Digitalization of the electricity industry – key messages Digitalization is impacting the electricity sector across its value chain, creating economic value, improving the system’s resilience and supporting its decarbonization. Along with digitalization, distributed resources that are digitally connected are giving rise to a decentralized customer-centric model. This is having a transformative action of the power sector. We are witnessing a shift of value creation from centralized conventional generation towards the end of the value chain. The industry alone cannot deliver the transition: new cross-sectorial partnership models will be needed to unlock the value (examples: Enel and Nissan, Tesla and SolarCity, Opower and Oracle, Philips and Ericsson) Data as main value generator; hardware is commoditised

THANK YOU!!! World Economic Forum publications on the topic Digital Transformation of the Electricity Industry (2016) The Future of Electricity in Fast-Growing Economies and mature markets (2016) Attracting investment to build tomorrow’s electricity sector (2015) References For a full list of sources and references, please refer to our in-depth report available at digital.weforum.org