Transcript - Episode 1: The energy transition

Steve: Hello my name is Steve Jennings, I lead PwC’s energy practice in the UK. Welcome to the first in a series of podcasts about the energy transition where we will be looking at how innovators are taking advantage of the changing sector as it becomes increasingly digital, distributed and personalised. From electric vehicles taking you to and from work to solar panels on your roof and batteries charging your electric vehicles overnight through to smart energy apps that help you manage your usage in energy bills at home, it’s clear, there are huge shifts happening in the energy world.

In this initial episode we are going to discuss some of the broader themes about the energy transition and how technology is disrupting business models across the sector and I am delighted and we’re very lucky to have here today Peter Davis, the Chief Executive and founder of Verv, an exciting new start-up in the energy industry and we have Adrian Del Maestro, our Director of Research in PwC Strategy&.

So Adrian, if I may start with you first of all, we do hear a lot about energy transition. What are we seeing happening in the market

Adrian: So Steve, we are seeing a lot happening in the market. I think that is probably the most key point there but before we delve into some of the detail, when we talk about the energy transition, effectively we are talking about this ongoing shift a from our central energy system that is predominantly fossil fuel based, to one that’s more geared towards the low carbon world. It’s a shift from a, to a much more decentralising distributed model and it’s all about the importance of technology; digitals, smart technologies that allow for this innovation to thrive.

Now in terms of what we are seeing in terms of announcements, clearly there would be some announcements very familiar to our listeners for example the Paris agreement that’s looking to limit global warming to under two degrees, but perhaps the more interesting ones that we have seen in more recent weeks and months is the UK and French governments banning the sale of new diesel and gasoline cars by 2040 and again the French government going one step further looking to ban oil and gas production, they are looking for that as an opportunity to do that, but what’s interesting is the first major government to announce that or at least that intent. You have Saudi Arabia with its vision 2030 looking to wean the country off dependence on oil, something that frankly would have been unthinkable maybe 5-10 years ago and then even if you look at businesses, there is an interesting response there, so you look at the funding institutions, if you look at the Norwegian Sovereign Wealth Fund, nearly worth 1 trillion dollars, they are no longer investing in entities that derive significant income from coal and you have BNP Paribas, the French bank recently saying that they are not going to invest in any new projects associated with oil sands or shale and they won’t support any projects that require funding for exploration and production in the Arctic.

Volvo is the familiar one, we have seen them announce that all new cars by 2019 will be either electric or hybrid and you begin to see some of the big oil companies announce plans that open up for courts in the UK that will be just for electric vehicles and hydrogen cars, so lots of change there in terms of this move towards the low carbon world. What is also interesting is just some of the models that are beginning to emerge among oil and gas companies and we are going to be exploring some of those in more detail in subsequent podcasts but just a couple of examples there, clearly there is a group of players, oil and gas players that are still focussing on their oil and gas hydrocarbon operations by beginning to invest in renewables, wind, solar and diversifying their portfolios and setting some targets as well, looking ahead and then perhaps a slightly more radical example is you have Dong, the Danish oil and gas company recently rebranded where it used its legacy oil and gas business to fund the growth of its wind turbine low carbon technology and in fact recently divested all of its oil and gas assets and now is totally focussed on low carbon and wind turbine technology so some are models emerging there in terms of the oil and gas world.

Steve: And we are seeing significant disruption across utilities as well where the application of technologies actually opening up new business models and shortly we will hear from Peter about one of those exciting new business models that’s emerging.

Adrian, just before I ask Peter to do that, I think it would be helpful if you could say little bit about what we mean by distributed energy and energy storage and what’s happening there?

Adrian: And again very much lots of change there as well, so when we talk about distributed energy, we are talking about the combination of small scale energy sources like wind, solar, storage underpinned by technology but what is interesting in terms of this trend around distributed energy is if you look at the UK for example we’re seeing a shift in traditional models, so historically you would have seen electricity production through big power plants across the country, pushing that electricity out of one direction across transmission and distribution networks and now with the growth of distributed energy you are seeing energy flow both ways, now at the local grid level.

Now, I think distributed energy has a very big part to play in shaping the future UK energy landscape but clearly we are in the early stages now, but having said that you see the major UK utilities investing enormous amounts in this area something in the order of 1.6 billion pounds in the last couple of years in UK investments and overseas, and it is interesting to see that they are using these investments to basically test business models, test the technology but I think for all this discussion and all this investment, one of the key catalysts will be the ability to use technology to capture and monetise data on usage and energy production.

I think that’s going to be one of the key pinch points in terms of pushing this technology ahead.

Steve: Adrian, I agree and as we do know and as demonstrated in our recent PwC Connected Home survey, 81 % of consumers who actually owned smart technology have seen an improvement in the day to day running of their homes, so clearly there is a market to tap into there.

Thank you Adrian! Peter, welcome again, thank you for joining us, Adrian spoke about the potential for households through a lens of distributed energies and smart technologies, I know your company Verv is introducing a number of innovative new technologies, may be you could start by telling us a little bit about what you are doing?

Peter: Indeed! Verv is a cool smart home hub which sits next to your electricity meter or smart meter and uses artificial intelligence to break down all your appliances into individual loads and basically by sampling millions of times faster than a smart meter, it can do things like tell you your washing machine has cost you 10 pounds, your dish washer 12 pounds, and it can do all this in real time and the other advantages are that, that means by knowing the appliances are on a real time we can tell you if you left your hair straighteners on before you leave, or you have left the iron on, or the oven. We can also tell you if you be better off swapping your appliances to latest eco appliance, so how much money you save if you swapped to the latest eco kettle for example and the really cool scenarios are the things that we can tell about the degradation of your appliances too, so we can actually tell you if your washing machine motor is starting to wear, so we can tell you if it’s going to break, before it actually breaks. The idea behind the whole tech is to really try and reduce peoples’ bills and carbon footprint and try and bring this kind of smart home tech to encourage that and the really interesting thing as well is third parties like utilities, insurance companies, the manufacturers, if consumers allow them to have access to their data, then actually they can really improve their own product offering and really kind of provide this kind of data as a service that we have been looking for with this smart home revolution.

Steve: Peter, that is really interesting and I am sure many of our listeners will be thinking how they can buy one of these devices, but and may be you could build on what you have said so far and talk a little bit of about the future and what developments or innovations are you looking at as you move forward with this business?

Peter: Yes, sure one of the coolest things we are developing at the moment is this real time peer to peer energy trading platform, using the blockchain technology to allow people with solar and batteries to actually be able to trade directly with their neighbours, thus being able to reduce transmission costs and ideally being able to reduce energy bills again and encouraging prosumers to go and purchase batteries and solar but also to allow people that can’t afford that to still benefit from their next door neighbour having gone and made that purchase and critically this will improve the kind of low carbon access for and flexibility for these consumers.

Steve: But I have read somewhere that there are regulatory constraints on our peer to peer energy trading.

Peter: That’s really interesting because the government has announced plans to actually move towards a smart, more flexible grid and as part of that movement we actually received a grant from the government so we can actually simulate our solution across two different platforms and the results will be going directly two of OfGem to actually inform them as to how we can move forward with this peer to peer trading so we’re really excited about how this is going to play out.

Steve: And a great example of innovation is taking place in utilities sector but may be to finish it, we can just return to oil and gas and hear little bit about whether there is anything happening in the utility sector that will be relevant for oil and gas then anything to learn from.

Adrian: So you are absolutely right, I think it’s always helpful to benchmark yourself against other sectors that also have interesting ways of developing innovation and using technology but to be fair to the oil and gas industry, this is an industry that has had a lot of innovation and particularly successful in R&D in applying that technology in industry, you only have to look at what’s happened with the US Shell revolution there to see the US become the new swing producer in the global economy, in fact disrupting the defacto power of some of the other countries that used to manage the supply of oil in the market, so lots of technology and innovation there.

I think the interesting thing with the oil and gas sector is they have gone through a particularly difficult period with the oil price crash and you have seen R&D investment suddenly amongst the leading oil and gas companies, oil field service companies, national companies, you have seen their spend in R&D decline by about nearly 25 % between 2014 and 2016.

So I think the key thing for them is to make sure that they ring fence that R&D spend and clearly innovation will be critical for the sector in order to operate more efficiently on the hydrocarbon side but equally it is important to allow them to position themselves for this low carbon economy that we are seeing accelerate towards us.

Steve: Adrian thank you! Peter thank you! It is clear from what you both said that disruption is having a dominant impact across the energy landscape and companies will need to work out what strategy and business model is best fit for them to help navigate through this significant change. I hope you have enjoyed this podcast, please look out for the next in our series where we are looking a little bit closely at how energy transition is impacting the oil and gas sector and the implications for deal making. Thank you for listening.

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Steve Jennings

Steve Jennings

Leader of Industry - Energy, Utilities & Resources, PwC United Kingdom

Tel: +44 (0)7704 564513

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