NARRATOR Welcome to the DNV GL Talks Energy podcast series. Electrification, rise of renewable and new technologies supported by more data and IT systems are transforming the power system. Join us each week as we discuss these changes with guests from around the industry.
MATHIAS STECK As first guest to our podcast series, I'd like to welcome David Walker, Chief Group Development Officer of DNV GL based in Høvik close to Norway's capital, Oslo. Welcome David.
DAVID WALKER Thank you Mathias.
MATHIAS STECK Let's jump into today's topic, the future of the electricity landscape and let us set the scene for a start. So, in my mind there is an energy revolution ahead not only because the recent Paris COP21 Agreement demands this to reach the agreed top-down global target of keeping warming between 2 and 1.5 degrees celsius, but more so because first we can i.e. through technology advancement and second because we want to transition into a safer, smarter and greener energy future solving the trilemma of affordability, reliability and sustainability of power supply. What are the megatrends in your mind, David, shaping the electricity landscape of the future?
DAVID WALKER Well I actually think there are three key themes you like that immediately spring to mind. The first one is in larger cities, conurbations that will see a nexus forming between the potential for distributed generation which will largely be solar, coupled with storage, coupled with more energy efficient buildings, and also e-mobility. So, we'll have these clusters of efficient cities that will start to meet the needs of over-urbanisation we're seeing as a trend across the globe. The second one is that even though those cities will still need some sort of back-up of power as will heavy industry, as will transportation services, so we'll not see the complete demise of central, larger power stations or wind farms or solar parks. And so those will continue to be pressure on us to become more efficient. In the case of wind, some of it may be offshore. And then hopefully in terms of the thermal generation as well to meet the COP21 objective and the sustainability element in the trilemma, that carbon capture and storage will become an element in the thermal power game. But they will also have to transmit their power and I think that will happen by more of a hybrid grid that will include HVDC as well as what are now conventional AC lines. So, we'll see more efficient, centralised power being transmitted along the distances to make sure we have the right back-up to the new cities but also in terms of supporting industry and transportation. And the third theme is the one around digitalisation. And by that I mean not only smart devices and smart appliances and smart meters, but also the introduction of more power electronics into the system to control the overall grid more efficiently, to steer power to where it's needed and more quickly. And so that sort of combination of all those three clusters of technology I think will be the main technological differences that we'll see in the electricity future. But one of the key things that I think comes out of COP21 again is what are governments going to do to support these developments going forward to make sure we make the transition that I'm describing, to make sure we are looking at that cleaner future that COP21 aspires to.
MATHIAS STECK So what we are looking at here is truly a new era ahead that's substantially changing industry. Looking at the current electricity landscape, David, are we and is the industry prepared for this?
DAVID WALKER I think it's a very interesting question and I think it's one that's very difficult to actually answer because I would say yes and no. And the variations are a mixture of geographical and market drivers, which mean that in certain countries and areas if there is a political will to drive some of these changes that we've just described, which may require incentives in certain areas, recognising at the same time that many of the renewables technologies I mentioned are coming down to good price parity with conventional power. Maybe if there are political incentives and capital is actually quite cheap at the moment so those two things together should actually drive along with new players in the market so we're seeing new interest in investing in the electricity market that we haven't always seen with new business models. So, there are a number of factors that make me say yes, we can do this. But the concern I have is because there's such a concern also on the cost of power or electricity in many markets and that that is also a political issue that that might to some extent curtail or offset the drive to meet the COP21 goals, and we've seen that in some countries in recent time. But let's hope COP21 overcomes that. In the developing countries though we have an opportunity for them to leapfrog past some of the historic both grid models and business models. And again if the right funding can be used to support them from aid agencies or from investment banks, or the development banks, then they have an opportunity to move to those solutions I described much more quickly and perhaps be able to put in place much cleaner, more efficient energy systems at an earlier part of their overall development as countries. And I think that would be quite a big boost.
MATHIAS STECK So when we talk to utilities which are one of our main clients today we see that there is a lot of uncertainty about their future, they are fascinated by what's happening but they are also seeing this threat for themselves, what do you think could be DNV GL's role there to help them?
DAVID WALKER Well I think there are a number of roles of course that we play already. If they're looking to grow in non-traditional directions for them and make investments that may be of a different kind from the ones they've made historically into these new energies, or into distributed generation and the nexus that I was describing, then we can obviously provide them with technical support from everything from engineering support, through to also due diligence or if they're going to purchase assets. So, that's something we can continue to develop. We'll continue to help them to make the assets that they do have more efficient by the skill sets that we actually can provide. And overall when you look at their whole systems we can help them to become more energy efficient and hopefully de-risk their systems with the services that we can also provide. But I think one sector what we also recognise as I mentioned there are a whole lot of other new players also entering the market that we can also help and support, because if they're new and they're really coming more from a pure investment side then again our technical knowledge of the whole energy value chain should provide them with some comfort in terms of again recognising the risk, and helping them to manage those as they make their investments.
MATHIAS STECK So for the future how I see this, the importance of data processing companies like Alphabet, Apple, Microsoft might become very important. Will we see some mergers and acquisitions between utilities and information communication technology firms in the future?
DAVID WALKER I think that's a possibility. I think what I'm seeing at the moment is I would not rule any bets off the table because I think we're in such a state of flux. I mean you're right in that the industry as a whole is becoming data intensive because of the use of embedded sensors and equipment, smart metering that I mentioned previously, the volume of data being generated by the whole value chain of the electricity is increasing exponentially. And so, people have to try and make sense of this so-called big data no matter which role they play in the industry because all of us will have exposure to this. So from what I see of this even though there may be companies that you described that can actually identify patterns in the data, and sometimes it probably doesn't matter what the pattern is but you'll react to it, where there is a need certainly to understand the patterns and develop actions based on those, that is where I believe the domain knowledge will still be important and a company like DNV GL will be able to help customers to understand that and make changes for their future benefit, to make things safer, to make them smarter, to make them greener. And that's where I see us adding value to the companies.
MATHIAS STECK Right, so my last question would be about the adaptation, how does a company like DNV GL with a heritage of 150 years serving very traditional industries have to adapt to the new realities? What is DNV GL doing to get ready for a future today nobody really knows yet how it will look like?
DAVID WALKER Well I think we're doing a number of things. For instance we're not starting from ground zero in many places. We've been developing digital-based services for quite some time. In terms of the electricity value chain I think one of the plusses is that the renewable energy industry as a whole has grown up at the same time as the exposure to embedded sensors and data generation on a bigger scale, and more detailed forecasting. So, we're used to in several of our services handling these data volumes and understanding what they mean both for the design, build and operate phases of these clients' assets. So, I think from that standpoint we need to build on that historic strength that we actually have. And we already have a number of services and things like cyber security for instance where we can advise customers on that, because there's no doubt that the energy industries will be a target either from other governments, or even extortionists, or even people concerned about their private data from their smart meter. So, that's another area we already have services we can actually build on. And we're always very interested in joining to set standards in this area because I think that's one area that we will see is there's not a lot of standards in some of these digital areas we're talking about. But we're always happy to join in our joint industry projects with a group of customers, because I think in that way we can actually often move more quickly while we wait for the normal standard setters in the industry to catch up. But we can make sure then that with ourselves and our customers we're providing an early version of a standard that customers can feel, and their customers can feel, confident around when certified against it. So, joint industry projects, joint development projects with another partner, spending 5 percent of our revenues on research, and of that the majority of that going forward will be to all the data smart digital services. So, I think that we're well placed and certainly we recognise those changes are underway already, the transformation is already happening. I think the key thing is accelerating and we need to be a digital accelerator too.
MATHIAS STECK Thank you very much David for your valuable insight. It definitely looks like we have exciting times ahead and I'm really curious where the work will be in a decade from now. Our discussion we just had let me think about what the notorious computer scientist Alan Kay famously once said the best way to predict the future is to invent it. And I'm afraid David I stole that from you but nevertheless it fits quite well here. It's indeed a space to watch and I wish ourselves, DNV GL and our clients a successful transformation into a new era. Thank you very much for listening.
NARRATOR Thank you for listening to this DNV GL Talks Energy podcast. To hear more podcasts in the series, please visit dnvgl.com/talksenergy.