Consolidation and decentralisation: how the energy and utilities industry is evolving toward net-zero

In our latest Energy Transition Talks podcast, Peter Warren continues the discussion in part two of our series with energy transition and decarbonisation expert Pedro Carmo, CGI Australia. Building on the previous episode, they discuss the state of the energy market, the role consolidation is playing in accelerating the race to net-zero and how a gradual, step-by-step approach is key to achieving decarbonisation targets.

As Peter Warren and Pedro Carmo discussed in part one of this series, a net-zero future will involve divergent paths and speeds. However, opportunities to accelerate decarbonisation activities exist across the industry, regardless of where organisations are on their respective journeys.

Emerging market trends such as consolidation and asset rotation are helping organisations to speed up their energy transformation, while also creating new opportunities for cross-industry innovation. What do these trends mean for the industry and net-zero targets? How do organisations address business and IT challenges that come with consolidation? And what does the future of the grid look like?

Consolidation and asset rotation help industry players at all stages accelerate toward net-zero

Many big industry players are realizing they need to accelerate their transition to meet their net-zero targets and keep pace with organisations who invested early on in renewables. Worldwide, this is driving a rise in industry mergers and acquisitions, through which major players acquire existing organisations or power plants, gaining, as Pedro points out, “not only the portfolio – including the different wind farms or solo farms and power plants – but also the people, tools and processes they need to operate those various assets.”

Elsewhere in the market, some early adopters are now in a position to develop and act on an asset rotation strategy. Building on their early renewables investments, they are selling assets, investing in new ones and making a profit along the way.

Adopting a holistic, gradual approach to address IT and business challenges of market consolidation

The growing trend of market consolidation presents unique challenges. As organisations merge, there are overlapping or disconnected systems, data and people. “Even a normal operator with different original equipment manufacturers (OEMs) faces a complex environment, as each OEM will bring their own SCADA system with different data and protocols,” Pedro says. When acquiring a company, he adds, organisations not only inherit that environment, but also “you have to incorporate the different OEMs from those different portfolios into your business, as well as completely different operating models.”.

This is of note, as not all organisations directly maintain and operate the power plants; some operating models simply focus on getting energy or money out of the power plants. Depending on the model, there will be varying levels of consolidation and integration required.

New owners need to take a gradual, step-by-step approach to integrate these various organisations into their business successfully, as they not only will inherit the systems challenges of the smaller organisations, but also the culture, people and processes that come with an acquisition.

“This is something we at CGI have a pedigree in, as we ourselves have grown a lot through mergers and acquisitions. So, we have experience in how to bring together several different companies,” Pedro shares. Peter elaborates: “It’s all about the people first, the system second and then the balance sheet. We buy balance sheets, but we integrate people and systems, and having that upfront thought makes it a little easier.”

Avoiding data swamps: maintaining trusted data across systems requires constant “gardening”

Blending organisations and systems has significant implications for data. While data lakes can be a valuable solution in some instances, they quickly become data swamps when the data holds too many different formats and standards. This presents a challenge for businesses, especially at a global level, which then want to use that data to improve availability, operations and performance.

So, how do energy companies and utilities address this? Pedro again suggests a step-by-step approach of ingesting the data, standardizing the data and then making it available to the business in a standardised, structured way to be actionable. This is not unlike maintaining a garden, Peter explains: "A garden gets full of weeds if you’re not maintaining it on a daily basis; you need to find the weeds and deal with them in real-time.”

For businesses consolidating organisations and data, Pedro recommends starting with the basics. “Start with the data and then the next step would be to try a global monitoring solution. Leave the acquired organisations to use their own systems, people, tools and culture, but put in place a global monitoring solution that provides visibility of the main KPIs.”

From there, businesses can introduce real-time supervision and build toward actual performance maintenance management. “It’s about having data that you can trust, so you can have trusted action,” says Peter.

Cross-industry consolidation drives new market dynamics, innovation and decarbonisation

Governments around the world have set policies focused on hitting net-zero targets, driving collaboration and consolidation within the industry. Increasingly, consolidation is happening across industries.

Oil and gas, in particular, are now starting to move toward renewable energy, bringing money, investment capacity and new ways of thinking to the market. Pedro is already seeing these businesses acquire different power plants and companies to accelerate toward their net zero targets.

This consolidation will extend to other industries as well. Companies like Amazon and IKEA, for example, are making Power Purchase Agreements (PPAs) with energy providers to acquire renewable energy and decarbonise their business. In some cases, Pedro shares, “they are also starting to create joint ventures and even go into the market themselves,” indicating that these massive organisations will start to become big players in the renewable space as well.

The future of the grid is a highly-distributed, decentralised network

These market shifts will have a significant impact on the energy and utilities industry, in terms of production, transmission, distribution and consumption. According to Pedro, the entire energy value chain will change: “I see the future of the grid as massively distributed, like a spider web, in which each node is playing a very important role as a producer or consumer of energy.”

He points to our homes as a prime example of this, but also highlights mining as an industry in which players can produce their own energy to run their business yet also sell it back to the grid, given the right price and excess capacity. Eventually, he says, “We will see a completely decentralised network, rather than a clear one-way direction from generation to transmission, distribution and retail.”

Peter agrees, elaborating on the point: “I think gas systems are going to become a grid now, too. Gas lines have traditionally been one-way, but now, as hydrogen and other products are blended in, these grids are going to be bidirectional.”

As the industry advances toward 2030 and 2050 targets respectively, we will continue to see market shifts and emerging innovations to help accelerate decarbonisation. While many solutions and technologies still need further development and refining, organisations of all sizes and at all stages of their journey can take steps now to advance their net-zero strategy.

One example Pedro points to, which has been successfully trialled, is incorporating small percentages of hydrogen into the gas pipeline. “Without changing any of our appliances or infrastructure, we can simply use a little bit less gas and a little more hydrogen, which is a small step forward.”

Market consolidation will continue to produce new solutions and ways of thinking, as major players from other industries bring fresh eyes and new solutions to existing challenges. As Pedro says, “This is an exciting time and we need optimism. A gradual, hands-on approach is what will take us to our net-zero targets.”

Read the transcript:

1. Introduction

Peter Warren:
Hello everyone, and welcome to another instalment of our series discussing energy and utilities and the energy transition. This is the second of a two-part series we're doing with Pedro Carmo. Hi, Pedro. Do you want to introduce yourself again?

Pedro Carmo:
Hi, Peter. I've been working in renewables for the last seven years. In the last 20 years, I've been an energy and utilities guy. I did all kinds of things in that time, but for the last seven years, I've been focusing on both utility-scale and also behind-the-meter renewables.

Peter Warren:
Very good. Thank you. And to remind everybody, I'm Peter Warren. I'm the Global Lead for Energy and Utilities here at CGI. In our last session, we talked a lot about what was happening in decarbonisation and driving towards renewable energy and its different components. In this episode, we're going to pick it up.

2. Market consolidation helps industry players accelerate their journey to net-zero

Peter Warren:
I’ll start you off with another open-ended question. Pedro, could you tell us: What's the state of the energy market and consolidation?

Pedro Carmo:
Worldwide, and also particularly here in Australia (where I’m based currently, after previously working in England and then Portugal), we are starting to see mergers and acquisitions. This increase in consolidation has been driven by the fact that there were some early-adopter companies that made initial investments in this area, while most of the big players stood back to wait and see what was coming. Now, as they set their targets for net-zero, they are seeing the need to accelerate, and to accelerate quickly.

Power plants take time to build from visibility to operations; it can take around five, six, seven years, depending on what we are talking about. These major players are starting to acquire existing companies or existing power plants, and also existing companies that own power plants. And with that, they bring in not only the portfolio–including the different wind farms or solar farms and power plants–but also, they bring in the people, tools and processes they need to operate those various assets. That is how a lot of big companies and players are starting to accelerate towards their net-zero targets. Of course, there are a lot of challenges that come with that. But that's where the market is at the moment.

Another interesting development is that early adopters are also taking the opportunity to do some asset rotation. So basically, they've made the investment, and now they're making some money; they are selling their assets, getting money and investing in new ones, and doing a little bit of asset rotation–and making some profit as they go.

Peter Warren:
Okay. I'll ask you in a minute here a bit more about your thoughts on how people should approach this and deal with this. Because I know you're helping other clients right now with that.

3. Addressing market consolidation challenges requires a gradual, step-by-step approach

Peter Warren:
First, maybe you could just go back a bit and talk about dealing with the business then technology challenges. As this market consolidation happens, as people merge, they've got two of everything and 14 different brands of everything, in some cases. What are your thoughts on that?

Pedro Carmo:
Yes, not two of everything, it's 14 of everything, like you said. I think we've discussed this on the previous episodes, but even just being a normal operator with different OEMs, for example, it's a complex environment. Each OEM will bring their own SCADA system, their own types of data and different protocols, and so on. But when you acquire a company, it's another level. Not only do you inherit all of that, but also you have to incorporate the different OEMs from those different portfolios into your company, as well as completely different operating models.

An operating model is another important thing to consider because not all companies do maintenance and operation of the power plants. There are different kinds of operating models, from simply getting the energy or the money out of the power plants, all the way through to doing everything from operations to maintenance.

So, when a company or big player acquires one of these smaller companies or several of these smaller companies, they will inherit all the challenges that the smaller companies have, and they will have the need for consolidation of several different business. That includes not only the tools, but also, of course, the culture, the people, the process and all that comes with the new company.

And by the way, we as CGI have a bit of a pedigree in this. As I think others will know, CGI has grown a lot through mergers and acquisitions. So, we also have experience in how to bring together several different companies. And maybe that's something we could help the industry with.

Peter Warren:
Yeah, it's a great point. In fact, our own approach when we've actually shared it with people: we buy balance sheets, but we integrate people and systems, and having that thought upfront just makes it a little easier. It’s all about the people first, the system second and the balance sheet is the thing we wanted. So, we're going to optimise that and bring it forward. What would you recommend as the approach to facilitate this trend? How do they pick up the pace here?

Pedro Carmo:
Well, definitely not big bank approaches or anything like that, but a gradual step-by-step approach. In this case, they will inherit all the different challenges like the different OEMs, the different protocols, but also the different people and processes. New owners will need to take a gradual, step-by-step approach to integrating all these companies and–I'm going to use a nice expression that just came to mind–not try to eat the elephant with one bite; just do it one bite at a time. We can eat the elephant, but only as long as we do it step-by-step.

4. Maintaining data across systems: start with the basics and build continuously

Peter Warren:
Yeah, that's true. And I think that's true for data. You mentioned data earlier and a lot of people look at technology as the answer (for instance, “a data lake is going to solve my problems”) but if you put bad data into any system, data lake or otherwise, you're not getting the results. What's your thought around data and how to maintain that in all these systems?

Pedro Carmo:
I have a particular thing about data lakes. To be honest with you, it makes me laugh a lot of times because people use the word data lake and they think, "Okay, we're going to bring all the data into our data lake and then that's it, that's done." And that couldn't be farther from the truth.

A lot of times we get not a data lake, but what I call a data swamp, where basically we have a lot of data in a lot of different formats and a lot of different standards. And basically, when the business wants to use that data to run their business and to improve availability and their performance, they just will have a very hard time. Of course, they can do it. Of course, everything is possible, but that's not the way to do it.

The way to do it would be to ingest the data, standardise the data and then make it available to the business in a standardised and structured way, so that then the business can make the best out of that data as well.

Peter Warren:
I was just going to say, one of the clients referred to it as maintaining a garden. You don't plant a garden and go away, and then come back in the fall and expect to have good vegetables and pretty flowers. I mean, it's full of weeds and it's pretty nasty if you're not maintaining it on a daily basis. And his point was very good: it's about going back and pruning it on a daily basis, finding out where there's a weed, dealing with it at that time and correcting it. And I think that analogy works very well for just day-to-day data.

Pedro Carmo:
For this. Yeah.

Peter Warren:
It's not a one and done.

Pedro Carmo:
No, not at all. Coming back to the mergers and acquisitions, companies would, of course, like to impose or start having a great system that is global, where they can incorporate everything in one solution. But the reality is that's going to be, again, a step-by-step approach or a bite by bite, coming back to the elephant approach.

What I would suggest, and what I've seen others doing, is start with the basics. Start with the data and then maybe the first step up would be to try to do a global monitoring solution. So, let's leave the companies that were acquired for the time being using their own systems, people, tools and culture, but let's put in place some kind of global monitoring solution that can provide visibility of the main KPIs. And then you can gradually step towards the rest. Then you can bring in real-time supervision, you can bring in the actual performance maintenance management, in some cases. But again, step-by-step, let's start with the basics and not aim immediately for the moon. Let’s get to the moon, but step-by-step.

Peter Warren:
Like our other folks often refer to it, it's about having the data that you trust so you can have trusted action. So, look at the data you've got that's going to enable this trusted action that needs doing now.

5. Cross-industry consolidation will help businesses achieve net-zero targets

Peter Warren:
We’re all driving towards a date. We all have a calendar happening; 2030 is definitely a big date in many people's future. Governments have set policies and we're moving in those directions. Will those market challenges be accomplished by then, in your expectation? Do you think that there'll be some cross-industry interplay? Just how do you think 2030 is going to look in reality, or in your current best guess?

Pedro Carmo:
I'm an optimist, so I would like to think that, yes, we are going to, we will reach them; we need to, we know why. We need to try as best as we can to reach those 2030, 2050 net-zero targets. Let’s be optimistic like I am, but also realistic. It’s not going to be easy. We don't have all the solutions right now, but it's possible. So, if we all work together, if we all drive towards those targets, it's not impossible.

But the other point you've mentioned, which I think is quite important as well, is the cross-industry consolidation. We are seeing consolidation within our energy and utilities, but also, we started seeing consolidation across industries. The big ones, the big players that we've talked about before, for instance, the oil and gas.

And then you can even go above that, which is about taking in consideration the asset's lifetime. Typically, these assets are very, very expensive and you want to maximise or extend their lifetime. So, there’s no point to be all the time restarting the assets, because that will basically wear out those assets and reduce the lifetime. You need to balance all of that in order to maximise your return on investment.

Oil and gas are now starting to move towards renewable energy, which makes it very interesting and brings a lot of dynamism to the market. They have a lot of money and a lot of investment capacity, so they are driving a lot of advances. We see that a lot; I see that here in Australia, and I saw that in Europe. I'm actually working for a well oil and gas company where we are doing exactly that. They’re starting to acquire different power plants, different companies to accelerate towards their net-zero targets. But that consolidation across industries will go to other industries. What we see a lot at the moment is companies like Amazon or even Ikea, for example, where they make Power Purchase Agreements or PPAs with energy providers.

That's the first step. Again, step-by-step approach. That's what they normally start with. They make contracts to acquire renewable energy, to decarbonise their businesses. So, they use renewable energy. They start by just establishing PPAs with companies and buying energy from them. But then, also, you start to see them creating joint ventures and, in some cases, going into the market themselves. For instance, companies like Amazon already have big investments in renewables and renewable generation, so they will start to become players or big players in this area as well.

6. The future of the grid is a highly-distributed, decentralised network

Peter Warren:
We were talking on one of our other podcasts about how people aren't necessarily doing things the same old, same old as they used to; for example, data centres in Iceland. It’s cold up there for a good part of the year, so you don't have to cool it so much; the excess heat you can actually sell. They've got the ability to do that and they've got geothermal energy. So, people are looking beyond the old ways of doing things to innovate, and I'm impressed with every one of them that I read about.

As we look to wrap this up, how do those market shifts impact the energy transition, specifically for the energy and utilities industry? Bringing it back to our core audience here, how does all of that come back and rest on their shoulders?

Pedro Carmo:
The good thing is we are going through a massive revolution, similar to the industrial revolution. I think the world will be very different in 2030, in 2050, in terms of energy production, transmission, distribution and consumption. So, the entire energy value chain will definitely change. I personally see the future of the grid as massively distributed. That's my view.

I have this concept of a spider web, which I see being very highly distributed, where each node will be a producer and consumer. A good example is not only at our homes, where we can be a producer and consumer of energy, but also, for instance, in mining. Miners can basically produce their own energy to run their own businesses, but also if they have excess capacity and if the price is right, of course they can sell it back to the grid.

I think, in the future, we will see a completely decentralised network rather than a clear one-way direction from generation to transmission, distribution and retail. I think we will now see a highly distributed grid with each node playing a very important role as a consumer and producer of energy. And then, of course, we'll have the grid. We'll have the grid to ensure that all of those nodes are connected and that the energy flows back and forth as needed. If I have my solar roofs, for example, and today is not sunny and I need energy or my batteries are flat, I can bring energy from the grid. And if there is a sunny day and I have excess capacity of energy, I can sell it back. The same applies for big industries or big players; it’s the same concept.

Peter Warren:
You've mentioned the grid, meaning the electrical grid, but I think gas systems are going to become a grid now too. Gas lines have traditionally been one-way, but now as hydrogen and other products get blended into there–for example, putting ammonia and other components in there, depending on what people are trying to do–these grids are going to be bidirectional. It's going to be interesting how the gas networks will have to now learn from what we've done in the electric industry for a while. So, it's going to be an interesting shift.

7. Key takeaways

Peter Warren:
As we wrap up here, Pedro, maybe one or two thoughts just for the audience on key points or takeaways from the last two sessions? We've done two episodes on this.

Pedro Carmo:
Picking up on gas, again I emphasise the step-by-step approach and also the all-hands approach. Of course, we would like to decarbonise or get rid of the gas and put hydrogen immediately in our pipe. At the moment, as we are now, the technology is not there. But there are other things we can do, which we can do straight away.

A good example, which has been trialled successfully, is to incorporate small percentages of hydrogen into the gas pipeline. So, without changing any of our appliances or any of our infrastructure, we can simply use a little bit less gas and a little bit more hydrogen, by introducing hydrogen into the mix. And by doing that, it's a small step forward.

We have big targets ahead of us, but we need to do it and step-by-step. From our two sessions, my key message here is: this is a very exciting time. We need optimism. We need people that want to drive this forward, that believe we can do it and have the strength and the willingness to do it, to make it happen. But also, we need this all-hands approach. Let's not discard any technology, any option without making sure we evaluate all the pros and cons of each solution. A gradual, all-hands approach is what will take us to our net-zero targets.

Peter Warren:
Well, thanks very much. So: keep it bite sized, have fun, be innovative and look to make a difference. And include everybody. If you include everybody–all-hands, consider neurodiversity and get a bunch of people with different viewpoints and opinions–you can be innovative.

Pedro Carmo:
Yes.

Peter Warren:
I think that's a great approach. No one has a single answer; it's collective. I agree.

Pedro Carmo:
And we have a lot to learn. It starts with you and me. I think we all need to do our bit in this. We all need to contribute to this massive transition. And if it starts with me, it starts with you. It starts with our children, it starts with doing the right things. Maybe we cannot do everything we would like to do, but let's do it whatever we can; every small action or small difference helps.

Peter Warren:
Yes. It's a chance to have fun, make money and make a difference, all at the same time. So, thank you very much, Pedro. All the best. Have a great day. I'm having a nice evening, given the time shift. We'll talk to you again, Pedro. See you.

Pedro Carmo:
See you, Peter. Nice talking to you, as usual. Bye-bye.