Origami's CEO, Peter Bance, reflects on 2021, a year where volatility has become the “new normal” in the energy industry, and provides his outlook for 2022 – the year energy goes digital.
As 2021 draws to a close, is anyone going to claim this year has been a bed of roses? With the pandemic continuing to unfold with huge impacts to health and society, one positive aspect of 2021 has been the increasing global consensus on the green energy transition. Although none of the required actions are happening fast enough yet, the giant tectonic forces of public opinion, government policy, flows of money, and technology innovation are all now pointing in the same direction. As a life-long cleantech pioneer, it finally feels like tailwinds!
As we reduce the carbon intensity of our energy system, over the past few years we’ve seen records broken for electricity in Britain. This year was no different, with low carbon sources reaching 80% of the grid on Easter Monday, our “greenest ever” day. We’re now seeing renewable power supplying over 50% of total UK power on a regular basis.
Following its legally binding commitment to reach net-zero by 2050, the UK government published its strategy for how to actually achieve this, which notably included an Energy Digitalisation Strategy. However you look at it, digital solutions with streams of real-time data provide a critical set of tools that our energy industry must adapt to drive the energy transition. The UK government also announced plans to decarbonise the electricity grid by 2035 just before hosting COP26, where 80 other countries backed a “Green Grids Initiative”.
2021 has undoubtedly been the year when battery storage came of age, with the costs reducing and the value of flexibility increasing. New investments in this important new asset class have dominated the market news, and there has been a notable shift towards battery storage investment and away from traditional energy projects. The pipeline of battery storage projects in the UK is now worth billions of pounds and the build-out rate is accelerating. In a post-subsidy world, investors have found that good returns can be realised across different markets such as National Grid’s faster-acting frequency response service (Dynamic Containment); the Balancing Mechanism (where prices at times reached 100x the average!); and extremely volatile wholesale markets. But navigating these continually shifting value pools to optimally monetise assets needs powerful digital solutions.
On the demand side, there was a big shift towards electrification, with the uptake of EVs larger than anticipated by many market commentators. Just over a quarter of the new car market has gone electric in 2021, with BEV, PHEV and HEV share up 67.4% on the previous year.
Lastly, since September we have seen prime examples of market volatility writ large with the ongoing gas price crisis. In the UK, we have seen all-time records, with wholesale prices increasing 10-fold, along with extreme intra-day volatility in electricity. As a result, 25 energy supply companies were unable to manage their trading risks and went bust within the space of 3 months, with more to follow.
With many of these trends set to continue, here is my take on what’s to come in 2022
1. Volatility is the new normal.
Whether prices go up or down, big spikes will be part of the very nature of a renewables-based energy system. Being able to ride these waves successfully will depend on the ability to see and interpret the relevant real-time data, both physical and financial, in order to promptly make and execute informed decisions, at scale. Interestingly, from an energy security perspective, it will be a really good thing to rely less on global energy markets for highly volatile commodities like gas, by producing more home-grown renewable power. The focus will increasingly be on balancing grid systems, predicting the weather, and managing different types of value and risk in traded markets.
2. Innovations in energy will all be green.
Renewables will represent over 95% of new global generation capacity over the next 5 years. And we’ll see the energy innovation landscape 100% focused on the green agenda – whether it’s energy storage, transport, heating, or the IT industry. A bit like the standard for new build homes to be green by design, new energy innovations will be based solely on green solutions. The mantra will be, “if it’s new, it has to be green”. Of course, there are legacy projects still being completed, but I don’t see new investments being secured for anything other than green solutions.
3. New energy projects will have technology choices built-in.
An essential pillar in the planning and financing of new energy projects will be the technology that is going to monitor/control/monetise these things once they’re built. In the past, energy projects focused on who is going to supply the hardware, who will do the engineering services, who is providing the funding, and who is going to provide the route to market and monetise the project … software was an afterthought! However, now it will become critical to include the choice of technology in the project design up-front for it to be viable. In a post-subsidy world, where revenue streams are increasingly volatile, you need powerful digital solutions to dynamically monetise your assets and deliver the expected returns. Infrastructure investors and project developers will be asking this question more and more: "Who is going to do the software?" They want to know what the ‘digital glue’ will be between the physics of assets and the economics of markets.
4. Digitalisation will be a key focus throughout the industry.
In our conversations with energy companies (whether incumbents or new entrants), we’re hearing time and time again about the challenges of accessing, using and benefitting from an avalanche of data. The complexity of the industry is outstripping human capabilities. Millisecond response times for asset monetisation services require automation. The industry has now recognised the critical importance of data and software solutions to manage a renewables-based energy system, and at Origami we’re looking forward to what 2022 will bring. Our data platform is at the right stage of maturity at just the right time to offer our SaaS solution that we can configure in a tailored way to the varying use cases and common challenges of our customers.
5. Talent will be on the move and more purpose-driven than ever.
Finding a job with purpose is becoming the number one consideration in today’s job market, a desire that has been heightened even more by a general feeling of unease arising from the pandemic. Talented people are on the hunt for roles that can inspire them and with public opinion solidly backing the move to green energy, it will come as no surprise to see candidates moving out of traditional energy companies and into more forward-thinking businesses focused on providing green solutions enabled by powerful digital technology. And in the increasingly competitive market for roles in software, data science, and AI, people will be looking beyond just salaries and personal career progression alone in their job search. They are looking for something they can truly believe in, and what could be a better motivator than saving the planet?
And finally, some thoughts on timing
On a personal note, when I founded Origami, and throughout the early years of growing the business, I could see where the industry was heading, but it was impossible to predict exactly when and where the critical tipping points would be reached to really drive that change - the product costs, tech infrastructure, price signals, and customer pain points. The momentum has taken a while to build, but in 2021 these key tipping points have now been reached. Looking ahead to 2022, it is clear that the market drivers and the advanced technology we have developed are coming together, and I’m looking forward to a really exciting year for Origami and our customers.
Wishing everyone a well-earned break over the holidays and a prosperous new year!
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Post by Peter Bance, CEO, Origami
Peter sits on a number of public-private energy technology Boards (including ESC and ERP), has a history of successful fundraising, was CEO of an Aim-listed distributed generation company and has a PhD in physics from Oxford. This background contributes a strong business and commercial competence to Origami’s leadership team to match proven technical and entrepreneurial capabilities.