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Ardian on driving the energy transition

Ardian’s senior investment manager Pauline Thomson explains why innovation in infratech is critical to supporting the widespread adoption of renewables

This article is sponsored by Ardian

To what extent is the energy industry embracing digital technology?

Pauline Thomson

It’s really a two-way street. The energy consumption linked to digital technology is extremely high, which means that the energy transition becomes ever more pressing as a result of the digitisation of the global economy.

At the same time, the energy transition itself requires digitisation. That is why we do now find the energy sector embracing digital technology. It is fair to say this sector came a bit later to the party than some other industries, such as transport, which are more directly in contact with the end-user. Generally, consumer-facing sectors have embraced the digital revolution first. But the energy industry has undoubtedly now realised the importance of getting this right.

Why is digitisation vital to supporting the energy transition?

As the energy transition progresses, we are seeing an ever-greater proportion of renewables in the energy mix. That brings with it several challenges in terms of building and managing the energy supply.

First, as renewable energies are intermittent by nature, renewables require greater flexibility of the system to ensure the supply/demand balance is always maintained. Energy production areas are also more numerous and more decentralised with renewables, which again requires a more flexible approach to the distribution organisation.

Traditionally, most energy markets have been organised around centralised sources of production – power plants – with that energy then distributed to decentralised customers. Now, we have the decentralised generation of electricity, which in many ways is the complete opposite of the historical model.

There are a very large number of small capacity units that are all connected to the power grid. We even have consumers that are becoming producers and that is completely changing the flow of the grid. This is where technology has a really important role to play, with the advent of initiatives such as smart grids, for example.

What role does energy storage play?

Storage is a game-changing innovation because it helps renewable sources of energy to be more predictable and gives more control over the dispatch profile. But we must also think about ways of making the energy production itself more predictable.

Ardian’s renewable portfolio now equates to more than 3GW of renewable energy around the world. We are currently assessing how to use the data from those wind turbines better in order to optimise production and improve our production forecasts, because a lack of predictability can be a real challenge for the grid.

A nuclear power plant, for example, has extremely stable production, but when you have a lot of wind turbines in the energy mix, grid balance becomes a lot harder to forecast. For us, using data to give the grid operator a more reliable production forecast and to improve the monitoring and maintenance of our assets increases their reliability.

It is absolutely necessary for data analysis to be more widely adopted by renewable energy operators because it will increase the reliability of these sectors overall. It also impacts the value creation of assets, of course, and improves returns.

Are technology and digitisation creating any particular challenges for the sector?

For the energy industry, digital is far more of an opportunity than the threat that it can be for certain other sectors, because it provides a way for energy production to be more efficient.

Of course, as in any industry, there is always the risk that if you do not stay ahead of the technology curve, you can become obsolete. I definitely see the real threat as failing to act. You can very quickly, and without realising it, destroy significant value.

“There is always the risk that if you do not stay ahead of the technology curve, you can become obsolete”

If you don’t invest in the way you manage your relationship with the grid operator, if you don’t innovate to enable your grid to really embrace all the new sources of renewable production – all those decentralised energy systems I was talking about – and if you don’t provide the best possible service to your end users, you will undoubtedly be outpaced by other actors.

How have you approached technology from an internal resource perspective?

We started thinking about the digitisation of infrastructure assets several years ago. It is now commonplace to say that infratech is important, but until fairly recently, that was not the case. We now have an in-house digital team, which I am leading. We have four members of the investment team that, on top of their investment activities, are dedicated to exploring new technologies and to supporting our management teams in their digital
initiatives.

Even so, we have recently felt the need to bring additional skills on board. Historically, we have all had business, finance or engineering backgrounds, but we recognise that today’s digital landscape calls for a very specific skillset. That is why, last September, we recruited our first data scientist, Louise Badarani, who works with me in the digital team.

What about collaboration with technology companies themselves? Is that part of your strategy?

We are in regular contact with technology companies. We screen all the new tech start-ups that could be interesting for us and put them in contact with our portfolio assets and management teams to try to create valuable partnerships.

The third element of our strategy for ensuring we stay on top of all the latest tech developments are our partnerships with schools. We have a partnership with HEC Digital Major and Ecole 42 in Paris, for example, and regularly welcome students into our investment team to work on particular digital projects.

Is regulation inhibiting the energy sector’s ability to embrace infratech?

Our conviction is that there is a general need to incentivise innovation in infrastructure assets, and in particular for energy infrastructure assets. The problem, at the moment, is most regulation is concerned with capex rather than with innovation that might allow you not only to increase your capacity but also to manage what is already there with greater flexibility.

Regulators need to incentivise all operators to innovate because the problem with investment in new technology is it generally involves a significant upfront cost, but it can be complex to predict the payback time, or the return on investment, because it is new and sometimes unproven.

These technologies do not come with long track records. But, nevertheless, it is very important to incorporate new technologies. So, we need to enable all stakeholders in infrastructure to monetise that investment and to be rewarded for their willingness to innovate.

Which emerging technologies do you think will hold most significance for the energy sector?

The proliferation of energy storage will revolutionise the energy market because it will enable us to manage the intermittency challenges of renewable energy assets and to exert greater control over the dispatch profile, helping to balance the grid. Energy storage has already been around for a number of years, of course, but it is expected to become significantly more widespread and that will have a major impact on the sector.


Case study: EWE

The German utilities company is putting a tech-driven energy transition into practice

In 2019, Ardian acquired a 26 percent stake in EWE, with plans to invest in strategic areas of renewable energy, telecoms and networks as the business moves towards becoming “an innovative solutions provider” offering integrated services and products for energy, communication and mobility.

Based in Oldenburg, in the north-western state of Lower Saxony, EWE is one of the largest integrated utility companies in Germany. It supplies electricity to around 1.4 million customers and natural gas to 800,000. It also provides around 700,000 customers with telecommunications services.

To achieve this, EWE operates over 190,000 kilometres of electricity grid, natural gas grid and telecoms networks. It has plans to invest more than €1 billion in fibre optic roll-out in partnership with Deutsche Telekom over the next few years.

“EWE is a very good example of a utility whose strategic ambition is to be at the forefront of the energy transition in Germany,” says Ardian’s Pauline Thomson. “It is also a good example of a traditional infrastructure company transforming itself in order to be more in tune with what users are expecting. Users are now demanding much more green energy; they are demanding more energy efficiency and they are demanding new services. A forward-thinking approach to digitisation is critical to getting these things right.

“EWE already has a large portfolio of renewable assets and further plans to expand with additional capacities, but it is also investing in lots of other projects such as charging stations for electric vehicles, energy storage and hydrogen supply for the industry and the transport sector. The company is also very focused on the responsible use of data to offer the best possible service to users, helping them with their energy efficiency,” she says.

“EWE also has a project around a very interesting business model – what we call virtual power plants, where it is sharing the benefits of its software platform with a large number of energy providers and consumers, allowing them to collate that data and connect to services. By using technology as a behind-the-grid service tool, it can forecast supply and demand and be more responsive. These are the types of new business models we are seeing emerge that are very interesting for a lot of market participants.”