IFS PREDICTIONS 2023

PREDICTIONS FOR THE ENERGY, UTILITIES AND RESOURCES INDUSTRY IN 2023

BY CAROL JOHNSTON, VP, ENERGY, UTILITIES AND RESOURCES AT IFS.

PREDICTION #1: SUSTAINABILITY

IN 2023, ADOPTION OF ESG METHODOLOGY WILL INCREASE TWO-FOLD AMONG SMALL- AND MID-SIZED ORGANISATIONS UNTIL IT REACHES PARITY ACROSS ORGANISATIONS OF ALL SIZES

Many energy, utility, and resource organisations have prioritised the adoption of environmental, social, and governance (ESG) standards, with a recent PWC survey showing 91% of utilities in North America reporting an uptick in ESG investments. We see strong adoption in Europe as well, where failure to deliver on ESG standards directly impacts the utility’s credit rating, impeding access to the capital expenditure and more complex funding needed to achieve sustainability goals.

While larger organisations lead the way in ESG adoption, until recently, small and medium-sized companies have lagged behind, lacking the necessary resources and technology to easily adapt.

This will change in 2023 as these organisations set hard sustainability goals to achieve net zero carbon emissions by 2050. According to a recent survey of small and midcap companies by Harvard Law School, the shift is already underway.

Based on published website ESG disclosures, the survey found that within mid-sized organisations, the energy sector leads the way, with detailed ESG disclosures including climate change, use of renewables, and greenhouse gas emission targets and metrics. This trend is expected to continue until there is parity across organisations of all sizes.

Looking ahead:

Before small and mid-sized organisations can build a strategy to achieve sustainability goals, they must first benchmark their current state, using real-time data to generate accurate insights across the entire operation. Legacy infrastructure and siloed data won’t cut it. Instead, technologies must integrate seamlessly for a single version of the truth.

For many, the work is well underway to modernise existing infrastructure to achieve these results. While these wholescale changes require significant investments in time and resources, funding support is available.

With the current US government in place for several more years, the Infrastructure Investment and Jobs Act and other government initiatives continue to subsidise investment in technologies that support ESG initiatives, such as clean water and electric grid renewal.

In Europe, there are a range of EU funding options. For example, the Cohesion Fund supports energy-related projects that benefit the environment, while the Connecting Europe Facility boosts energy, transport, and digital infrastructure.

Strong leadership is imperative, ensuring the project is prioritised and executed accordingly. Again, we see great inroads within the industry where support for ESG initiatives starts at the top, with 70% of utilities ranking their CEO as the key decision maker. As well, a dedicated team must manage the project over time, empowered with the necessary systems to ensure progress is tracked and targets are achieved.

Finally, 2023 presents an opportunity for larger-scale organisations to support mid-sized companies by sharing sustainability strategies and data-based insights. By working together, the industry will accelerate efforts for every organisation to achieve net zero carbon emissions by 2050.

PREDICTION #2: THE CLOUD

IN

WE WILL SEE A 40% INCREASE IN THE NUMBER OF ORGANIsATIONS OFFLOADING IT FUNCTIONS TO CLOUD PROVIDERS, RISING TO 60% BY 2030

While the shift towards sustainability is driving the modernisation of existing infrastructure and technology, more complex challenges are accelerating cloud adoption. In particular, the increasing use of cloud providers to support core IT functions versus managing these activities in-house.

Two trends are influencing this shift:

1 Security: As with most industries, cybersecurity incidents continue to increase year over year. However, in 2022 we witnessed an acceleration in events including denial of service, data breaches, and system failures due to security incidents. With many organisations lacking the resources and budget to properly harden systems, monitor infrastructure, and withstand increasingly sophisticated attacks, outsourcing this function to a cloud provider makes good sense. The model provides energy, utility, and resource companies with access to leading edge technologies to properly secure their operations, leveraging the billions of dollars cloud providers pour into their platforms and security infrastructure.

Capital and resources will be freed up to focus on other priorities such as energy mix management, the shift to renewables, and physical infrastructure security—a timely consideration given the recent Nord Stream gas pipeline explosion that occurred in Finland.

2 Global skills shortage: Finding and hiring skilled workers isn’t getting any easier, especially when organisations must compete with large, Fortune 100 employers such as Amazon and Google for the same digital talent. Disruptions from the pandemic continue to reverberate, with many companies challenged to replace valuable middle management talent that departed to pursue new career paths or early retirement.

These workers typically come up through the ranks, starting out in the field and in administrative roles, amassing unique skills and experience along the way. Losing this brain trust places the organisation in a vulnerable position.

By outsourcing IT functions to cloud providers, companies have access to contemporary technology and security infrastructure supported by specialised workers they didn’t have to hire and train.

Looking ahead:

Shifting to cloud providers for some IT functions will result in a tighter collaboration between IT and OT. As cloud adoption increases, the desegregation of responsibilities—a trend that is currently underway—will also grow, with both teams working together to support enterprise policy (definition and enforcement), system integration, security (for users, data, email, account management, password policies, etc.), data integration, user support, and other activities.

Organizations can balance potential risk by engaging with multiple cloud providers for different services. This distribution of work ensures operational continuity while empowering the company to change providers if services or costs no longer satisfy the needs of the business.

Internal processes will need to be adjusted to accommodate the model. For example, IT must focus on new ways to access and extract data that is no longer stored on-premises. Additionally, the team can leverage powerful cloud capabilities to spearhead greater efficiencies, developing new workflows and processes for greater business agility and resilience.

PREDICTION #3: ARTIFICIAL INTELLIGENCE & MACHINE LEARNING

IN 2023, AT LEAST 75% OF ORGANIZATIONS WILL RELY

ON AI AND ML TO KEEP PACE WITH DIGITAL AND BUSINESS TRANSFORMATION

As infrastructure evolves and new technologies arrive, data generation is increasing at an astonishing rate. For example, in 2019, the Internet of Things (IoT) generated 13.6 ZB of data. In 2025, this number is expected to exceed 79.4 ZB

Within the energy, utilities, and resources industry, data is created and consumed by a range of technologies. Along with standard applications such as asset management, scheduling, dispatch, and other solutions, new innovations such as Geographical Information Systems (GIS), IoT, Light Detection and Ranging (LiDAR), and many others are adding to data stores at ever-increasing rates.

As data loads increase, so does our reliance on AI and ML. Especially as accuracy rates improve year over year. Today an ML accuracy rate between 70%-90% is considered realistic and even ideal if it matches or exceeds what a human can deliver. Since algorithms learn and refine quickly over time, once ML is implemented, rates improve rapidly until they meet or exceed pre-implementation standards and the system is able to run with minimal oversight.

Today we rely on AI and ML to extract optimum value from data, enabling accurate insights, predictive analytics, workflow automation, and helping to inform critical business decisions. To support this model, the industry will demand that new solutions include embedded AI and ML capabilities.

Looking ahead:

AI and ML are critical to the success of energy, utilities, and resources organizations, today and into the future. Along with driving meaningful operational efficiencies, these technologies will help the industry achieve its longer-term objectives.

For example, the transformation to renewable energy. Enabling AI in grid management will alleviate the shift from infrastructure-heavy legacy models to a grid that is more resilient and flexible, incorporating a range of assets owned by many different customers. This future bi-directional grid will be comprised of a multitude of owners generating, using, and selling energy back to the business. With so many moving pieces, the efficiencies of AI and ML will be imperative.

As global warming continues to wreak havoc, the industry’s reliance on AI and ML will only grow. Recent use cases include fault prediction; image processing for the maintenance of cables, pylons, and other assets; energy efficiency insights for use by end customers; disaster recovery; energy demand management; and infrastructure management.

With such a range of scenarios in the field, dynamic scheduling is imperative, allowing organizations to optimize workforce efficiencies while ensuring customer service is sustained and improved.

Embedded AI and ML have become table stakes when investing in new technologies. In 2023, we will see an evergrowing demand for these capabilities.