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Digitalisation

Energy system overview
More efforts needed
Shutterstock 1675260034

About this report

Digital technologies and data hold tremendous potential to accelerate clean energy transitions across the energy sector. In electricity systems, digital technologies can help integrate increasing shares of variable renewables and improve the reliability of grids, while in end-use sectors they can improve energy and material efficiency and reduce emissions. Moreover, digital services like videoconferencing offer low-carbon alternatives to travel while also supporting behavioural change towards low-carbon options. 

Advances in digital technologies and services, declining costs and ubiquitous connectivity have accelerated the digital transformation of energy in recent years, particularly in electricity networks. Grid-related investment in digital technologies has grown by over 50% since 2015, reaching 18% of total grid investment in 2021. However, further efforts by policy makers and industry are necessary to realise digitalisation’s full potential to accelerate clean energy transitions, including implementation of enabling standards, policies and regulations that prioritise innovation and interoperability while addressing risks to cybersecurity and data privacy. 

Energy and CO2 emissions

Digitalisation – the application of digital technologies – could have a major effect on emissions as an enabler in accelerating clean energy transitions. Across the energy sector, digitalisation can help cut costs, improve efficiency and resilience, and reduce emissions.

In electricity systems, for example, machine learning, smart meters and other digital technologies can help integrate higher shares of variable renewables and better match supply and demand from increasingly heterogeneous decentralised sources such as electric vehicles (EVs) and connected appliances. In end-use sectors, digital technologies can improve efficiency in buildings and transport while also enabling a shift to low-carbon options. 

In addition to indirect effects on emissions in other sectors, digital technologies also have direct effects on energy use and emissions. The data centres, data transmission networks and connected devices that underpin digitalisation account for ~700 Mt CO2e (including embodied emissions), equivalent to ~2% of global energy-related GHG emissions. Since 2010, emissions have grown only modestly despite rapidly growing demand for devices and services, thanks to energy efficiency and electricity system decarbonisation. 

Technology deployment

To be in step with the Net Zero Scenario, the global inventory of flexible assets needs to increase tenfold by 2030, which means that all sources of flexibility – including batteries and demand response supported by smarter and more digitalised electricity networks – need to be leveraged. Enabling digital technologies such as smart meters and distributed monitoring and control devices is essential to fully exploit the flexibility potential of the growing number of connected devices. 

As of 2021 an estimated 9 billion digitally-enabled automated devices are in use globally, including 1 billion smart meters. IEA analysis indicates strong growth in the deployment of these technologies, which could be further boosted by policy and regulatory frameworks. 

Global stock of digitally enabled automated devices, 2010-2021

Openexpand

Further progress on smart EV charging is also needed to tap into the major flexibility potential of the growing EV fleet. Smart chargers currently represent only 1.5% of all charging facilities. If made grid-interactive, other technologies such as heat pumps and air conditioners could also provide flexibility.  

In addition to ramping up deployment of key digital technologies such as smart meters, existing data and digital assets need to be better utilised to provide benefits for consumers and the energy system; it is estimated that utilities are currently leveraging only around 2-4% of data collected

Investment

Globally, power sector investment in digital technologies rose by around 13% in 2021 to USD 55 billion after a slowdown in 2020, reaching around 18% of total investment in electricity grids. The distribution sector accounts for three-quarters of all grid investment in digital, deploying smart meters and automating substations, feeders, lines and transformers via the deployment of sensors and monitoring devices. 

Digitalisation has become increasingly prominent within clean energy start-ups as more entrepreneurs seek to market new ideas based on digital tools and processes. For example, digitalisation enables new business models, such as energy as a service (EaaS) financial schemes and virtual power plant services for distributed energy resources. These business models provide new opportunities and revenue streams for companies while enhancing system-wide efficiency and demand-side flexibility. Moreover, big tech companies have become top investors in clean energy start-ups. 

Early-stage venture capital raised over USD 500 million in 2021 for investment in companies providing EaaS in buildings, distributed energy resources and grid management. Globally, late-stage venture capital investment in start-ups offering distributed energy resources and grid management services soared compared to previous years, totalling nearly USD 1 billion in 2021, while companies providing EaaS in buildings and charging as a service raised over USD 2 billion. However, pilot projects matching digital technologies with new system opportunities in energy are currently small and concentrated in certain regions and sectors.  

Policy

Several countries and regions have recently put forward strategies and action plans to facilitate the digital transformation of their energy systems, while others are beginning to mandate the use of digital technologies to support clean energy transitions.  

In addition, there are a number of regulatory sandboxes being implemented around the world (e.g. in Brazil, Australia and Spain).

Policies

Policy
Country
Year
Status
Jurisdiction
International collaboration

A range of international initiatives aim to tackle challenges and accelerate the deployment of digitalisation in the energy sector, including the following: 

Recommendations for policy makers

As digital technologies are developing at a much faster pace than the regulatory measures that govern them, forward-looking strategies and innovative frameworks are needed to promote experimentation with new technologies and the deployment and use of digital technologies in the energy sector. Innovative approaches include regulatory sandboxes, as covered for example in ISGAN research and policy guidance.  

Modern power systems require cross-disciplinary knowledge, and growing evidence indicates a lack of ICT skills and access to digital solutions as the main barriers to the digitalisation of the energy sector. Governments and companies can collaborate to identify critical skills needs (ensuring resiliency and adaptability) and to avoid labour bottlenecks, while also pursuing capacity building, reskilling and upskilling. Policies should prioritise the skills needs of vulnerable and underrepresented groups, thereby simultaneously addressing employment, equity and inclusion.  

Digitalisation can enhance access to new, more granular and real-time data and provide useful insights from large and multiple data sources. The benefits of data sharing are often overlooked, underestimated or resisted and there is a lack of incentives to invest in data and develop solutions.  

Privacy and data ownership are also major concerns for consumers, especially as more detailed data are collected from a growing number of connected devices and appliances. Policy makers will need to balance privacy concerns with other objectives, including promoting innovation and the operational needs of utilities. Policy makers developing overarching data strategies should include energy sector considerations. 

Realising the full potential of smart devices and sensors requires high levels of interoperability to allow them to connect, communicate and seamlessly integrate across the system, including through open-source software and data licensing. Policy makers will need to pursue a system-wide approach to promote increased interoperability.  

Common international standards could help to ensure that all assets focused on a particular use case, such as delivering demand flexibility, are compliant with interoperability and data sharing principles. This could also support faster deployment on a global scale. For guidance see the OECD Going Digital Toolkit and the Energy Systems Catapult report on interoperability in the energy sector.   

International initiatives can help coordinate, identify and target areas where increased investment in R&D is most needed to foster digital innovation. Pilots and demonstration projects should address major challenges, cover replicability and scalability aspects, and disseminate useful learning and results. The call for pilot projects on digitalisation for flexible and resilient energy systems – recently launched by UNEP with the support of Italy – includes these elements.  

Cybersecurity risks are growing as energy systems become more digitalised. Policy makers play a central role in enhancing digital resilience by raising awareness, facilitating partnerships and sector-wide collaboration, developing information exchange programmes and supporting research initiatives across the energy sector and beyond. The rapidly changing nature of risks and threats calls for the continuous review and adaptation of policies. 

Digitalisation has implications for jobs and skills in the energy sector and beyond. It is changing work patterns and tasks, causing job losses in some areas and creating new jobs in others. Measures to ensure just transitions are highlighted in the recommendations of the IEA Global Commission on People-Centred Clean Energy Transitions.  

While digitalisation can help to reduce emissions, some applications can increase net emissions by inducing greater consumption or enabling more carbon-intensive energy production. Strong climate policies are vital to ensure that digitalisation helps to accelerate – not hinder – clean energy transitions. 

Recommendations for the private sector

Proprietary communication protocols can be a serious stumbling block in the path to leveraging digital solutions for decarbonisation and energy system resilience. Industry also has a key role to play in enabling interoperability of technologies and systems. 

A number of international initiatives and alliances aim to drive progress towards open, secure and interoperable systems, including the OSGP Alliance and LF Energy. Further efforts are needed to create and share testing and verification environments.  

The private sector must play a leading role in reducing the direct environmental impacts of data centres, data transmission networks and connected devices, to align with the International Telecommunications Union’s standard and guidance on reducing the sector’s GHG emissions by 45% between 2020 and 2030. Companies can play a major role in deploying digital technologies to reduce emissions across the energy sector and beyond, through initiatives such as the European Green Digital Coalition. 

Industry must play an important role in ensuring digital resilience across the energy value chain. For example, utilities and equipment providers can conduct active monitoring of the supply chain to detect vulnerabilities. Digital resilience must be incorporated by design into research, development and product manufacturing.  

Acknowledgements

The authors would like to thank Steven Beletich (IEA TCP 4E Electronic Devices and Networks Annex), Molly Lesher (OECD), Luciano Martini (SGAN & MI Green Powered Future Mission), Greg Johnston (Energy Systems Catapult), Jesse Scott (Agora Energiewende) and Christian Zinglersen (EU Agency for the Cooperation of Energy Regulators) for their helpful comments on earlier drafts of this report. 

Analysis