Digitalization & the energy ecosystem

VOICEOVER Welcome to the DNV Talks Energy podcast series. Electrification, rise of renewables and new technologies supported by more data and IT systems are transforming the power system. Join us each week as we discuss these changes with guests from around the industry. 

MATHIAS STECK Welcome to today's episode of DNV Talks Energy. My guest today is Danny Venables, Chief Digital Advisor from Microsoft Asia Pacific. Good morning, Danny.

DANNY VENABLES Good morning, Mathias. How are you?

MATHIAS STECK Thanks, fine. How about yourself? Danny, today we want to speak about the impact of digitalization on energy ecosystems but before we start with this, could you please briefly introduce yourself and your current role at Microsoft?

DANNY VENABLES Sure, great. Well, I'm from South Africa originally; I've been in the IT industry and particularly in consulting around strategy, IT strategy type consulting for more years than I care to remember. And in my role in Microsoft right at the moment I'm the Chief Digital Advisor for Asia Pacific based in Asia Pacific HQ in Singapore, and what we really focus on as a digital advisory team is helping our big enterprise customers comprehend, understand and take advantage of the digital transformational wave that's, kind of, affecting us all at the moment.

MATHIAS STECK Okay, right, that brings us also right into our topic. We want to talk about the internet of energy and in DNV we believe that a smart city, smart country, maybe continent or even a smart world certainly needs smart assets but to make these interact. Apart from the smart grid we need another layer which we sometimes call the soft grid, and basically it's the platform enabling the interaction of the assets. Which role do you see Microsoft play in this, Danny?

DANNY VENABLES Well, this kind of soft grid as you mention is very much driven by cloud technology. So, as one of the largest cloud providers I think where that makes sense for Microsoft to add value, and where we are already adding value with some of our energy customers, is providing those cloud based services. And then on top of that obviously, the analytics that goes behind it, that's going to be a very smart grid at the same time as being a soft grid. So, there's a lot of automation, AI, machine learning and analytics that will drive a lot of that layer. So, all of those are areas where I think Microsoft is very strong and will continue to grow as well.

MATHIAS STECK Yes, so, maybe on that cloud service to enable this, one thing we are sometimes hearing is that there is concern about how these assets can communicate with each other because there are so many different protocols around. Is this something which could also be solved through the cloud?

DANNY VENABLES Yes, I think so. I mean certainly one of our strategies in Microsoft is to enable communication between differing protocols. If you take blockchain as an example, our strategy there is not to necessarily provide a new blockchain protocol but to provide a platform where the various protocols can communicate with one another. So, you know, I think Microsoft, and others no doubt, see that this kind of communication between differing approaches and protocols is going to be essential to achieving that interconnected world of the future. So, there is quite a lot of work going into trying to build the integration layers in the cloud that can allow that easy communication between different protocols.

MATHIAS STECK I see. And I want to pick on one thing you mentioned a little earlier during our discussion, so, you mentioned machine learning and artificial intelligence. We hear quite a lot about this in the recent years. And basically machine learning is kind of around since the 1960s, but only the computational power we have available today makes this a very interesting option now to really use it. So, I have an article out there on LinkedIn where I have a quite optimistic vision that machine learning will allow us to optimize ecosystems – if you wish, the energy ecosystem – without human intervention by kind of managing all these assets through the cloud. We talked earlier about this, about balancing distributing, or distribution generation and the loads. So, what would you think; are you agreeing with that vision? Is that something which will happen, that machines can control our infrastructure in future?

DANNY VENABLES Absolutely. I think, you know, without that kind of capability, the future you're talking about just wouldn't happen. You know, you're talking about something that has an exponential level of complexity when you've got a soft grid connecting literally hundreds of thousands or even millions of different devices. Human beings are completely unable to handle that kind of complexity manually, so it's an absolute necessity that machine learning and artificial intelligence type technologies will be one of the foundation requirements for that kind of future.

MATHIAS STECK So, I mean the issue that implies of course to make that work is that we have to, kind of, substantively disrupt the current energy ecosystem to break through all the current silos we do have, and we have to do that or prepare that in an environment where we do not 100% know how the final solution will really look like. Now, DNV is in that position, but also you in your role in advising companies in digital transformation. What, like on a high-level basis what would be your recommendations to companies who try to go through a digital transformation to get prepared for such a scenario which is not 100% defined?

DANNY VENABLES Sure, and that of course does make it difficult. I think that's kind of the route of a lot of digital transformation is that it's somewhat experimental and you never know exactly what the final solution is going to look like, as you say. I think the advice that we give is from a technology point of view not to paint yourself into a corner; you know, start seriously at looking at moving to the cloud. Once you move to the cloud things generally become, you know, on average I'd say become a little easier in terms of integration between different pieces of software, and different nodes and what have you. So, making sure that you have that capability, that you're moving towards a kind of modern type of infrastructure, cloud based, modern application based is, from a technology point of view, what we recommend. And that's not a rip and replace; it's a planned migration for organizations, particularly [for those] who've got quite a lot of investment in existing infrastructure and software.

And then, just as important, when you talk about silos, is not just the technology silos but I think the kind of cultural and organizational silos that exist. One of the, almost, the biggest challenge in digital transformation that we see with our large customers is actually getting them to a digital mindset to some degree. So, that means changing to more of a digital culture, getting their digital skills plan in place, you know, recruiting the right new types of skills, up-skilling their existing people, working internally to break down those organizational and inter-organizational silos because those are kind of baked into many companies. And until they can break those down, having technology integration is not going to really achieve the full solution.

MATHIAS STECK It's interesting you mentioned that because I remember we had a client who told us that while they went through the digital transformation – it was a client from the maritime space – they, in a time of nine years it took them, they had a turnover of 70% of their staff because 40% didn't want to get involved and 30% were not capable. So, it can have extreme impact on companies. Well, another area actually, which comes with this digitalization and which people are worried about is that cyber security becomes more and more important. Humans create this problem themselves and are not very successful to counteract, so, if we now look into this totally connected world, that could be very dangerous to society by some bad guys doing bad things to our infrastructure. What would you see where that is going? Is that a real danger or are there things happening which will make this less severe?

DANNY VENABLES Well, it's certainly, at this point in time, it absolutely is a real danger. I think for the short to medium term, you know, what I sometimes say to people is that, you know, think of banking a number of years ago, probably many years ago, but people were reluctant to take their hard-earned coins and put it in a bank because they didn't trust the banks. We are in a similar situation right at the moment, I think with people with data. People are still a little bit unsure that they should put their data into the cloud. But to be honest, it's only companies like Microsoft, Amazon, IBM, etc who are starting to have the resources or have the resources to build this tremendous amount of security around their cloud offerings. The kind of investment that Microsoft makes in security is not something that most even large enterprises can afford to do off their own bat. It just wouldn't be cost effective.

So, to some extent in the shorter term, putting your data into the cloud, making sure of course that you're following all the necessary internal securities and protocols, is probably one good step. Added to the fact that if you look at our cloud, Azure, again as well, we run tremendous amounts of machine learning and artificial intelligence across all transactions that are happening in our cloud. By doing that we are able to very quickly start picking up problems that a customer wouldn't even realise. So, you know, we can spot suspicious activities by using these machine learning algorithms that, you know, as an internal enterprise you would have no ability to pick that up generally – unless you had a tremendously sophisticated and expensive architecture for doing exactly the same thing.

So, that's in the short term, and medium term is actually, I would say, you know, considering moving more of your data to the cloud. I know that's a bit of a contentious statement, but I certainly believe that that security investment that cloud providers make is more significant and will pay off in terms of security. Then in the longer run I think there are new technologies coming down the line like quantum computing for example.

The opportunities that quantum key distribution provide makes use of the rather weird principle of quantum super-position. That enables, or promises at least – it's still early days – but promises an almost 100% secure cloud or internet where basically no-one would ever be able to break into anyone else's communications. If we get to that stage, and I believe we will fairly soon, you know, we're going to break into a whole new world of an internet where everything is 100% secure. I mean, that would be a tremendous future for everyone, and I think we could all breathe a lot more easily.

MATHIAS STECK Yes. Actually you mentioned this nice analogy with the people putting coins in a bank so now I can't help myself; we talked about blockchain and there is this blockchain enabled cryptocurrencies, like for example bitcoin, and it's interesting actually. So, today we trust the bank to handle our money and we trust the utility to meter how many kilowatt hours I have used, and what I pay for this. But the idea of blockchain, in some parts you have just described, is that we take intermediaries out because we kind of enable, or we create an environment in which trust is enabled by technology rather than by intermediaries. So, if you look into the future of, for example, cryptocurrencies, which, for example bitcoin, is now accepted in Japan, I think even to go shopping in some retail shops online, what would you think? I mean there's a lot out there; there are a lot of these currencies out there. Is that the future of our money, and will they, like, the value of these currencies – which is already increasing overall quite a lot these days – is that kind of going ahead, do you think? That this is something we will use in the future to pay for transactions?

DANNY VENABLES Absolutely. I think blockchain and maybe, you know, the future of whatever blockchain evolves into as well, is going to be the basis of our monetary system, not necessarily bitcoin; you know, I'm sure we'll still keep our own currencies but making use of that infrastructure for everything from major payments from one country to another, cross-border payments, right down to micro-payments from our mobile phone.

I think the speed, the agility, you know, cutting out the middle man as you say. You know, the cost, the low, low cost of that, I think it's really driving a tremendous change particularly in the banking industry. That's maybe another topic, but banks are seriously looking at what is their role in the future. You know, maybe they will be more platform providers and being able to enable this kind of new digital monetary world, rather than doing the standard transactions which they do so slowly and rather poorly to some degree today.

MATHIAS STECK Okay. Danny, thank you very much, highly interesting insights you have given us. I want to close with a not so much related, very open question. If, let's say we look two decades from now into the future, how much will digitalization have changed our lives? Like, will you and me still sit in front of a computer in an office or how will that look like?

DANNY VENABLES I don't think so. I think things are exponential at the moment. I think that world is going to be completely different. The world of work is going to be completely different. Neither you nor I may actually work for a large corporation anymore. We may be all kind of in a jobbing economy working on a project by project or pursuit by pursuit basis. And I think, you know, in that future world with mixed reality and augmented reality, I think we're going to be, probably we could be sitting and talking to one another, seeing each other, even perhaps shaking hands – but being across the world from one another at the same time. You know, I think it's going to be a world as well which is so different. I mean, quantum computing offers almost the ability, if you tie that with personal digital assistance, you know, to just, to your mobile phone or whatever that looks like in the future; it may be smaller and perhaps it's embedded in the back of your hand or something.

I don't want to go too far but, you know, you can literally ask that personal assistant and say, you know, “I've got this long schedule of trips coming up over the next 20 days, I'm going to ten different countries, within in the next three minutes, let's say, please optimize my route, find the lowest cost options,” you know, “tell me which flights I should go to when, you've got access to my calendar, I want the lowest cost, highest quality, I want these kind of hotels.” And, you know, this cloud computation will go off and calculate this incredibly complex problem. It's actually called the travelling salesman problem in fact in, sort of, quantum computing. It will be able to come back within, you know, 30 seconds and give you an answer of what the best possible option is.

MATHIAS STECK That looks good. Or maybe we all end up sitting in our five star bedrooms not going anywhere anymore and just meeting digitally.

DANNY VENABLES We could be. Somehow, I think human to human, face to face is still going to be important, at least for initial meetings. I think we'll do a lot of it virtually, but I still think to some degree that human touch is never going to completely go away.

MATHIAS STECK I think that's a really good statement, and I'm happy to accept the human touch in future. That's good news. Danny, we are running a little bit out of time now. That was highly interesting. Thank you very much for your insights and here, people listening, thank you very much for listening in. That was Danny Venables, Chief Digital Advisor, Microsoft Asia Pacific. Thank you very much and bye-bye.

VOICEOVERThank you for listening to this DNV Talks Energy podcast. To hear more podcasts in the series, please visit dnv.com/talksenergy.