Skip to content

Business Insights

Key Decarbonization Challenges in the Energy Sector

Key Decarbonization Challenges in the Energy Sector

Published on: 18 Jan 2024 7 min read

 

Key Decarbonization Challenges in the Energy Sector

The transition to a carbon-neutral world brings significant disruption for energy companies. While maintaining traditional assets like oil and gas, energy players must juggle numerous variables on their path to decarbonization that pose unique challenges.

Key Decarbonization Challenges in the Energy Sector

These can include:   

  • distributed renewable energy and self-generation 
  • grid balance 
  • carbon capture utilization 
  • sustainability reporting 
  • new storage technologies 
  • rising electricity consumption 

The Power and Utilities sector is the single largest contributor to global greenhouse gas emissions (GHG). At the same time, as electrification picks up pace, the overall need for power is expected to grow, with some scenarios suggesting that by 2050, it could be 2-2.5 times higher than today.  

Energy & Utility companies will need to produce more power while speeding up their rate of decarbonization. As the industry moves towards net zero, it is pivotal to understand and monitor how the various energy sources, networks, and clients are performing.  

At a high level, Energy and Utility companies may have this information. However, they will now face a challenge as they need this data at a granular level. This is where digitalization becomes crucial as it enables energy providers to remain competitive and respond to the following key decarbonization challenges.

Infographic illustrating decarbonization in 3 steps – reduce own footprint, invest in renewables, decarbonize consumers.

Challenge 1: Measuring the Carbon Footprint  

As the famous quote from Peter Drucker states: “If you can’t measure it, you can’t improve it.” and that’s something that all Energy and Utility companies can relate to today. Carbon quotas and carbon accounting regulations require the power sector to consume less energy and reduce its carbon footprint. At the same time, it should be able to measure and benchmark its progress, which can present a significant technological challenge. 

  • Data is often dispersed across multiple spreadsheets and data silos – Many Energy & Utility companies still run their carbon accounting relying on spreadsheets and manual data collection. Different metrics like carbon, energy production, waste, and social KPIs are coming from different departments, making it difficult to integrate and access data for effective reporting.  
  • Low-data quality – Inconsistency and unreliability in data quality are still common issues. Manual data capture leads to inaccuracies or incomplete information. From data gathering to producing granular reports, many organizations struggle with integrating the right automation and reporting tools that bring confidence in their data.   
  • High cost of carbon footprint calculation Collecting and processing the required data, regularly updating and benchmarking it towards targets, while complying with internationally accepted standards, can be costly, especially if you have to manage it manually or rely on external consultants.   

How to Solve It? 

There are two popular methodologies for carbon footprint calculation – passive and active footprint calculation. Most organizations use plug-in modules to measure their carbon footprint or carbon emissions. However, it is hard to find ready-made software that combines the two methodologies in one convenient solution. 

Moving forward, an iterative approach will be necessary for success. Energy & Utility companies will require custom-built ESG reporting software to address their most pressing needs. Such solutions will help them utilize advanced analytics platforms to monitor and connect procurement and consumption data. It will enable them to automate data collection and reporting, generate key insights, reduce carbon emissions and prioritize projects based on reliable tracking of their sustainability effectiveness.

Diagram outlining the six steps to calculate carbon footprint that is applicable for Energy & Utility companies.

Challenge 2: Effective Management of Renewables in the Energy Mix 

Oil and gas firms must strike a delicate balance between their existing reliance on fossil fuels and the rising need to embrace renewable energy sources. This requires careful portfolio management and investment decisions that are consistent with higher carbon-reduction targets and the development of integrated supply chains, including renewables generation, hydrogen and heat production. Power generation from renewable sources like wind and solar is intermittent and can’t easily adapt to demand fluctuations.

Yet another challenge on the path to decarbonization that can lead to:  

  • inefficiencies in the utilization of renewable assets 
  • waste of clean energy  
  • inability to sell it on the intraday market. 

As more households feed the energy system from their solar panels, forecasting models for companies become even more complex. 

Energy companies need to consider multiple suppliers, power plant availability, preventive maintenance, and optimizing fossil fuel usage to power their load-following units. Additionally, they should develop efficient performance monitoring systems to reduce overproduction and enhance energy management.  

How to Solve It? 

The use of precise forecasting and modeling platforms that can analyze supply and demand is becoming increasingly vital. Energy players will invest more and more resources in software that can forecast the behavior of their production and processing assets and their energy and emissions reduction management with the appropriate degree of precision and detail.  

This is especially important in order to run a profitable and efficient business. Real-time decision-making based on the effective use of data will directly affect businesses’ cash flow.  In addition, it will also result in a higher return per watt produced.  According to various studies, applying advanced analytics in the energy sector can reduce costs by 5% to 7.5%.  

Solving the challenges in the effective management of renewables in the energy mix can also open new revenue streams for the players in the energy sector. The pressure to decarbonize will stimulate them to develop digital solutions that can be applicable to other industries. Having multidimensional proprietary software that can provide decarbonization options such as renewable energy generation, energy retail, batteries, carbon capture, and storage monitoring can turn them into providers of decarbonization SaaS solutions.

Infographic displaying the roles of various energy resources in a decarbonized power system.

Challenge 3: Assets and Risk Management  

Energy and Utility companies must conduct precise investment and risk analyses and disclose the impacts of their future operations to deliver on their commitment to decarbonization. Business leaders should assess their ability to transfer assets and capabilities to new business models. This will help them understand the impact of their investment in terms of significant cost or competitive advantage. 

This requires data analytics platforms that encourage collaboration and transparency across the supply chain. Such analytics platforms can also provide insights for price optimization, asset management, and new customer touchpoints.

Harvesting insights into both emissions and cost will enable them to take immediate action to: 

  • Evaluate how well their assets match the market and what their profitability is based on their emissions profile 
  • Achieve flexibility and optimization within the hydrocarbon portfolio and the non-hydrocarbon assets  
  • Reconcile financial and environmental goals by reducing the complexity of portfolio management and capital planning 
  • Be able to evaluate and predict the lifecycle of all of their assets and all capital investment decisions. They will need to  continuously align them with their objectives to achieve net zero emissions by 2050

How to Solve It? 

Implementing the right risk-focused technology, equipped with AI-powered analytics and machine learning algorithms that can process vast amounts of data will enable risk experts to reveal hidden insights, manage risks, and reduce risk costs. By simulating various market scenarios and asset performance outcomes, they will have a predictive view of the following: 

Dynamic Asset Optimization – to dynamically adjust their asset portfolios, ensuring they remain profitable and aligned with market conditions. 

Risk Mitigation Strategies – the software can identify potential risks in asset management and propose mitigation strategies, helping to safeguard against market volatilities and regulatory changes. 

Strategic Planning Tools – sophisticated modeling tools can forecast the long-term performance and value of assets, assisting in strategic planning and the transition to low-carbon business models. 

Conclusion 

Our experience in digital transformation across the Energy & Utility sector indicates that many companies are not ready to face the challenges of decarbonization. Many of these problems stem from inconsistent manual processes and software applications operating in silos.  

Scalefocus helps energy companies build complex analytics platforms and make sense of their energy assets and data across systems. We achieve that by integrating disparate data into a single repository, enabling them to evaluate assets, costs, and risks. After establishing a solid data foundation, companies can pursue their carbon reduction goals more effectively. This can be done through impact measurement, analyzing procurement and consumption, optimizing prices, energy efficiency, and transparent sustainability reporting. 

Explore our Energy and Utilities Services and find out where we can add value to your IT operations.

Contact us to discuss how to find solutions to the business challenges you are trying to solve.

About the Author:

Dimitar Grancharov

Content Team Manager

An ambitious, highly motivated, and results-driven professional with versatile experience in creative storytelling, copywriting, marketing, corporate communication, journalism, business processes, and management.

Share via