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IFS says pandemic an opportunity for the energy sector to digitise operations

In a recent study, IFS notes that virtually every part of the energy sector is going through volatile times now and were even before the onset of the coronavirus pandemic, across oil and gas, renewables and utilities. Different energy sectors in different parts of the world may fare better or worse in part due to differences between the way government stimulus dollars for pandemic relief are invested. 

In France for instance, much of French President Emmanuel Macron’s 100 billion Euro stimulus package will focus on green energy and transportation. United States stimulus efforts have loosened tax requirements, decreasing taxable profits, amended legislation so some of the more indebted companies involved in exploration and production can qualify for emergency loans, cut royalties for use of public lands and rolled back environmental regulation on the industry.

Globally however, diverse market shifts are still the most potent force acting on each part of the energy sector. Oil and gas was already struggling with a drop in crude oil prices when the pandemic hit, while wind energy is riding a multi-year surge, the Global Wind Energy Council expects 6.6 gigawatts of net new wind generation capacity to be installed this year. 

Research from the Smith School of Enterprise and the Environment at the University of Oxford, however, reveals that only 10% of the companies had expanded their renewable-based power generation more quickly than their gas or coal fired capacity. Utilities in particular are taking a slow-as-you go approach to adopting renewables, leaving them exposed to fluctuations in the fossil fuel market on which they are still dependent for 80% of their capacity.

But one thing is true to varying degrees across the energy sector, many companies have people, including middle managers, engineers and executives, with bandwidth to invest in transformation projects.  Oil and gas projects are still somewhat scaled back. Large-scale industrial demand for electric power is reduced. Green energy projects are in flux. New research from IFS suggests despite this volatility, many energy sector companies are investing in digital transformation. While not at the same rate as study respondents in other industries, most energy industry companies are still investing human capacity in improvements for the intermediate- to long-term future, digitising manual process flows and preparing to not only handle the return to full capacity but for new autonomous and efficient business models and approaches to delivering value to the customer.

The IFS study data, collected during the onset of the coronavirus pandemic, reveal that 57% of energy and utilities sector companies plan to increase or maintain current digital transportation spending levels despite volatile conditions. Respondents in the sector are less aggressive than their counterparts in other industries and are 16% less likely than all respondents to plan increased digital transformation spending. Energy and utilities respondents may find the demanding nature of their operating environments a strong disincentive to undertaking broad digital transformation initiatives. Their most frequently reported concern with digital transformation, at 38%, was the difficulty in reconciling the strategic needs of the business with the ability to deliver on the front line.

Companies in the energy sector were 7% likely than all respondents to characterise past digital transformation projects as a success

Energy and utilities sector companies also may be conservative given mixed results with earlier digital transformation projects. Companies in the sector were 7% likely than all respondents to characterise past digital transformation projects as a success. They are also more than twice as likely than all respondents to say it has taken them more than a year to recover from failures and 15% more likely to say this failure has led to a fear of failure across the business and almost 5% more likely to report a financial loss. 

Energy and utilities companies however have had to adopt forward-looking technologies, particularly in areas like preventive maintenance and process automation. They are 18% more likely than all respondents to classify themselves as early majoritarians with regard to technology adoption, they hold it is important to implement technology once there is clearly defined value. Respondents in the sector were 12% more likely to say machine learning was an important technology to them than were respondents as a whole and 4% more likely to value augmented reality.

Eccentric economic forces are tossing the industry exerting heretofore unheard-of pressures. Fortunately, even as this happens, companies in the sector are able to implement new and disruptive technologies that can enable them to survive and even thrive. And particularly if a management team has excess bandwidth or capacity, now is an excellent time to focus internal teams on digital transformation.

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