Energy in 4D: rethinking the energy transition as a strategic issue

The energy trans­ition is more a stra­tegic than a tech­nic­al issue. It cor­res­ponds to a pro­found trans­form­a­tion of the energy sec­tor, which is rad­ic­ally chan­ging its archi­tec­ture, coordin­a­tion mech­an­isms and value cre­ation logic. The his­tory of major tech­nic­al sys­tems shows that these trans­form­a­tions are less about lin­ear breaks than they are about com­plex socio-tech­nic­al recom­pos­i­tion pro­cesses, in which tech­no­lo­gies, insti­tu­tions and act­ors co-evolve¹.

From this per­spect­ive, con­tem­por­ary changes in the energy sec­tor can be ana­lysed through four inter­de­pend­ent struc­tur­al dynam­ics: dereg­u­la­tion, decent­ral­isa­tion, digit­al­isa­tion and decar­bon­isa­tion. These dimen­sions are not isol­ated trends but form a sys­tem of trans­form­a­tions that are sim­ul­tan­eously redraw­ing sec­tor­al bound­ar­ies, power rela­tions and stake­hold­er strategies.

Dereg­u­la­tion was the insti­tu­tion­al start­ing point for the trans­form­a­tion of European energy sys­tems. Since the 1990s, lib­er­al­isa­tion policies have gradu­ally dis­mantled ver­tic­ally integ­rated pub­lic mono­pol­ies in favour of com­pet­it­ive mar­kets built around three key prin­ciples, the imple­ment­a­tion of which may vary from one industry or coun­try to anoth­er²³.

• Open­ing up sec­tors of activ­ity his­tor­ic­ally reserved for pub­lic mono­pol­ies to com­pet­i­tion. This involves remov­ing leg­al bar­ri­ers pre­vent­ing new com­pet­it­ors from enter­ing the market.
• The dis­mant­ling of his­tor­ic­ally ver­tic­ally integ­rated mono­pol­ies, such as EDF in France. Often accom­pan­ied by at least par­tial privat­isa­tion of the com­pany, this involves ver­tic­ally sep­ar­at­ing nat­ur­al mono­poly activ­it­ies – which gen­er­ally remain under state con­trol – from ser­vice and pro­duc­tion activ­it­ies, which become com­pet­it­ive. In France, for example, this prin­ciple led to the cre­ation of Réseau de Trans­port d’Elec­tri­cité (RTE) and Ene­dis, which remain pub­lic mono­pol­ies sep­ar­ated (at least in account­ing terms) from the com­pet­it­ive activ­it­ies of energy sales.
• The estab­lish­ment of an inde­pend­ent eco­nom­ic reg­u­lat­ory insti­tu­tion, which con­sists of insti­tu­tion­ally sep­ar­at­ing reg­u­lat­ory activ­ity from the polit­ic­al and admin­is­trat­ive sphere. Sec­tor­al reg­u­lat­ors such as the Com­mis­sion de Régu­la­tion de l’Én­er­gie (CRE) were born out of this third principle.

Dereg­u­la­tion is there­fore a form of (re)regulation of eco­nom­ic activ­it­ies developed with the aim of sep­ar­at­ing polit­ics from eco­nom­ics, while ensur­ing the prop­er func­tion­ing of eco­nom­ic and com­mer­cial activ­it­ies with­in a par­tic­u­lar sec­tor. The aim is to min­im­ise state inter­ven­tion in the markets.

This devel­op­ment has pro­foundly trans­formed the gov­ernance of the sec­tor (see Fig­ure 1). The sep­ar­a­tion of pro­duc­tion, trans­port, dis­tri­bu­tion and sup­ply has encour­aged the entry of new play­ers – inde­pend­ent pro­du­cers, altern­at­ive sup­pli­ers, aggreg­at­ors – while main­tain­ing the net­works as reg­u­lated mono­pol­ies. While these reforms have helped to improve eco­nom­ic effi­ciency, they have also increased insti­tu­tion­al com­plex­ity and the need for coordin­a­tion between play­ers⁴.

The mer­it order mech­an­ism, which is cent­ral to whole­sale elec­tri­city mar­kets (edit­or­’s note: where energy is pur­chased “whole­sale” as opposed to “retail”), illus­trates this ten­sion. Designed to ensure effi­cient alloc­a­tion in the short term, it nev­er­the­less exposes con­sumers to high price volat­il­ity in a con­text of depend­ence on fossil fuels. Recent debates on the reform of the European elec­tri­city mar­ket high­light the lim­it­a­tions of this mod­el in terms of the long-term object­ives of secur­ity of sup­ply and decar­bon­isa­tion⁵.

Dereg­u­la­tion has paved the way for the gradu­al decent­ral­isa­tion of the energy sys­tem, made pos­sible by the devel­op­ment of renew­able ener­gies and the fall­ing costs of dis­trib­uted gen­er­a­tion tech­no­lo­gies (see Fig­ure 2). The sys­tem is evolving from a cent­ral­ised, lin­ear and uni­direc­tion­al archi­tec­ture to a multi-level, mul­ti­direc­tion­al and usage-cent­ric sys­tem⁶.

Ana­lyses by the Inter­na­tion­al Energy Agency (IEA) show that this devel­op­ment is fun­da­ment­ally trans­form­ing the role of net­works, which are no longer lim­ited to trans­port­ing energy, but are becom­ing infra­struc­tures for coordin­at­ing loc­al flows, com­bin­ing pro­duc­tion, stor­age and usage, which can be mobil­ised or not like oth­er assets in the sys­tem⁷. Sim­il­arly, vehicle-to-grid, or more gen­er­ally vehicle-to-any­thing, which involves using elec­tric vehicle bat­ter­ies as a source of energy, is part of this decent­ral­ised energy archi­tec­ture in which all sys­tem assets are inter­con­nec­ted⁸. Microgrids, col­lect­ive self-con­sump­tion, energy com­munit­ies and new-gen­er­a­tion heat­ing net­works illus­trate this decent­ral­isa­tion of energy in a usage-based approach.

How­ever, this decent­ral­isa­tion raises major tech­nic­al and gov­ernance issues. The coordin­a­tion of het­ero­gen­eous act­ors at the loc­al level requires spe­cif­ic insti­tu­tion­al arrange­ments cap­able of man­aging the dis­tri­bu­tion of costs, risks and value. Fur­ther­more, the man­age­ment of mul­ti­direc­tion­al and decent­ral­ised flows poses new tech­nic­al chal­lenges for net­work bal­an­cing, while pav­ing the way for “con­sum’ac­tion”⁹ (or prosum­ing) approaches asso­ci­ated with new eco­nom­ic mod­els that have yet to be fully explored.

Digit­al­isa­tion is the found­a­tion that under­pins all of these oth­er trans­form­a­tions (see Fig­ure 3). Accord­ing to the IEA, digit­al tech­no­lo­gies now per­meate the entire energy value chain: pro­duc­tion and con­sump­tion fore­cast­ing, asset man­age­ment, smart grid man­age­ment and the emer­gence of new energy ser­vices¹⁰.

The deploy­ment of smart grids, smart meters and energy man­age­ment sys­tems enables real-time man­age­ment of increas­ingly com­plex energy flows, char­ac­ter­ised by the vari­ab­il­ity of renew­able ener­gies and the pro­lif­er­a­tion of injec­tion points. Digit­al­isa­tion is there­fore becom­ing a key lever for optim­isa­tion, but also a factor in the trans­form­a­tion of eco­nom­ic mod­els and power rela­tions with­in the sector.

Con­trol over data, plat­forms and algorithms is now a key stra­tegic advant­age, with the poten­tial to redis­trib­ute pos­i­tions between estab­lished energy play­ers and new entrants from the digit­al sec­tor. How­ever, this devel­op­ment is accom­pan­ied by grow­ing risks related to cyber­se­cur­ity, tech­no­lo­gic­al depend­ence and the sov­er­eignty of crit­ic­al infrastructure.

Decar­bon­isa­tion is both the cent­ral polit­ic­al object­ive and the struc­tur­al pro­cess of the cur­rent energy sys­tem. It is not lim­ited to a trans­form­a­tion of the pro­duc­tion mix, but involves a glob­al recon­fig­ur­a­tion of uses, infra­struc­ture and value chains¹¹.

The for­ward-look­ing scen­ari­os developed by RTE in Energy Futures 2050 show that achiev­ing car­bon neut­ral­ity depends on a com­bined approach: wide­spread con­ver­sion to elec­tri­city, devel­op­ment of renew­able ener­gies, energy effi­ciency, stor­age and net­work coup­ling¹². None of these meas­ures is suf­fi­cient on its own, con­firm­ing the pro­foundly sys­tem­ic nature of the transition.

Aca­dem­ic stud­ies also high­light that decar­bon­isa­tion raises major indus­tri­al, social and geo­pol­it­ic­al issues, par­tic­u­larly in terms of resource avail­ab­il­ity, social accept­ab­il­ity and infra­struc­ture gov­ernance. It is there­fore a long-term stra­tegic issue that goes far bey­ond simple tech­no­lo­gic­al sub­sti­tu­tion¹³.

The inter­ac­tion of these four dimen­sions gives rise to a non-lin­ear energy sys­tem, which can be rep­res­en­ted as a “spa­ghetti dish”, in which the tra­di­tion­al bound­ar­ies between sec­tors – elec­tri­city, gas, heat, mobil­ity, industry – are blurred in favour of mul­tiple points of con­ver­sion, stor­age and con­trol (see Fig­ure 4). As a res­ult, the roles played by net­work entit­ies are becom­ing inter­twined, with con­sumers becom­ing pro­du­cers (prosumers), waste becom­ing a resource (waste heat, bio­mass) and mar­kets converging.

In this con­fig­ur­a­tion, value cre­ation is shift­ing towards inter­faces: multi-energy integ­ra­tion, flex­ib­il­ity, user ser­vices, flow orches­tra­tion and data man­age­ment. Play­ers are repos­i­tion­ing them­selves less by sec­tor and more by func­tion, blur­ring the dis­tinc­tions between tra­di­tion­al energy com­pan­ies, man­u­fac­tur­ers, loc­al author­it­ies and digit­al players.

This stra­tegic restruc­tur­ing is accom­pan­ied by a pro­found trans­form­a­tion of eco­nom­ic mod­els. Volume-based approaches are gradu­ally giv­ing way to ser­vice-based approaches (energy-as-a-ser­vice), resi­li­ence and sys­tem­ic per­form­ance, in which the abil­ity to cooper­ate becomes as stra­tegic as the abil­ity to invest.

The 4D energy sys­tem high­lights a now well-estab­lished real­ity: the energy trans­ition is neither lin­ear nor solely tech­no­lo­gic­al. It con­sti­tutes a sys­tem­ic stra­tegic trans­form­a­tion, char­ac­ter­ised by com­plex inter­ac­tions between reg­u­la­tion, ter­rit­or­ies, tech­no­lo­gies and uses¹⁴.

While these trans­form­a­tions open up major oppor­tun­it­ies for innov­a­tion and value cre­ation, they also increase risks: frag­ment­a­tion of gov­ernance, sys­tem­ic vul­ner­ab­il­it­ies and social ten­sions. To address these chal­lenges, a strictly sec­tor­al approach appears insuf­fi­cient. The energy trans­ition there­fore calls for an integ­rated stra­tegic approach, cap­able of coordin­at­ing infra­struc­ture, insti­tu­tions, eco­nom­ic mod­els and ter­rit­ori­al dynam­ics. Only then can the energy sys­tem evolve towards a mod­el that is decar­bon­ised, resi­li­ent and eco­nom­ic­ally sustainable.