Energy markets are not exempt from the impact of digital change in the global economy. Recently, I attended a panel discussion hosted by Risk.net and Beacon Platform that explored what drives energy firms like Shell, NRG, and BP as they plan for the future, and how technology companies like Microsoft and Machina Automation support their peers in that journey.
An energy firm’s decision to pursue digital technologies is driven by a combination of internal and external drivers. Internal drivers are motivations to reduce costs and increase the speed of business and differentiation. Likewise, external drivers are driven by events—the energy and wider financial markets—or trends such as the proliferation of big data and new technologies or the global rise of environmental, social, and governance (ESG) assets.
One trend that was discussed was the energy firms’ de-carbonization goals. For example, Shell aims to sell a mix of energy products with lower carbon intensity. In fact, Shell pledged to cut the net carbon intensity of the energy products it sells by 50% by 2050. To achieve this goal, the organization must optimize demand. As energy products evolve from predictable, controllable power plants and into intermittent, unpredictable wind and solar products, sophisticated predictive models are needed to optimize the decarbonization of demand across Shell’s portfolio of energy products and its involvement across the entire energy value chain.
Considering cloud adoption
Cloud adoption is both an internal and external driver of any energy firm’s digital transformation. Internally, firms have a desire to reduce data center costs and build computational horsepower. Externally, the growth of cloud operators and increased acceptance of the cloud in industry drives energy firms to new technologies. Firms’ skills and capital are invested in refining their products and services, not in developing next-generation technologies. It’s perfectly reasonable for these companies to be hesitant when it comes to cloud security and data privacy. While these concerns remain as one of the industry’s biggest blockers of cloud adoption, many firms have turned to outside contractors to help bridge the gap between the cloud and legacy systems. Cloud operators give energy firms an immediately accessible bank of cloud expertise while maintaining the necessary grasp on data privacy and compliance.
At Microsoft, our philosophy has always been that Microsoft Azure is built on trust. We have invested over $1B in security R&D and have 3,500 cybersecurity experts actively monitoring to protect business assets and data. Our core privacy principle is that a firm owns its data, and it will never be used for marketing or advertising purposes. Learn more about Azure’s security and data privacy here.
Applied AI and machine learning
Artificial intelligence and machine learning (AI/ML) are hot topics even in the energy industry. Many firms carry a cautious approach to AI/ML, using low-impact applications like robotic process automation (RPA) for practical applications that improve productivity. RPA sets a foundation for the data necessary to implement other AI / ML solutions in the future, including more dynamic solutions like derivative pricing models. With machine learning, traders can manipulate the individual parts of a derivative pricing model to take advantage of market dislocations independently and quickly, similar to Microsoft’s work with TD Securities where we helped transform their derivatives pricing and client experience with an elastic and scalable cloud-based environment.
As technology becomes more accessible, firms are increasingly interested in citizen development or putting a robot in the hands of every person in the organization. This type of forward-thinking ambition empowers employees to learn new digital skills and personalize and optimize their work experience.
The rapid emergence of AI-powered technologies is driving a growing need for technological acumen to compete in this new commercial landscape. In June 2020, we announced a global skilling initiative to help employers upskill new and existing employees using LinkedIn Learning, Microsoft Learn, third-party training providers, and our own learning content.
It’s clear that energy firms, similar to those in other industries, are at different points in their digital transformation. Whether the drivers for digital change are internal or external, firms must have a trusted strategic partner. Microsoft’s recent announcements of strategic partnerships with Blackrock and MSCI demonstrate our commitment to financial services and capabilities to support energy firms in their journeys to the cloud and beyond.