4 energy trends to watch in 2020

In the past several years the energy industry has seen a changing of the guard, with a new generation coming into the field to replace industry veterans. Now we are standing on the precipice of another crew change—this time with robots. According to a World Economic Forum study, robots will handle 52% of current work tasks by 2025—nearly twice as many as today. In the field of energy, advances in artificial intelligence software and robotics offer the promise of freeing humans from dangerous and difficult tasks such as decommissioning offshore oil and gas installations, and inspecting, maintaining and repairing power lines, underwater pipelines, and tall wind turbines. 

Middle market energy companies are taking advantage of these technologies today. And while they need to innovate, they need to do so without raising costs too much. Since innovation is a complex, company-wide endeavor, it requires a set of processes to structure, organize and promote it. According to McKinsey, companies that aspire, choose, discover, evolve, accelerate, scale, extend and mobilize with regard to innovation are the ones that are most successful. Determining how much your company does these eight things is an important starting point for improving innovation performance.

One of the first steps to building an innovative organization requires understanding where you are today and then assessing the gap between that and where you want to be. To do so, middle market energy companies need to analyze what is routine and repeatable within the energy process. "Leaders cannot simply mandate a new culture,” said Ana Denena, national practice energy leader for RSM US LLP. "Organizations must develop new routines that fit in the context of their own culture and move toward a culture that embraces the right mix of innovation in technological advances."

The current electric grid in the United States is in the process of modernization. Smart grids use new technology to optimize the conservation and delivery of power, making for a clean, modernized and efficient electrical grid. “Power outages in the U.S. cost consumers and businesses millions of dollars each year,” said Denena. “With a smart grid, sensors continuously track usage and can detect and resolve problems quickly.”

From efficient transmissions of electricity to rapid restorations of power, more cost efficiency to lower electricity rates and increased intelligence of energy needs, a smart grid can bring many benefits to the evolving smart energy ecosystem. In energy savings alone, the smart grid is poised to increase the efficiency of today's system by around 9% by 2030, saving more than 400 billion kilowatt-hours each year.

While smart grids represent an unprecedented opportunity to move the energy industry into a new era of smart energy, they also present new challenges concerning cybersecurity. As the power grid evolves technologically, advancements can cut both ways. On one hand, an updated grid can help streamline utility operations, resulting in reduced costs for customers. 

On the other hand, it can also introduce new vulnerabilities into a system that is critical to the safety, economic prosperity and national defense of a nation. For example, a concerted and sophisticated attack could theoretically knock out the entire U.S. energy grid. Grids were not built to address security because they were not originally meant to be connected to the internet. To help solve this, the U.S. government is considering analog and manual technology to isolate the grid's most important control systems. This approach is designed to stop threats from bad actors intent on accessing the grid, because they would have to physically touch the equipment, making cyberattacks much more difficult.

According to the Federal Energy Regulatory Commission (FERC), the entity that is charged with overseeing the development and enforcement of cybersecurity standards for the nation's high-voltage transmission system, an important part of the mandatory cybersecurity standards are financial penalties for noncompliance. In a recent Fortune article, Neil Chatterjee, chairman of the FERC, stated that standards must be crafted to provide a framework for robust cybersecurity practices that can address the variety of threats and vulnerabilities that face each utility. 

Achieving these objectives will require regulators to engage in a continuous cycle of information gathering and action to stay ahead of threats and protect the grid. For example, greater supply chain controls, such as conducting background checks on contractors and encrypting sensitive data, could be used to bolster the security and availability of third-party providers to the grid. This should include procedures for prioritizing supply chain vendors based on risk and requirements for standardized risk assessments on each vendor, as well as a way to verify the authenticity of software manufacturers and the integrity of software updates.

While energy is continuing to positively affect the economic development of the world, analysts and investors have changed what they think is important for middle market energy companies. The top five focal points for investors looking into the energy space are:

1. Return on capital employed 
2. Paying down debt
3. Dividends to shareholders
4. Operational excellence
5. Living within free cash flow 

In 2019, the energy industry went through significant fluctuations as supply and demand were unbalanced and operators focused on creating efficiencies and containing costs. However, there are reasons to be excited about 2020 according to S&P Global Platts. In its 2020 Outlook, the company raises several promising points. Global oil demand growth is expected to accelerate to 1.26 million barrels per day (MMB/D) up from 0.95 MMB/D in 2019. Western European markets are forecast to see combined wind and solar generation growth of about 10% during the year. 2020 will also be a landmark year for the U.S. natural gas market because of a surge in LNG exports and related feedstock demand, which will push demand growth higher than supply growth. “Although uncertainties remain, many senior investment leaders are cautiously optimistic about 2020,” said Denena. “Amid an ever-changing landscape, it’s important for investors to be selective and consult with knowledgeable experts in the field.”

In many ways, 2020 is set to be an exciting year for the energy sector. A time in which the energy industry will continue to evolve and where technology will play an even greater role. Driven by innovation, cost-competiveness and customer demand, energy companies will continue to explore what it will take to lead and thrive as they power the world.