In this episode of our Energy Transition Talks podcast series, Frédéric Lesieur and Peter Warren discuss insights from CGI Voice of Our Clients (VOC) interviews with 167 energy and utilities executives this year. They explore a variety of topics, including the energy transition and the impact of macro trends such as climate change, as well as the importance of cybersecurity, change management and innovation.
Climate change is evident, and energy and utilities organizations are key actors in achieving net-zero objectives. Embracing a culture of sustainability is critical to their own success and to their ability to serve customers who are demanding greener energy. According to Frederic Lesieur, this is the first element of the energy transition.
The second element he says is how we consume energy. Today, customers increasingly want to be part of the solution and are looking for ways to be more energy efficient. "I think it needs to be top of mind for C-level executives in the industry that they may engage their customers in this journey," suggests Lesieur, who, in our recent Energy Transition Talks podcast, speaks with Sébastien Fournier, CEO of Hilo, on how the company is helping consumers, businesses and utilities reduce consumption.
This year in our VOC interviews, the highest number of executives who view sustainability as highly core to creating future value are in oil and gas (77%), followed by transportation (75%), utilities (63%) and manufacturing (74%).
Pace of transformation differs by region
As energy and utilities organizations transform their business models to address the energy transition, European organizations seem to be progressing faster than their North American counterparts, partly due to higher energy costs and the impacts of the war in Ukraine. As governments continue to set new targets for energy and utilities firms to become greener, Lesieur sees a more rapid shift in North America in the coming years.
Peter Warren shares that 29% of industry executives interviewed for the VOC say they are producing results from their digital strategies. This figure is up from 10% in 2020 and higher than the all-industries average of 25%. "If you extrapolate the work that the industry's done over the years, you could see the industry being fully digital by 2030, which is, oddly enough, the same time when everybody has these carbon goals and clean air goals," Warren observes. European firms again lead North Americans in producing results from digital strategies (32% vs. 14%).
Cybersecurity and data are in focus
Security is another factor that is top of mind. In this year's VOC findings, cybersecurity rises to become the top industry trend after ranking second in 2021. Lesieur notes that as the industry shifts to accelerate the energy transition, it must do so securely. Distributed energy resources (DERs), new types of devices, and solar and smart buildings are new operational technologies (OT) that need to be managed remotely, opening new doors to cyber-attacks. Warren adds that OT and IT security have converged and that ransomware has become commercialized.
"When you say that you can support new business models, you need to gather data that can provide current and useful information to change those models securely, but also provide the best performance," says Lesieur. Data is integral to transforming business models for the energy transition and needs to be completely integrated into a single cybersecurity service.
Additionally, Lesieur sees the need to combine legacy data and new solutions, whether cloud, AI analytics, etc., to support transformation.
Change management, agility and innovation are key enablers
"This industry for the past 50 years has never had a revolution as big as the energy transition. So, the acceptance of transforming a system and implementing new ways of operating needs to be supported by change management," says Lesieur.
New solutions require a lot of investment, whether in the network, oil and gas devices, remotely accessible devices in the field or within supervisory control and data acquisition (SCADA) systems. According to Lesieur, "If utilities don't move fast enough, manufacturing, transport and logistics and other industries will take it into their own hands [to advance] the shift."
Also, new actors are entering the market, bringing innovative ways to manage energy, such as DERs, smart buildings with solar roofs, batteries, etc. A culture of innovation is necessary for executing at the required pace, says Lesieur. He adds that innovation requires doing things in an agile way, focusing on the objective of sustainability and ensuring the goal is to achieve the target as fast as possible. Notably, VOC results reveal that 39% of energy and utilities executives with highly agile business models are producing results from digital strategies, compared to 29% overall.
Innovation also requires new talent to bring fresh ideas to the table. However, most energy and utilities executives (88%) say they are experiencing a scarcity of IT talent. The energy transition needs to be known and branded to attract younger talent into the industry. "A great way to be involved and engage in the energy transition in the coming years would be to join IT services," says Frederic.
Read the transcript below:
- 1. Introductions
Hello, and welcome to another installment of our podcasts that we've been doing on a variety of subjects. Today we're going to be talking about what we refer to as the Voice of Our Clients (VOC) survey. I'm Peter Warren. I'm the global industry lead for energy and utilities. Today with me is Frederic Lesieur. Frederic, do you want to give an introduction of yourself?
Yes. Thank you, Peter. Very happy to be with you today to talk about our Voice of Our Clients (VOC) survey. I'm leading the energy sector in Canada and also responsible for the energy and utilities sector in the province of Québec. I've been working in this industry for the past 30 years or so. So, I'm very, very pleased to share our insights with you, Peter, this morning.
Oh, thanks, Frederic. Yeah. We've certainly done a lot of projects together and talked about a lot of things over the years, so...
Oh yeah. A lot of history between us two, Peter, in the past. So, I'm very happy to be with you this morning, for sure.
Warren: Yeah. Thank you. We'll try and keep on subject today.
- 2. Energy and utilities are key actors for net-zero objectives
So, I want to talk about the state of the energy transition, what's going on, the move to net-zero, what's hitting us there, and, of course, how do the consumers play in today's energy? This is changing even in Québec, where you traditionally had a monopoly. There’s also all these different macro trends: how things are going with sustainability, deglobalization, just a bunch of things are moving and happening simultaneously, and pressures from ESG reporting and so on. How do you see this impacting what your key clients are doing, not only in Québec but across the country and around the world? What are your thoughts on that?
I think we saw, in the past year or two, I would say, a change. Climate change is seen by all now: it's evident that it's happening, and governments and citizens are concerned. I think we are now shifting to talking and planning about how we'll manage a net-zero agenda, how the countries will react to it, and things are going in motion now.
Utilities and energy industries, I would say, are key actors to achieve those net-zero objectives that governments have, or influence climate change. So, it's truly a new dominant macro trend this year. Embracing this culture of sustainability for utilities is key to their success—not only to their success personally, but key to the success to well serve their clients and citizens that are asking for utilities to be part of this. That led to a different level to utilities and energy service providers to move into action in what we call the energy transition.
Just to maybe explain it quickly and simplistically, there are two key factors that utilities can act on regarding the energy transition.
So, the first one is the simplest to explain. Energy that will be produced in the future needs to be greener and greener and greener. There's no other way to see the future. Solar and wind farms will grow. Renewable energy will be produced in more quantity in every territory. That's the clear transformation that the energy industry needs to move forward and towards on. That includes also the oil and gas industry.
So, getting away from fossil fuels type of energy is also a challenge that needs to be embraced not only by utilities that may be at a certain level already green, depending on the utilities we're talking about. If we look at the Québec territory, for example, where I'm living, there's a lot of hydropower already in place. So, we could say that we are partly green in the Québec province, but there are big plans to add solar and wind energy also in the province to be even more greener than we are today.
On fossil fuels, on the other side, we see also the oil and gas industry shifting. So, they are investing in the future by buying or building renewable energy plants for the future. They know that at some point, they need to be part of this shift over time. So greener energy is the first element of the energy transition.
The second element is the way we consume energy. We know that there are some energy efficiency programs that are set in every territory. All the clients are asking for tools and ways to better consume energy. That's getting a big portion of the expense of every citizen here, depending on the territory. But it's always important for clients economically to make sure that they consume the right energy. But now, there's also something else that is asked by the citizens. They want to be more and more a part of this energy transition, the net-zero achievement objectives. They want to be part of it. So, I think it needs to be top of mind by C-levels in the industry that they may engage their clients in this journey with them, and that people will probably be engaged if they are asked to be part of this transition that, of course, we are all impacted by at the moment.
Yeah. Totally agree with you. This year you mentioned oil and gas industries. They jumped to number one industry most concerned about sustainability across the board in our survey. Energy and utilities was not far behind. Transportation obviously was a high number and manufacturing as well. So, they were sort of the one, two, three and four in that group. All of those are interconnected.
You mentioned also too about companies shifting what they're moving forward with. We find that there's a desire for them to shift, but they're still fighting with their culture. They're still fighting with their existing systems to move forward. So, it's kind of interesting. We have some clients that are actively moving forward, and others are still worrying about the molecules of how do I add hydrogen to my pipelines. It's quite a diverse mix. Do you see that from your seat as well, that there's different people at different stages, some are very progressive, and some are a little farther behind?
- 3. Pace of transformation differs between Europe and North America
Yeah. Absolutely. That's what we see. When we look at the pace that utilities are transforming their business in the energy transition, that means changing the business models and sometimes seeing new actors coming in, I would say, your usual markets. So, newcomers, new companies that bring new ways to manage energy, whether it's distributed energy resources (DERs) that will be more locally consumed at the consumption point, a source of energy that may be produced by smart buildings with solar roofs. For example, management of the energy at the more detailed level within facilities, greenhouses. We can see also batteries coming in. So, these are all new things that are coming to the electric network that needs to be managed by former utility or embraced by them. So, they need also to progress toward that, those new type of energy situations in their territories.
And, we see different paces. Europeans seem to be progressing, I would say, faster than North Americans. That is exacerbated also by, I think, two or three factors. The first is the economics. Energy is costly in Europe, and, I don't want to put too much emphasis on this, but with the war in Ukraine, we have to mention that it brought a new level of our awareness on how dependent every country is on one another when it comes to energy viability, sustainability and independency. That will lead to a major shift.
All those factors and, of course, once again, the citizens are asking for utilities to get greener. I think that the pace is already and will be faster in the future (in Europe) than North America where things are more stable at the moment. Nevertheless, governments are asking for new targets, new objectives to utilities to get greener. I think that will shift rapidly also in North America in the coming years.
Yeah. To put some numbers behind it again in the (VOC) survey this year, when we looked at companies that were digitizing and actually getting success from their digital programs, all industries claimed about 25% were saying that they're getting success. In this industry, it was 29%, which is actually on pace and scale. If you actually extrapolate the work that the industry's done over the years, you could see the industry being fully digital by 2030, which is, oddly enough, the same time when everybody has these carbon goals and clean air goals.
But when you talk about North America, though, and you break the numbers down, it's actually was 34% for Europe and only 14% for North America. I think being in North America to that point, I think we've been a little lazy on this, but I think we're going to have to catch up because you also mentioned too about not being blindsided by other industries. We now have people that have come from manufacturing that are making hydrogen. They've made it for years for industrial purposes. Now they're actively entering the energy marketplace in Europe and in North America. And this all shifts.
The other thing you touched on was sovereignty, like looking after the energy for a country, but also the security aspect of all of this. Let's talk about security because I know you do a lot of security work, your team does, but what's sort of your view on cybersecurity and just security in general of the energy field?
- 4. Cybersecurity for critical infrastructure is top of mind
Yeah. You touch on what is maybe a challenge or slowing down the energy transition. Security is certainly one of those factors that is top of mind. You've got the shift that needs to be addressed by utilities going to the energy transition. On the other way, you have to make this shift securely.
Now utilities, the facilities, the assets are seen by government as critical assets. The assets that are controlled by utilities are vital to the regions. I personally was working at Hydro-Québec when we had this important ice storm in 1998. So just to come back a little bit in time because of an ice storm, we had major outages in the province that cut out one-third of the citizens in the province of Québec for four weeks, so during the winter, so you can imagine the chaos, the impact, the cost of it.
So, climate events are something that will happen more and more, and that are happening more and more. But each time, we can see with our own eyes how important is the energy sector for citizens, for economy of a region. Cyber-attacks, of course, are top of mind because when we are talking about energy transition, distribution, distributed energy resources, new types of devices, solar and smart buildings, everything you mentioned, Peter, are new operational technologies that need to be managed remotely, so with telecommunication systems. And these are new doors for cyber-attacks. So, everything you're deploying on the network needs to be secure. Otherwise, of course, you're putting a great pace in the energy transition, but you are also putting your industry at risk. And that's a big concern too nowadays to governments and the industry in general.
Yeah. There used to be a separation at one time, the IT or operations. The operations side kind of did their thing, and there was this OT security thing. Then the back office had this IT security, and really the two weren't ever connected. You actually, you see this now, as you know, it's all one because we've now got the ransomware attacks that are shutting down gas lines. Ransomware has become commercialized. It's a business. It's an industry now. Then you also have governments doing attacks just to be nasty to each other. So how do you see the connection between those?
Nowadays, whichever industry we're talking about, cyber needs to be big a thing that needs to be done in every aspect of, whatever it is IT or OT we're talking about. I think the standards, the compliancy level we need to achieve to make sure that we secure utilities is getting higher on IT and OT side at the same pace, at the same time. There's a convergence there that is happening. There was a way to segregate those two components, but now that we are collecting data from the field and everything goes real-time, and that is so important to transform the models, the business. Data is so key nowadays to transform the business model to achieve those goals of the energy transition, that, at some point, it needs to be completely integrated in one single cybersecurity service and monitoring.
It's moved from somebody in their basement doing these attacks to software robots. I mean, the pace of scale and threat no longer is it something you can fend off with a few people. You need complex systems and tools, and you also need a fallback should you get breached. I mean, there was one comment years ago, somebody said that basically everything's hacked to a certain degree. It's a question of what are you doing about it?
Yeah. The human factor. Sustainability was really top of mind for everyone, and moving forward, and we've had the luxury, particularly in North America, of doing things a certain way. Europe, you referenced, is changing more rapidly. How do you see companies adapting as we move forward? How are they going to change their business models? How are they going to operate differently?
- 5. Data is imperative for business model transformation
Yeah. Certainly, there are many ways to change business models that will be supported by new technologies as well. What we see more and more, and you touched a bit on it, that digital transformation was providing more and more results in the industry. So, 29% globally, you made this clear as well that Europeans were going faster. But, even though we could see those numbers are pretty small, 29% providing results, it's three times more than what we had in 2020.
So that's where I said earlier that the energy transition is happening. It's not something that we're talking about anymore, and digital transformation programs are supporting the new business models. That is certainly something that we see happening in many different ways. So, data is key in that transformation. When you say that you can support new business models, you need to gather data that can then provide current and useful information for you to change those models securely, but also provide best performance.
I don't mean that by changing everything at the same pace. You have to combine legacy data and get the best out of those legacy system with new changing models that you've put in place, whether it's cloud, whether it's new solutions, development of specific solutions, AI in analytics as well—how to make them to provide the data necessary to support the transformation of the business model. What I see also in this 29% is that we were focusing on the previous years on how business and IT were aligned. Remember?
So, we saw that there was a misalignment constantly in place between the business and the IT groups. I think this tends to get away. We see it because there's a lot of automation. There's a lot of agility now. There're new ways to develop solutions for the business that goes faster. The ones that are getting more results out of their digital transformation plans are the agile leaders. The one that embrace the agile ways of building multi-disciplinary teams from the business and the IT working together to build, at a fast pace, those new solutions they need to transform the business.
Yeah. Totally agree with you on that. Interesting, the pandemic actually forced business and IT to work together. At the beginning of it, we suddenly had to have new tools. We had to have (Microsoft) Teams. We had to have all these other WebEx, whatever it was, you're moving forward. People working remotely. The industry is actually probably better equipped than most other industries because we deal with outages. We deal with problems all the time. I think that the lesson learned is to continue that working between business and IT and accelerate it. Again, going back to those that say they're getting success versus those that don't, the ones that are getting success are much better aligned. They've already finished simple automation. They're beyond that. They're now moving into being a data-driven organization using AI and other technologies to strategically run their business. That's a big shift to moving things forward.
- 6. Investing in change management also is key to success
Yeah. I would add maybe that change management is also key now. This industry, for the past 50 years, has never had a revolution as big as the energy transition. So, the acceptance, I would say, of transforming a system, implementing new ways of operating, needs to be supported by change management. There's too much in motion now not to be supported by an investment in change management, making sure that people understand where we are going with all those changes, what goals are achieved with those changes, to make sure that they agree on being part of this change as well. If they don't understand exactly the goal for what we're doing, what utilities are doing, the success will be limited, that's for sure.
Yeah. Totally agree with that too. One of the quotes from one of the CEOs I was talking with, two years ago, he said, "hydrogen is 10 years away, so we don't need to worry about that." This year he says, "hydrogen is happening." And, it is happening today. They're having to deal with this. So, he's trying to drive a culture of innovation. He's trying to say everybody's got to think differently and move forward and run. He's afraid of being blindsided by these other entrants into the marketplace. You look at the deal now signed between Canada and Germany if you're exporting hydrogen. These things are really going on, and it's not always the traditional players in it, what you consider an energy and utility company building those facilities. So, it's radically changing. I agree with you.
- 7. The new energy value chain will include other industries
That kind of gets into where do you see things are going in the future? So, what's next? We see competition. We see changes. We see declining oil prices. Oil prices were up and down again today. Where do you see all of this going?
Well, I would touch maybe a couple of points on the future. First, I think all the discussion we've had shows there are a lot of investments. Either it's on the network, oil and gas devices, remotely accessible devices on the field or within your own SCADA system internally, or any new solution you need to implement. This will require a lot of investment. So, we know that the investment in the future years that are coming are heavy and not only by utilities. If utilities don't move fast enough, manufacturing, transport and logistics and other industries will take in their own hands the shift.
So, manufacturing has their own net-zero objectives to achieve. They are asked by government to consume differently. If utilities, I would say the former utilities, the ones that we know, the big ones that are there, aren't providing solutions to them, they will take those into their own hands. I think when we are talking investment, we need to include banks in the mix, so that there will be a kind of new value chain of energy, including manufacturing, transport and logistics, energy service providers, and banks combining all together to build this new future that we'll see in a few years from now.
The second point would be that we already talked about not being blindsided by the change. I think we need to embrace it in a way, ensuring that we bridge the legacy and the new with the strong data analytics and even AI services and solutions. But I think changing things needs innovation, and the culture of innovation, like the culture of cybersecurity, to protect your company is key.
- 8. Keeping pace with change requires a culture of innovation
A culture of innovation is key also to make sure that you are able to execute at the required pace.
Innovation goes with making sure that everything you do is done in an agile way, focusing on the objective that we have of energy sobriety or sustainability, making sure that everything is mixed all together to achieve the target or go to the target as fast as possible. That's a major shift. I talked about change management, Peter, but we also need to talk about new talent. So, people that are, I think, the most innovative are the ones that comes maybe not from inside our organization, but sometimes outside. New talent that needs to join in that will bring fresh and new ideas to the table when you have to design the solution.
Utilities, we have to be honest, are not seen or perceived that these are the most innovative industry by the new generations, let's say. I touched about it: 50 years of optimizing what we have, not changing most or many things. So, the energy transition needs to be known, needs to be branded, so that citizens or younger talent want to engage in joining utilities, in joining this industry to be part of it. A great way to be involved and engage in the energy transition in the coming years would be to join the IT services, whatever you are, consultants or former employees of those utilities. You'll be part of it if you join in, but this has to be known.
Like I said, the utility industry doesn't have this reputation to be innovative so far. Combined with the talent shortage that we all know it's happening everywhere and in technology all around the world, it's a challenge that utilities need to face. If they want to succeed, they need to be innovative. If they want to be innovative, I think they need to engage new people, grow their IT teams and, get new ideas, have a new way of thinking.
That's very well summed up, and thanks for that, Frederic. And I'll just add to that is that I see some people coming from outside the industry, executives that we talked to that are coming from other places. And the reason why they're coming to it is they see this as an exciting opportunity for them.
They want to be a part of this change. They want to bring their expertise. They might have been coming from something totally radically different, but that's the type of innovation they're bringing. They're bringing this different perspective. So, it sounds as if maybe at the beginning of this, we were giving a little doom and gloom, but I think the answer is to be aware of what's going on and adapt to it and get some good input. So well said, Frederic. Thank you very much. Any last thoughts, and then we'll wrap this up?
Yeah. I think my last thought would be, this industry is shifting. This industry is moving. You know how passionate I am about the energy industry. I've been spending most of my career in this industry. I won't be there for the next 30 years, for sure; but, I think if you want to work in an industry that will be changing, passionate and addressing the citizens' needs as well, it's a great industry to engage in, and I'll be there with you, Peter, for the next 8, 10 years. That's for sure.
Yes. Somewhere in there anyways. Thank you, Frederic. Have a great day.
And we'll talk to you again. Bye-bye.
Thank you very much, Peter.