IV Platforms in the Energy Industries

This Part will show how digitalization is and will increasingly penetrate the energy sector, and how it will transform it in the processes. However, the energy sector, at least its electricity portion, which is about to become the core vector of the transport of energy, has some fundamental differences from other network industries. These characteristics result from physics: because electricity cannot be stored on a massive scale, supply and demand must constantly be balanced. This requires a real-time system coordinator to ensure that the system works by keeping it balanced. This is a central coordinating function and it is questionable whether a virtual, digital platform, can take over this function, at least not in the immediate future. This is unlike transport, which is highly fragmented and where digital platforms can perform system coordination while delegating the operational parts to fragmented operators. Nevertheless, digitalization is an unstoppable process that will increasingly penetrate the electricity sector and the other energy sectors. In this Part, we will show how this is currently taking place and where this evolution might lead to.

Chapter 17

Network Effects in the Energy Industries

Network effects have played a fundamental role in the evolution of the electricity industry. Just as in posts, telecoms, railways, maritime transport, and aviation, the history of the electricity industry can be explained as a quest to fully exploit network effects by physically connecting a growing pool of assets in the most complementary way, for the benefit of all the users of the system.

Electricity was originally a distributed network, with each user producing electricity on its premises. Thomas Edison built the first integrated, centralized electricity system, producing electricity in one location and distributing it to a large number of users through an electricity grid. Complementarities would be exploited, as the grid would service electricity during the day to factories and offices, and during the night to private homes (bulbs). This proved to be the winning proposition in the industry. Over the decades, complementarities and the subsequent network effects would be exhausted by growing universal systems connecting electricity consumers of all types with all potential electricity generation modes, to ensure a balanced system.

Eventually, deregulation would transform the industry, introducing competition at least in the generation of electricity. The role of a system coordinator ensuring the balance of the system would always be necessary, contrary to other network industries.

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