192. How AI will revolutionise Energy

With Laurent Segaland from London and Gerard Reed from Berlin. This is Redefining Energy. Today on Redefining Energy. This is our last episode of our summer series. We're going to restart very strong early September with extraordinary guests that we have the privilege of having conversation with. But for this episode, Gerard, you were so good that it really deserved an episode and you were on stage. Explain what it was. Yeah. So I was invited a few months back to present at the customer event of Ecovadis. And Ecovadis is one of the biggest consultants in the whole area of sustainability across the world. So what they do is they will look at the whole value chain and do everything from measuring carbon emissions to whatever, but that's what they do. Really interesting for me, just it was. The different type of people in the. Room that I'm used to speaking to. So you're talking to people who are sustainability officers and procurement officers and stuff like that in industrial companies across the world. So, yeah, that was what I was doing. Event took a place in Paris some months back because the business is French. Very nice. And you had good feedback afterwards. Great feedback, yeah, absolutely. Great feedback. Well, look, the guys who don't give us a good feedback, they can go to hell. Are. Which are that. Okay, let's listen to the conversation. Please welcome energy transition expert and sustainability leader, Gerard Reed. Well, thank you very much for actually having me. I come from the finance world and I've probably spent the last 20 years of my life really advising what people what to do with their money in this whole technology area and energy area. And I'm very convinced that actually we're in a revolution. And I'm going to talk a little bit about that and what it means. Right. If I look back in time, what you realize is the biggest revolutions in terms of progression of mankind, in terms of gdp, et cetera, happen when you have an industrial revolution. Industrial revolution happens when you have a technology innovation and you have some new use of energy. So the first one was led by Britain and that was a steam engine and coal. And then we have the second one which was led by the United States, Europe, and what we had was internal combustion engine and automobile. Now if you compare it to China, what you realize is that China actually hasn't developed over that period whatsoever. So the Western world went like this. Right. And again, huge impact when we go through this period. I'll make a point now that we're in the exact same situation today and we're in an industrial revolution, that industrial revolution is all about digitalization and it's about electricity. I really don't care tomorrow if I don't have oil. This city here, if it doesn't have electricity for three days, falls apart. Okay? You can't do anything without electricity. Now you can imagine. I'm just saying we're only at the beginnings of this. The reason I'm saying this is because AI is an enormous change. And I make a point that it is the biggest technology revolution we've seen in the history of mankind. That's how big it is. So I'm going to talk a little bit about what that means. So the first question you asked is, how do you know whether you're in a revolution? In other words, Jared, you're talking about the future. How do we know you know it when experts get things wrong? Okay, I'm just going to talk about those of you probably have heard of Deep Seq and stuff like this. Alibaba is the Amazon of China. They just announced a program the other day, an Iowa program called qn. And QN has better math scores than basically everything we have done in the west in the AI world. And they're doing this at 16 of the energy costs. Now, again, I had conversations before Christmas with experts in the area and they say the Chinese are way behind. Okay, they're not way behind. Right. The second thing, though, I'll go on and say is it's not just in the AI space. This is in the solar space. This is the IEA International Energy Agency. 2019 predictions were 2024, we'd have total renewable installations of 250 gigawatts. So just to give you an idea, China last year just in Solar was 300 and the Global was 600. Completely wrong. Not just a little bit, but completely wrong. I come from the investment banking world, didn't work for Goldman Sachs, so I'm going to smack them. Goldman Sachs basically said 2019, forget about the electrification of the automobile. It isn't going to happen. We basically believe by 2030 we'll have 10 million EVs. Okay? China's at that level today. All right? Just China is at that level today. But it's not just that. If any of you are Dutch and you're living there and you want to go and get a new house connected, you want to get a new business connected in terms of power connection, you cannot get power. All right? That's not normal. Because you sort of go, well, you've been predicting power flows for the last hundred years. Why can you suddenly not do it now? But again, I'm making a point that there's so much change going on that the established leaders can't do it. And it's not just that. If we decide today we want to order a transformer, standard piece of electrical equipment, or a gas turbine, you could be waiting till 2030 to get one. They're sold out across the whole world then. My last point I would make in this is if you go and look and we'll compare the old world to the new world. For me, Germany is the old world. It's full of industrial companies that were built at the beginning of the 20th century. And the value of the top 40 companies in Germany is 2 trillion. And you've got three U.S. companies that have valuations higher than that. Just one company. I'm not talking three companies. I'm talking one company. That only happens when the stock market, the financial investors are saying, well, the future is with those companies. That's what it's telling you. Okay, so what does this mean? Let me just talk a little bit about this. The one thing I'm going to start with is AI. The speed of change in AI is unbelievable. I started using ChatGPT two and a half years ago, and I tried doing basic mathematics with it, and it was making mistakes. And I would ask it, why are you making mistakes? And it would say, nobody's perfect. Okay, that's what it was saying to me. Now, what's really interesting is we're now at PhD level in all of the sciences. We haven't bypassed the top ones yet, but we're not far off. So just the speed of change is ginormous. I want to talk a little bit about what's going to happen going forward. We are definitely going to integrate this into our workplaces. And the first place that's going to happen is in and around customer support. I'll take a very simple example. If I want to go to a doctor today, what does the doctor do? He asks me a series of questions. He might measure my blood pressure. That's what he does. And then he gives a diagnosis. I'm sorry. I have a blood pressure monitor today that I can use. You can see where I'm coming from. I go onto an Internet program and basically, AII is giving me that first step in terms of what's wrong with me, what's not, and I can take that through every area of customer service. Okay, so that's the first point that I would say. The second point is robo taxis are coming now. Robo taxis are autonomous cars. And I Just want to give an eye on the left there is the amount of autonomous rides that are taking place. And waymo, which is Google, 9 million annualized autonomous drives are taking place now in Europe. It's not allowed. But this is happening already in the United States. And you've got a whole pile of Chinese companies packing up on this, et cetera, et cetera. Now, why this wins is because of cost. Because if I've got an autonomous car that drives around 24 hours a day, guess what? The cost of driving that kilometer collapses down, and that's where we're going. You cannot stop it because it's technology and it's economics. And if you decide to block it, guess what happens? You just lose a competitive advantage. That's what happens. Because somebody else will do it instead of you. The next point I would say is AI will have a massive impact on health and longevity. So for those of you who realize we've obviously been through a Covid crisis, both of the leading drugs that were produced during this period were done with the aid of A.I. okay, realize that these two drugs came onto the market and they were on the market within six months. This has never happened before in the history of pharmaceutical development. And by the way, both the companies that developed these drugs were in the cancer area and then were shifted to go and develop something in the area of the flus, which is they're not in now. I say this because this is only the start of this. We're going to test everything. What this means when you test everything is you can prevent diseases or catch them early. I heard one recent, and I won't mention who he is, but CEO of one of the pharmaceutical business said by 2030, there will be no cancer in the Western world. I mean, that's a big statement that he made. And again, this is because of AI Next point I would make is we are moving to humanoid robots. We already have them in factories. Go into a Chinese automobile factory today. It's full of them. Right? But we will use them in our homes. Okay? My brother the other day sent me from Barcelona a picture of a robot dog that walked in front of him and he called the dog over him and the dog went, chup, chup, and looked at him like this, right? I'm just saying that's where we're going. People are going to integrate them again because of economics and because I don't like washing the dishes. So if I can get a robot to do it, great. Okay. What I would say about all this though is if you've got AI. You need electricity. It's as simple as that. If your robot runs out of batteries or whatever it is, or electricity, it doesn't work. Okay? So electricity, really incredible. And when we digitalize things again, you need more and more electricity. The future going forward is you electrify. What this means, though, is power demand will go up across the world. Now, power demand will go up, not just because we're electrifying what I'm talking about digital. You're going to electrify industry, you're going to electrify heating, you're going to electrify transport, and you're going to do data centers, et cetera, et cetera. So again, I'm looking at a world where I don't care about oil or gas anymore. I really don't. I care about electricity and all of us in the room care about it. Because if your mobile phone runs out of batteries, it's a complete pain in the backside. Let me make another statement, is that the future system will be based around solar. And you might go, oh, my God, what's he talking about? So just to give you an idea, today we're moving to a situation of what I call plug and play solar. Plug and play solar is where I put a solar panel there, the sun is there, and I plug it in the wall. There is no electrician needed, no engineering, nothing. In Germany today, if I do this, it's called balcony solar. I'm generating electricity at 4 cents kilowatt hour. I pay in Germany, 35 cents. Do you really think that people are not going to do this? And do you really think they're going to stop it? You're not. Because it's so economic. It's about economics. It's not about anything else about economics and ease of actually going and installing something. The next point I would say around this is that we will also have lots of batteries. Now, why do I say batteries? Well, guess what? Of course, what happens when the sun goes out? Sun's not there. You need to store it. Well, you store it in batteries and you might say, oh, we can't do this. Every single person in the room here has a battery in their pocket. I count in my own home as it is. There's probably 200 batteries in my home. So what's the problem? I put another, bigger battery in. It's called an electric car. I connect it into a power system. I put another battery in my garage. What's the issue? Batteries will be everywhere. Okay, and again, it becomes back to economics. If we decide today that we're going to build a nuclear power station, It'll take us 10 years. If we decide today we're going to build a gigawatt of solar and put batteries around it, I can do it a year. Remember, it's about speed. That's what I'm talking about. Speed in economics is really critical to this. Okay, let's talk a little bit about EVs. What we've got in the EV area is we've got cost parity in terms of production of automobiles, internal combustion engines. It peaked in 2017. That means Renault, BMW, et cetera, et cetera. We're producing less and less of them every year. That's a fact. Young generation don't want to drive as much as we do. For a start. It's not a status syllable. And again, if you're Chinese, 40% of all young people buy electric cars straight away. We also have reached cost parity in China. Now this is very, very, very important. Cost parity means that once you've got a car that's performs better, it's cheaper to run and cheaper to buy. Are you really going to buy that more expensive thing? Now don't get me wrong, there's people out there still buy Harley Davidsons. So I'm sure there's going to be people out there in the future who will buy Renaults and Daimlers and stuff like that. But it's a tiny niche market, okay? The mass will not do this because it's just too expensive. Now what does AI mean for the world of electricity? Well, the electricity system that we have in place is a pretty stupid system. It was invented like 125 years ago and we still manage it in the same way. And what that means is the grid operator constantly tries to predict demand and then he turns on and off turbines to make sure they match. That's great, but we're now in a really complex world where we've got so many devices connected into this power system that actually that doesn't work anymore. So we have to change the way we think about this. That means we need to have the both sides demand dynamically matching supply and have storage in between. That's where we're going. And it requires real innovation and I would say release of technology into this world. What I will say all of this means is this is the good news. The world is very close to peak carbon emissions. Now why do I say that? I say that very simple is because if China peaks, the world peaks and China is really close to peaking. Now, I give you the numbers. For example, in terms of China last year, China would have installed 350 gigawatts of renewables last year. To put that into perspective, that's the power needs of France, Germany, Italy put together. That's what they've done in one year. So just the scale of transformation is enormous. They are basically installing 50% of everything across the electricity and renewable space. Again, they're not doing this because it's expensive. They're doing it because it's cheap and because it makes economic sense and it definitely makes geopolitical sense. Do you really believe that Africa is going to follow us? Why would they follow us? Why would you follow something from the 20th century? And by the way, they didn't do this in the mobile world. What did they do? They didn't build fixed line telecommunication cables like we did. They went straight into satellite and mobile. And they'll do the exact same thing in the electricity space. The exact same thing. You will move into a system that is based on solar, with batteries, with other form of storage. Very clever power electronics in there. And guess what? You add into that AI and the ability to learn in a completely different way than all of us in the room here have learned. That's how they leapfrog. And they will leapfrog. Let me give you an example. What's going on in Pakistan. So Pakistan has very expensive power and the Pakistan Industry and Commerce association, about a year and a half complained to the government and said, you need to release the power of the market and let us bring in Chinese solar and batteries. And they said the reason we do this is we can't compete with India. So what they did was they released, got rid of all tariffs and then suddenly what ended up happening is they've had a boom of solar, so much so that they think there's 15 gigawatts of solar. And this is in a market where there's 30 gigawatts of solar. There is no subsidies in place, there was no financing in place. This is just businesses going, we have to do this because it's how we stay in business. And again, just use that as an example. You will see this all across Africa. The exact same thing will happen. South Africa, Nigeria, Tanzania, they will all go this route again because of economics. What I will say in this revolution is many global leaders will not survive, I'm sorry to say. And as a European, I put my hand up, I look at Volkswagen, I go, sorry, you were the number one producer in China for the last 15 years and you still have not been able to produce an electric car that's as good as the Chinese. And by the way, you're slow at it and you're really expensive and you haven't actually gone and restructured your business. Good luck to you. So the BYD here, if you compare the two of them Volkswagen software system, is pretty dour. Go. In the byd, everything works and it's cheaper. Okay? And I mean it's cheaper in terms of their cost production. They're selling at the same price as Volkswagen because prices of cars in Europe are more expensive. But the point I'm making, all of it, is you can see who's going to win going forward. Now, what I will also say is that there are going to be really positive surprises going forward. The really positive surprises should not be surprised to anyone in the room if you realize that China has 3.5 million STEM graduates that come out every year. Germany has 200,000. How can you compete with that? You can't. And they're really, really well educated, they're really hardworking and they're eager to actually have the living standards that we want to have. What this is, is great because what this means is innovation speeds up and there are things out there that we think about now that might happen or might not happen. I give you a very simple example. It's just super intelligence in terms of AI, where you have literally human level intelligence from computers. That's a possibility. I'll say that to you now and again. The reason is because you've got so many great minds competing with each other across the world. What I want to say though is that this AI revolution is an opportunity and a threat. It's a threat if you do nothing and ignore it. And it's an opportunity if you jump on and actually understand and deal with it. So I thought to myself, then what? The issue in all of it though, makes it really complex, is the geopolitical situation. I'm not going to go into that. But we know this, it's complex. Europe is without a doubt stuck in the middle between Russia, China, us. Not easy and again, complicates everything. What I'm sort of leaving you with the message is what should you do, right? You're all executives in companies across the world. What should you do? The first thing I'm going to say to you is shift the mindset and see AI as an enabler, not a threat. If you see AI as a threat to your job, it is a threat to your job because it means you're not enabling it and you're not actually on top of it. I do make this point about AI as AI will not take your job, but a human being with AI will. So if you're not engaging with it, you've got a problem. And I will say as a middle aged white man, it enables my generation because it's the first technology that's really easy to use that actually enables me to compete with the 25 year old who's coming out with a skill set that I don't have. Now, I say that to everyone in the room. Very, very important to realize that it's that simple to use. Okay? But we have to have it in our daily work. And I also want to make a point. It does mean that as our organizations have to have a growth mindset. A growth mindset is about learning, which is, okay, you know, what I learned in the past, it's wrong or, you know, we've outgrown it. We have to go and change our mindset. It is a little bit of the Californian mindset that you see in a Google, A, Microsoft, et cetera. We need this in our companies. I don't care what company you are, we need it. So again, this growth mindset for me is fail fast, learn fast growth. Start with oneself, be comfortable with change. Really we have to get our organizations comfortable with changes. We also need to be not afraid to take risk because it's very hard to pick the winners in a revolution. But we have to do something. You have to actually make decisions in it. I thought about a lot of you in the procurement area. What are you going to do? I think the first thing I would say is enhance resourcefulness with AI and that's predictive analytics. You can predict things before they can happen. You can automate processes, you can optimize energy uses by changing the way you use it and the way you buy it. And you can also go into data driven innovation. So this is really, really critical to engage this. The next thing I would say is push sustainability. What the lovely thing about AI is, is you can measure everything and you can analyze it. You've got all data, you can take the data and you can do things with it. You can make decisions out of it. Obviously carbon footprint is one area of it, but also just decision making, waste management, et cetera, et cetera. And the third thing I would say is strengthening resilience with AI. This is really, really critical. My last point, I come from Ireland. I was quite shocked to see in Ireland that one third of the population had no power for two days because of some wind. And by the way, in Ireland, it's a digital economy. You cannot pay for anything with cash. It's all a card. So suddenly, the west of Ireland completely collapses for two days. Why I say that is climate disaster is on top of us, and we have to prepare our companies and our countries for this. We also need to. In this growing world of very difficult geopolitics, we need to make sure our supply chains are resilient. Cyber security and risk. I'll give you a statistic that I heard the other day from a utility in Europe, which is that their systems are being attacked on a daily basis by the Russians. That was, quote, on a daily basis. Okay? And then the last thing is you need to move to autonomous and decentralized systems. If you have a big centralized hum that makes all the decisions, it's very easy to take that out in the world we're in. So the last message I would say to you is be prepared. And finally I'd say to you, the growth opportunity is enormous. And I make that point here, which is you need to be fast to stay relevant. And I'm talking about you as individuals, I'm talking about you as parents, I'm talking to you as business leaders. Irrelevance happens when the speed of change outside an organization is greater than speed of change inside an organization. And what I'll just say to you is I could change that word organization for country. And I would say if that country was France or if it was Europe, China is way faster than all of us in the room, way faster. And we need to actually wake up a little bit at that. I'll stop and I hope this was of benefit to you. Thank you very much. Thank you for listening to Redefining Energy. Don't forget to rate the show and subscribe on Apple Podcast, Spotify, or the platform of your choice.