During the California gold rush of the late 1870s, Jacob Davis and Levi Strauss wanted to cash-in on the action. But instead of panning for gold like everyone else, the two men invented the riveted-pocket denim work pants we know today as jeans. The story of how Levi’s rose to prominence is instructive for both investors and entrepreneurs alike. The lesson here is that behind every booming industry lies not one, but several “silent booms” in their supporting services. These back-end businesses provide critical goods and services that new, high-growth industries depend on.
The economy is undergoing a new industrial revolution — the fourth of its kind in human history. In previous industrial revolutions, we taught machines to do the work of human hands. In this Fourth Industrial revolution, we are teaching machines to do the work of human minds. This has given rise to booms in new industries such as IoT, Artificial Intelligence/Machine-Leaning, and Blockchain. These fundamental technologies are the enablers of applications like self-driving cars, robotic process automation, and advanced medical diagnostics. These fundamental technologies are the back-end businesses of the new gold rush.
But behind those fundamental technologies, lies an even more critical enabler of technological change itself — energy. As technology becomes increasingly embedded throughout the economy, two trends are observed — the rising demand for energy, and energy security.
Firstly, improvements in the energy efficiency of devices have made the cost of using energy cheaper, thus increasing the overall demand for energy. As networked systems and devices become cheaper to deploy, the more of them we will install in our businesses, and buy as consumers. This is evident in the rapid proliferation of commercial IoT systems such as smart digital billboards, to the smart consumer devices like Amazon’s Alexa and Apple’s Siri now common in our homes. The more our lives depend on energy, the more energy the economy needs in order to function at a new baseline.
Additionally, the demand for data storage also means an increased demand for energy. Every time we use a cloud computing service like Dropbox and Gmail, or upload pictures to social media sites like Facebook — the data ends up being stored in data centers bigger than aircraft carriers, where tens of thousands of circuit boards are racked, row upon row. All of these require energy to cool, and operate.
“We are a very data-hungry society. We’re using more and more and more data and all of that is using more and more energy.”
— Nicola Jones
Secondly, the increasing importance of these new energy-dependent devices means an increased demand for energy security. Not only do we need more energy, but we need the flow of energy to be more reliable. The more we come to depend on increasingly interconnected energy-driven systems, the more costly down-times from energy failures such as brownouts (reduction in voltage) and blackouts become.
Research shows that the financial impacts of even a small power cut can be catastrophic. Singapore suffered it’s worst power outage in 14 years last year, causing a total of 146,797 residential and commercial customers to be plunged into darkness for 38 minutes. Analyses from blackout events in the US show that a 30-minute power cut results in an average loss of US$15,709 for both medium and large industrial clients, and nearly US$94,000 for an eight-hour interruption. Even short blackouts — which occur several times a year in the US — add up to an annual estimated economic loss of between US$104 and US$164 billion.
These costs can come in the form of direct losses when businesses cannot continue revenue-generating activities, or when real losses occur due to lost data due to sudden power losses, or damage to things that depend on cooling such as servers or foodstuffs. But the costs of energy failure also comes in the form of indirect losses associated with having to compensate downstream clients for potential losses arising from service delivery failures, or additional customer service recovery costs.
While energy companies and governments try to tackle the problems surrounding national energy infrastructures, industrial clients must act to proactively minimize their exposure to energy failures. Larry Hunter, Risk Engineer at Allianz Global, says that “while organizations may feel that the likelihood of power outages is beyond their control, they should still assess the impact that an electrical blackout could have on their operations and important machinery, so that they can review and determine whether they have the right controls in place to help mitigate the risk.”
Organizations need to assess their vulnerability to power blackouts and evaluate what contingencies they have in place. To help businesses address the growing need for energy security, Skywave Solutions works closely with clients to assess and address gaps in their IT M&E infrastructure.
Michael Bruch, Risk Consultant at Allianz Global Corporate & Specialty (AGCS), says that there is a much greater burden on companies to evaluate their exposure to power blackouts as currently there is very little available coverage in the insurance market to offset the risk. “There are policies that cover business interruption but usually they are only triggered by physical damage, such as a fire on site, which covers on average just 20 to 25 percent of the business interruption losses.” As a result of this gap in the market, energy security consultants like Skywave Solutions offer preventive solutions to help businesses secure their energy supply. Apart from assessing the adequacy of existing processes and M&E infrastructure, Skywave can also enhance companies’ energy security through installing Uninterruptible Power Supply (UPS) systems.
Unlike backup generators, UPS systems provide near-instantaneous protection from power interruptions. This is essential in protecting critical hardware such as computers, data centers, IT equipment or other electrical equipment where an unexpected power disruption could cause injuries, fatalities, serious business disruption or data loss. “Power cuts are going to become more frequent and the financial losses can be very severe. As their insurer we need to provide suitable coverage for our clients, but organizations also need to be aware that they will need to make their own contingency plans to mitigate the risks,” says Bruch.
