Themes from DistribuTECH 2015: Utility Transformation and Risk Management
Any change represents an opportunity, but it also comes with risk. Nobody wants to find out later that he should have done things differently. The need for change was one of the key themes at the 2015 DistribuTECH conference earlier this month.
Whatever the perspective on change may be in the power sector, the need for utility transformation is widely accepted today. It may not be disruptive, but rather incremental. Nevertheless, it will come in a more dramatic way at a fast speed. In fact, at the conference Jeff Martin, CEO of San Diego Gas & Electric, and Ted Craver, President and CEO of Southern California Edison, said there will be more change over the next ten years than in the last one hundred. To ride the wave of the future, utilities are advised to change from being reactive to more proactive.
From a utility’s perspective, what does this change mean? Looking at all utilities on a global scale, there is a strong need for development and integration expertise in grid monitoring, automation and management solutions, renewables integration, energy storage, electric vehicles and charging infrastructure, data management and analytics, and interoperability standards compliance. We also face enormous interest in developing better demand side understanding and management including the design, implementation, and evaluation of energy efficiency programs, cost-based rate designs, load research and forecasting at the individual customer level using Big Data approaches or End-Use Data Development to understand customer behavior behind the meter. Last but not least, greenhouse gas emissions worldwide must be significantly reduced to help protect our atmosphere. To prepare the stage in North America, the Environmental Protection Agency (EPA) of the U.S. government has submitted a new Clean Power Plan (CPP) with ambitious targets to reduce carbon emissions from fossil fuel driven power plants. Though this still has to be finalized, state regulators and utilities expect to have until 2030 to reach compliance. As a result, stakeholders get prepared for another important cycle in the transformational process.
What is high on the agenda? Jeff Martin made it very clear that his top two items on the list are renewables integration and energy storage. In fact, a new global survey on renewables integration conducted by DNV GL shows 66% of the respondents ranking energy storage in their top three most important factors for integrating a higher share of renewables. This option scored well ahead of others such as smart grids and regulatory changes. A representative of a major OEM even stated that a power system with 70% renewables would be ‘science fiction’ without effective storage solutions. The full DNV GL report will be available March 2015. (Click here to receive a complimentary copy of the renewable integration report).
The Utility SWOT Analysis
Where do utilities stand today? And what will be viable options for them to build new business models for tomorrow? The utility SWOT analysis in Figure 1 summarizes the strengths, weaknesses, opportunities, and threats applicable to the majority of utilities in North America, as well as worldwide.
Utilities, though slow and reactive in nature, possess a deep bench of know-how and many decades of experience when it comes to building, operating, and maintaining a mission-critical, wide area infrastructure that is not allowed to fail. This deep operational competence has been earned over more than one hundred years. Large engineering and construction conglomerates such as Siemens, ABB, Hitachi, Toshiba have repeatedly attempted to engage in BOO (Build, Operate, Own) business models for such infrastructures. Many times, they failed given the lack of operational and maintenance know-how. At best, they managed Build, Operate, Transfer (BOT) models with operational engagements of short duration.
Utilities also possess a deep competence when it comes to financing and integrating infrastructural expansions. In fact, larger utilities, such as Hydro Quebec or Eon, have engaged in Foreign Direct Investment (FDI) scenarios to build, operate, and own large power transmission and delivery infrastructures in developing countries. In this context, utilities represent serious competitors to large OEM conglomerates which hesitate to commit to ownership of such infrastructure.
On the other hand, utilities face substantial challenges due to expected larger losses in revenues during the next ten years. To compensate for those losses, they must find new business models for what they know best. Good examples for competitive positioning would be engagements in distributed energy resources (DER) and storage integration, microgrid installation, operation and maintenance, or innovative cost-based rate design. While being competitive on grid related services, utilities face stiff competition when it comes to innovative demand side management solutions with customer involvement. The most promising immediate business proposition for utilities will be grid-related solutions such as peak shaving, voltage reduction, operational efficiency improvements, or advanced analytics. Such offerings will relate best to the core competencies of utilities to give them the necessary competitive edge. Ultimately, the transitional challenge will be to strike the right balance between continued investments in grid infrastructure and resource allocation to acquire and integrate new advanced technologies needed in the utility of the future.
Risk Management through IT Solutions
Another major theme and challenge top of mind at DistribuTECH was risk management. The majority of exhibitors at the DistribuTECH 2015 were offering IT solutions for better grid planning and analysis, grid monitoring and management. Well-known OEMs, such as Siemens, ABB, GE, Hitachi, and Toshiba, demonstrated their integrated hardware and software capabilities to enable real-time situational awareness for informed decision making and operational control. That way, the deluge of data stored in utilities today can be processed in real-time to avoid the lack of awareness and control which could otherwise lead to significant risk of grid distress and damage.
Collaborative solutions driven by software technology and consulting service partnerships, offer innovative solutions driven by data analytics in combination with advanced computing to help improve operations at the distribution level. These service solutions are aligned with best-in-class digital business and operating models. The digital utility transformation promises significant savings for utilities driven by data analytics that allow for automated utility risk management driven by actionable information contained in the data.
DNV GL’s Synergi Electric software product suite in combination with our advisory services represents an excellent example. Based on the distribution planning and analysis software for power distribution systems, it helps consultants support power distribution engineers at a utility to plan, investigate and operate their systems. The software comprises advanced grid modeling capabilities to enable grid planning, Volt/Var optimization, renewables (including energy storage and smart meter integration), system protection, contingency evaluation, and reliability analysis. It enhances quality and economics of systems operations as an important part of mitigating risk in constantly transforming infrastructures.
Risk Management through Testing, Inspections and Certification
Improving reliability, as well as the need for utilities to invest in their infrastructure, was another theme discussed at DistribuTECH. Kevin Dasso, Senior Director of smart grid at Pacific Gas & Electric, touched upon this theme stating that “utilities are trying to strike a balance between investing in infrastructure to improve reliability.”
Transmission System Operators (TSO) and Distribution System Operations (DSO) are up against larger risks. The reliability of their grids directly impact benchmarks set by regulators or asset management consultants, on behalf of consumer and industrial clients. Failures in the grid make operators vulnerable to lawsuits and other unwanted actions that threaten their productivity, efficiency, and profitability. Recent blackouts and outages are impacting the reputation of TSOs and DSOs all around the world. According to Figure 2, 25% of failures are a result of poor product quality (i.e., faulty equipment and human error). In a recent DNV GL study, our experts also concluded that 30% of all electrical grid components fail independent verification tests.
Risk Management through Advisory Services
Utility IT solutions help avoid risk through adequate information management and analysis to support all major utility business processes in areas such as grid planning, operations and maintenance. Testing and certification services help reduce the risk by maximizing reliability and availability of grid components. Energy advisory services provide the necessary consulting services (e.g. strategy, road maps, studies, requirements, planning and implementation services) needed to keep procurement, deployment and maintenance risk at a minimum. These knowledge services are considered the link between the various elements needed to transform the utility at rapid pace. It is crucial to completely comprehend how every element (e.g. markets and technologies) impacts the transformation.
Access to a full bench of energy advisory services that are driven by a deep understanding of the power delivery and utilization value chain will allow utilities to minimize the risk implied in complex and wide area infrastructural changes. Grid planning studies in power transmission and distribution, analysis and improvement of distribution operations, design, implementation and evaluation of sustainable energy programs, studies to design and validate the correct approach towards renewable integration as well as the analysis and planning necessary to enable proper integration of distributed energy resources all represent critical components of a risk-minimizing utility transformation approach.
The main theme at DistribuTECH was that utility transformation is inevitable. It will have many challenges, but also a variety of opportunities. To address the challenges, utilities need to create a strategy with service providers who understand current and future business models, and who are empowered with a full spectrum of advisory, software, testing and certification services.
Based on the SWOT analysis together with the discussions at DistribuTECH, we identified 3 major ways to approach risk management:
- First, there is a significant amount of risk reduction coming from new innovative IT solutions. Combined with consulting services to integrate new or innovated systems with re-engineered utility business processes, it will ensure flawless performance.
- Second, there is a tremendous amount of risk eliminated by proper testing, inspection and certification of new grid components before going into deployment and operation.
- Third, there is a substantial amount of risk reduction from advisory services which provide the necessary ad-hoc studies and advice to assure correct business and technology decisions are taken during the transformational process.
It is the symbiosis of those three service components that represents a unique value proposition for smooth utility business transformation at minimal risk. This approach will be discussed in further detail in an upcoming DNV GL whitepaper.