Responding to the disruptive forces that surround them, utilities are focusing on a variety of initiatives, from customer engagement to mergers and acquisitions. They’re emulating their counterparts in other industries to apply digital thinking and technologies to work through business obstacles and create new operational efficiencies.
All About Digital
From predicting the impact of climate change on their business, to streamlining how they operate, utilities have made a decisive move towards a data-driven future. By doing so, they are building intelligence into their operations, through big data, artificial intelligence (AI), the Internet of Things (IoT) and advanced analytics. Looking over the horizon, technologies such as blockchain, are gaining rapid popularity. By all means, utilities’ efforts are at a nascent stage, but in an increasingly connected world, a move to digitize operations is a no-brainer. The benefits of digitization are no less appealing.
AI: AI is helping utilities make sense of the voluminous data generated daily basis from sensors across the utility value chain. Take smart meters, for example. There are an estimated 70 million smart meters installed in the U.S. alone — the number is expected to reach 90 million by 2020. Combined with more advanced machine learning techniques, AI will not only help make sense of these oceans of data, but also use it to predict equipment failures that could reduce downtime and maintenance costs. The U.S. Department of Energy’s Grid Resilience and Intelligence Project (GRIP) announced last year aims to identify places with vulnerable grids and enable faster recovery in case of failures.
The Industrial IoT: If smart cities are the future, then the Industrial Internet of Things (IIoT) is the key enabler of this future. A network of sensors installed across homes and communities can give utilities a real-time granular view of water or electricity usage, which can then drive informed decisions. The Los Angeles Department of Water and Power (LADWP), for instance, is saving significant time and money by deploying a remote monitoring water quality solution that replaces manual methods used to measure water tank levels and quality.
From the days of never having to worry about customer retention to competing with one another to improve customer satisfaction, utilities’ approach to customers has been completely upended. Today’s customers are digital savvy and accustomed to being interacted with wherever they are — via mobile, social media or any other digital-enabled channel. (For more, read our white paper “Enhancing the Utility Customer Experience: A Digital Framework.”)
These customers leave a digital footprint with almost every transaction they perform. For non-traditional competitors, digital is an obvious way to engage customers; traditional utilities cannot afford to be left behind. According to one survey, 90% of water utilities consider digital to be high priority. Improved customer engagement is also linked to increased customer satisfaction scores, reduced cost-to-serve scores and improved outcomes of rate cases and other regulatory proceedings.
Nevertheless, utilities are reserving larger portions of their digital expenditures on digital point-solutions for bigger problems such as pressure monitoring systems to help identify network leaks, while adopting discrete solutions for customer engagement tools. To optimize the gains from their digital efforts, utilities need to integrate new solutions with legacy systems — this begins with an end-to-end digital strategy that is in sync with their organizational culture, business model, and the changing nature of the utilities landscape.
Reimagined Business Models
Rethinking the traditional utility business model is at the heart of the transformation underway in the utility landscape. This change is reflected in the financials of utilities. Europe’s top 20 utilities, for example, saw their 2017 earnings drop to 35% below their 2012 numbers. Simultaneously, retirements of thermal capacity in Europe have outpaced investments in new thermal plants by more than two-to-one.
One of the key objectives of European utilities is to transform the energy system so that grids serve as platforms and enablers for customers and communities. Utilities are looking at digital-enabled business models such as virtual power plants (VPP). Last year, Vermont’s Green Mountain Power partnered with Tesla to create a platform for shared energy based on Tesla’s Powerwalls installed at homes. Driven by increasing penetration of distributed energy resources (DERs), VPPs are expected to see the fastest growth in Europe and the U.S.
Meanwhile, blockchain, a distributed ledger technology built on a shared network infrastructure and public key encryption, could further enhance utilities’ digitization efforts. Blockchain-based applications are currently being tested for processes such as energy credit management, asset optimization, payments within microgrids, prepaid smart meters and payments to distributed generation asset owners. (For more on blockchain in electric utilities, read our white paper “Blockchain for Power Utilities: A View on Capabilities and Adoption”).
Utilities have upped the ante by investing in DER companies, with as many as 37 DER companies acquired by utility companies in the U.S. and Europe at a price tag of almost $3 billion. The pace of change afoot in the utility landscape can be gauged by the fact that European utilities expect 40% of their revenues to come from outside their traditional business.
Public Utility Commissions in the U.S. are strongly recommending that utilities integrate DERs into the distribution system as a source of new energy supply (e.g., NY REV legislation); these DERs are combined with “negawatts” from DR Programs, which together will be scheduled and dispatched by independent system operators (ISOs) and traditional vertically integrated energy supply markets. These new sources of energy commodity will be coupled with advanced distribution management systems (ADMS) to manage power flow on distribution circuits (e.g., manage congestion).
Utilities are also undertaking organizational changes. The National Grid, for example, launched a team focused on technologies that help in clean energy generation, greater efficiencies, and improved customer experience.
Factors such as climate change, competition from non-traditional players, DERs, and increasing demand for energy efficiency have necessitated the development on new load forecasting models for electric utilities. In the new normal, utilities need forecasting models that take into consideration the various choices available to customers, while analyzing the effects of climate fluctuations and regulatory changes. Electric utilities have turned to digital solutions for this problem. UK’s National Grid, for example, is in talks with Google’s DeepMind to use its self-learning algorithms to predict peaks in demand and supply. DeepMind believes it can cut the UK’s energy consumption by 10%.
Similarly, water utilities are using tools such as the Climate Resilience Evaluation and Awareness Tool developed by the Environmental Protection Agency (EPA), which helps utilities identify and assess the risks they are exposed to due to climate change and make the necessary contingency plans.
Part 3 of this series will look at the future challenges and solutions for utilities.
Larry Rubenacker, a Senior Director in Cognizant Consulting’s Energy & Utilities Practice, contributed to this article.