Instead of soy or sorghum, 1,800 acres of Brazos River bottomland plus Texas sunlight will soon yield 200 MW from a solar farm. That power is destined for sale to a local distributor and it is yet another example of how the power grid, once a unidirectional, supply-driven pipeline, will soon be a bidirectional, complex interactive energy network. That network will encompass decentralized renewable energy generation, storage, micro grids, new types of consumers like electric vehicles, advanced control mechanisms, market integration and additional sophisticated features and services.
Traditional tools and approaches geared toward centralization and one-way energy flows are ill-equipped to manage the power and pricing complexities of the new energy network. The future belongs to the programmable grid; one that seamlessly provisions resources, continually ensures optimum operating state, and autonomously manages itself using distributed artificial intelligence (AI) and advanced control mechanisms by ingesting real-time data from thousands of smart sensors in a continuous feedback loop. The programmable grid will thus take in data faster than humans can process it, turn it into meaning, manage the grid in real time, and deliver the most cost-efficient services at the highest achievable levels of reliability.
Sponsored by Cognizant Technology Solutions, Ovum, a research and market analysis company, recently conducted a survey of 100 utilities in the USA, Europe, Australia, and the Middle East about their programmable grid maturity. While many are investigating the new grid, most do so for regulatory reasons. That motivation may be insufficient to meet the potential threats to revenue streams from new competitors developing products and services powered by the programmable grid. By developing a strategic approach to adopting the programmable grid and building new business models on it, utilities can meet their regulatory requirements while also generating new products and services to avoid becoming cost-plus-commodity providers.
More than 80 percent of the utilities surveyed said the growth of distributed energy resources (DERs) will have a revolutionary impact on their business, and most reported investigating how to adopt programmable grid technologies. While some aspire to be grid innovation leaders, many more appeared content to reach more modest goals. The findings included:
Level 1: Initiation and planning. Among all utilities, 41 percent are at this stage. More than 50 percent of these are nonvertically integrated utilities, 30 percent are vertically integrated companies. Activities at this level include planning for managing demand response and optimizing DERs; and approving business cases for smart sensors and devices.
Level 2: Strategy and development. Approximately 40 percent of respondents claimed this stage, which involves developing advanced protection and islanding for microgrids; piloting energy storage and installation/retrofits of smart devices; finalizing standards strategy for IT and communications; and investigating technology platforms for customer intelligence and informational analysis. More than 30 percent of nonvertically integrated utilities said they don’t plan to advance beyond this level.
Level 3: Integration and realization. At this phase, utilities are integrating distributed resources into their core energy and IT infrastructures. Overall, 46 percent of the respondents aspire to this level. More than 20 percent of the vertically integrated companies said they have reached this level. Of the non-vertically integrated companies, 60 percent said they want to achieve this level–but have no plans to go beyond it, most likely because these companies don’t control any aspect of the value chain and are not equipped to handle DERs.
Level 4: Rationalization and streamlining. About 38 percent of vertically integrated utilities said they want to reach this level or higher. Of those, 14 percent said they have reached this stage, which is characterized by deployment of DERs, integrated utility-scale storage options, and the rationalization and transformation of business processes are underway.
Level 5: Innovation and leadership. At this level, utilities will use cutting-edge innovation to harness new business model opportunities from the programmable grid. None of the respondents claimed this level of progress.
The Commodity Threat
Survey respondents said their top concern driving programmable grid investments was fear of regulatory fines and licensing issues (62 percent) for not meeting their renewables commitments. The next two drivers were rising operational costs caused by intermittent energy on the grid (57 percent) and the inability of retail operations to meet revenue growth targets for new customers (57 percent).
Despite these revenue concerns, just 39 percent of respondents cited the threat from third party aggregators grabbing key pieces of the value chain —and revenue streams-and reducing retail power to a commodity, analogous to what occurred in the telecom industry. Such competition is growing with virtual power plants, microgrids, and third-party aggregators. These providers and their unique business models make the possibility of off-the-grid existence very real.
Yet 40 percent of utilities reported neither integrating DERs nor optimizing their networks to do so and they do not have clear roadmaps for accomplishing either. Utilities cited three top barriers to a programmable grid:
· Lack of industry-wide regulations, guidelines and standards for automation and security.
· Legacy systems with limited data integration.
· Difficulty creating road maps because of multiple moving parts beyond their immediate control.
Respondents said they are prioritizing investments in data acquisition, such as smart meters and sensors; communications infrastructure; and stabilizing the impact of DERs on the grid. Only about 30 percent reported building a new model of grid operations. Critical investments here include infrastructure like communications networks and sensors, and operational capabilities like predictive analytics, AI, and machine learning. These are necessary technologies to manage the decentralized, bidirectional complexity of the new grid with real-time data, insights and control, and pricing signals. Analytics in this space are proven; use cases and PoCs for AI and machine learning specific to utilities are being developed.
With new capabilities in grid management, opportunities are enormous for utilities, including:
· Acting as a facilitator to open new revenue streams by monetizing grid assets and operations. Utilities can provide access to their transmission assets in return for a fee or share of prosumer sales; or help customers rent out their car charging stations.
· Implementing peer-to-peer trading market place models. Utilities can create trading platforms and offer back-up generation to facilitate local energy marketplaces and true-price discovery.
· Collaborating with other industries like electric vehicle makers, battery manufacturers, and telecoms to offer new products and services. Utilities might capture data from EV recharging that could provide valuable insights to automakers; cobrand solar batteries or HVAC systems; or offer power controls through in-home virtual assistants.
· Delivering new services and tools to customers as every customer now brings different value to the grid. Utilities could provide additional services and value-added offerings based on the specific value different customers bring to overall grid operations. These represent revenue streams utilities could miss if they are slow to enter this market.
The programmable grid requires–and enables–utility companies to rethink operations and business models. It also opens the door to new industry entrants, from prosumers to digitally native consumer giants like Amazon and Google, who could recast the industry’s shape and value proposition. Change of this magnitude is not unprecedented; the telecom and insurance industries experienced it, and the companies that adapted have thrived. For utilities, an initial step is thoroughly assessing strengths and weaknesses in five key categories: technology, system operations, organization, strategic alignment, and DER readiness.
Utilities that create end-to-end automation and programmable grid strategies will be best-positioned to move into high margin, adjacent markets, develop innovative services and new revenue streams, and build deeper relationships with their traditional and new customers. Those that don’t will likely be running a cost-plus commodity business while new entrants and newly nimble incumbents make off with large slices of value.
About the author: Ganesh Kalyanaraman is vice president and Global Delivery Head for the Energy & Utilities Practice with experience in managing large portfolios for Energy & Utilities customers. He has total of over 23 years of experience in IT industry and has delivered various programs across the globe. He joined Cognizant in 1995 and was part of Cognizant’s fast track program. He has led strategic engagements across the globe for clients from US and Europe geographies.