New Role for Automation and Control Suppliers in an Era of Global Utility Industry Re-structuring
By Lyman Phillips, Vice President, Global Utility Marketing; Elsag Bailey, Process Automation
As the domestic and global electric utility industry moves quickly toward structural change, automation and control suppliers are also faced with new challenges and opportunities.
The principal driving forces behind the utility industry structural change include the transition to an “open” competitive market for electric energy, a related intense focus on cost reductions, the critical importance of balance sheet improvement, and the realization that electric energy is soon to become a “commodity.”
Internationally, additional driving forces involve these factors: privatization initiatives now taking place in many countries, a focus on maximum capital market valuation by involved utilities, and the impact on the industry caused by the changing government support for certain social programs.
These factors are exacerbated in developing countries where there is a scarcity of financial resources and a critical need to carefully allocate such economic resources across numerous economic infrastructure requirements. At the same time, global financial institutions are often cautious or even reluctant to provide needed financing.
Coupled with these forces are pressures in the United States, and in many other countries, for electric utilities to meet increasingly complex environmental rules and regulations–rules and regulations that consume an ever increasing proportion of capital allocations.
Energy transmission grids, once the sole domain of geographic electric utility companies, will eventually become open electric-energy highways, accessible to all. This is a development that will result in the creation of regional, national and even international “competitive energy markets” and related financial transactions on economic markets.
Aging industry resources are another source of challenge and opportunity in the utility industry. The average age of global fossil-fueled generation plants is 30 to 40 years. During the last decade, natural gas-fired, combined-cycle technology has become a strong economic alternative to traditional re-powering alternatives. It currently appears that selected re-powering of existing fossil-fueled generation plants will occur–perhaps re-powered to use more cost-effective fuel options, either via traditional or non-traditional utility organizations.
There are a number of other global issues that will affect the restructuring of the industry. These include financial market access and risk, the future of nuclear energy, federal versus local regulations, “stranded investment” associated with perceived non-economic utility assets, and inter-company and inter-country competition.
Utilities were traditionally organized with vertically integrated functional processes, including the generation, transmission and distribution of electric energy. With the advent of deregulated generation, “open market electric energy highways,” the introduction of bulk power marketers and focused distribution companies, the interactions between generator and customer are being substantially transformed.
Although the complex restructuring to accommodate these changes is well under way in some countries and beginning in others, there is still considerable debate regarding the ultimate industry structure. Specifically, there is the question of how the industry participants will transact business within the redefined industry format. This has resulted in slowed capital project decision-making as utilities attempt to defer and/or avoid the financial risks associated with poorly timed and/or ineffectively invested capital resources.
It is apparent that the end result of this important debate will be substantial and will lead to additional market opportunities for both utility organizations and automation and control suppliers. Power production facilities will have to automate to seek lowest-cost objectives. Electric systems will routinely, and in “real time,” interchange and complete complex competitive energy and related financial transactions.
Changes in the structure of the industry will result in traditional as well as new opportunities for both the electric utility and automation and control industries. Utilities will require significant automation and controls engineering, decision management and professional services support. Also of importance will be the requirement for increasingly innovative, complex and technology-driven new-automation-and-control solutions.
To meet these challenges will require strategic planning by automation suppliers who view themselves as providers of “strategic solutions” designed to add value to the new utility industry. These solutions must positively contribute to a more complex, but necessarily integrated utility process, from the fuel source to the end-use customer.
Of importance, suppliers should recognize that solutions must be viewed from the utility market viewpoint and not from the technology viewpoint. Suppliers must be determined to provide value-driven solutions that utilities require to complete in “their future marketplace.”
In this context, the effective automation and control supplier must no longer only market and sell equipment and software. He or she must seek to help customers increase their utility market share, lower their costs and improve their efficiency, optimize their decision-making capability, and automate and integrate their “enterprise knowledge.”
Furthermore, the supplier must strive to help customers simplify their management of future energy delivery highways, integrate their total electric system management and performance, attain environmental goals while optimizing production and costs and ensure optimized and customer-focused responses to minimize “unplanned” utility system events.
The supplier must provide advanced process applications that add value to the “business” enterprise, initiate and support the justification of solutions to re-powering and retrofitting opportunities, and ultimately, as well as most importantly, contribute to increased utility earnings.
To achieve these goals, automation and control suppliers must be prepared to provide a complete line of modern “open” and “migration guaranteed” products and services; they must also offer integrated management and controls solutions and expert utility applications knowledge.
In summary, control and automation suppliers who hope to meet the challenges of a rapid changing domestic and global electric utility market must adapt aggressively and quickly to these opportunities if they are to effectively serve this important industry.