The Real Challenge of Todays Power Utilities

The Real Challenge of Today`s Power Utilities

By Kam-Hoong Cheong, Royal Institute of Technology

For 100 years, it has been assumed that electricity and its delivery were inevitably intertwined, like an egg baked into a cake. Once the cake is mixed, the ingredients cannot be reconstituted. This is the reason why electricity has been viewed as a product used only at the point of delivery and paid for in a single delivered tariff. This single tariff has bundled together both transportation and energy charges. This structure has been one of the major obstacles for introducing competition in the industry. The 1990s have seen a major change, almost a revolution, at the power utilities in Europe. With the breakup of Central Electricity Generating Board in the United Kingdom in early 1990, a new structure, separating the product from the transportation, was introduced. With this unbundling, competition was gradually introduced in this industry. This marked the beginning of the deregulation era and provided the impetus for further development in the same direction. This development was followed by the deregulation of the Norwegian utility on Jan. 1, 1991; Finland on June 1, 1995; Sweden on Jan. 1, 1996; and the trend of deregulation continues.

Challenges Facing the Power Utilities

With deregulation, concepts such as customer retention, power quality, energy trading and pool systems come to the forefront. Today, if the question “What are the challenges faced by power utilities?” is posed to utilities, most answers will be, “The challenge is to be competitive in an increasingly deregulated and open market.” This answer indicates a direction, but in no way indicates how to get there. One likely answer to the “how” question is, “To be competitive, utilities must improve their efficiencies and be more customer-oriented. These could be achieved by means of automation and application of information technologies.”

This statement appears very promising. It indicates the objective and provides some “tools” to get there. However, to translate it into reality, the tools must be generally available and cost-effective. Today, most people in this industry will agree that the tools (technologies) are generally available. However, wide adoption of the tools to provide the needed leading edge functionality has been very limited. So far, implementations have been limited to field trials, pilot projects or at best, small-scale implementations. Two of the main contributory factors to this development are:

Most utilities still consider the cost of providing such functionality high and not cost-effective.

There are still uncertainties in the trends and the standardization of some crucial technologies.

Thus, in order to facilitate implementation of information technology (IT) applications on a wider scale, these restraining factors must be addressed. The capability of utilities to play an active role in overcoming the restraining factors is therefore the real challenge facing the power utilities today.

What Roles Could Utilities Play?

There are several ways in which utilities could address the restraining factors. On one extreme, utilities could wait for the cost to drop over time. As time progresses, prices will drop due to increased demand which subsequently leads to lower production costs. Vendors might have recovered most of their research and development costs by then. However, this passive way of addressing the problem is not a good business strategy in a competitive environment. By waiting, other competitors might have moved far ahead. Another approach is to look for more applications that can share the same system components to improve the cost-effectiveness. This is especially true if the utility has to invest in a new wide-area communication infrastructure to facilitate the provision of IT applications.

Today, adopting an open-system strategy has become a norm. The purpose is to achieve cost-effectiveness by using non-proprietary, well-defined interfaces from different vendors to achieve an integrated solution. It should free utilities from being tied down by a single vendor and protects utilities` investments by providing a migration path toward future technologies. Most vendors today claim that they provide open systems. The term “open system” is used as soon as a system is able to communicate with other systems. However, this only provides interconnectivity, which is a necessary precondition but not sufficient to reach a true open system, which is characterized by interoperability, expandability, portability of software and conforming user interface.

Several researchers have pointed out that today`s system is still far from open. Considerable limitations still remain when combining products from different vendors. The key to achieving an open system is to have sufficient open interface standards as highlighted in the Institute of Electrical and Electronic Engineer`s (IEEE) “Guide to POSIX-Based Open System Architecture.” Currently, there are quite a number of international standardization bodies active in defining standards for the power industry. Some examples are International Organization for Standardization, International Electrotechnical Commission, IEEE and American National Standards Institute. However, the process of standardization often takes a long time. From the initial draft proposal up to the final International Standard, a few years can be common. One of the possible explanations for this delay is the use of politics by various interested parties to have their own concept or technology included in the final standard.

It is to the utilities` advantage that more open standards are being adopted. To expedite the standardization process, utilities must take active part in these organizations. Currently, there are only a few utility members in these organizations. They are mostly from the bigger utilities which can allocate resources for this activity. These members represent their own utility`s interests, and it is possible that members from different utilities have different opinions about the proposed standards. This could render their representations ineffective.

A more effective way could be for utilities to form an umbrella organization from which representatives are chosen to represent them in the standard organizations. The umbrella organization must have sufficient memberships to be influential. It may be hierarchical in structure but not too bureaucratic to render it ineffective. It should provide a platform for utilities to discuss and resolve issues that are of mutual interest, such as the standardization of crucial technologies. A consensus from a majority of the utilities to the standardization organization is naturally much stronger than the voice of just a few utilities. This way, it is more likely that utilities could influence the way the decision is made.

Having well defined standards is only a mean to an end. After standards have been defined, it is important that utilities support and adopt them. It is the wide adoption of the technology that eventually brings the cost down due to economy of scale. Having said this, it is important to realize that apart from the de jure standards, there are also de facto standards which are widely used in the industry. An example is the communication protocol TCP/IP. Utilities should consider and agree on which standards to strive for through the platform provided by the umbrella organization. The support by the majority of the utilities behind certain standards will influence the future direction of the vendors, for example, to include or provide a migration path to such standards into their future standard systems.

Ironically, while most utilities consider the costs of providing IT applications high, most vendors in this sector are reported to be not making profits in this area. According to studies conducted, one of the major reasons for this scenario is that, in most procurement projects, vendors are forced to make many changes in their standard systems to suit the specifications of utilities which vary from one to another. These changes unavoidably lengthen the delivery time and the cost of the systems. Besides, the modified system could be less stable than the “standard” system which has been tested thoroughly in actual working environments. This results in a loss-loss-loss (utility, vendor and society) situation.

To circumvent this undesirable situation, apart from adopting industry standards (de jure or de facto), another action the utilities could take is to standardize as many of their work processes as possible. This could be done by a consensus process through the platform provided by the umbrella organization. Standardization of work processes is necessary because most industry standards only provide a platform for applications to run on. Standardization at this level enables standard application modules to be developed, which could be used by all utilities without much modification. Currently, standard work processes among utilities are lacking. Every utility claims that it is unique and different from others. For example, different utilities might have a different process in trouble-call management. Another example is how service reliability is being measured. There is no uniformity in the adoption of the reliability indices and the process in which the data is collected.


To conclude, the real challenge facing the utilities is whether they could cooperate and play an active role in order to overcome the restraining factors. The philosophy behind this idea is simple, “Together, we`ll win, divided, we`ll lose.” Besides, there is no permanent enemy in the business world. The areas of cooperation promoted by the umbrella organization are only concerned with areas of mutual interests at the basic level. Cooperation does not in any way inhibit any utility from developing its own business strategy to differentiate its product from the others. Cooperation similar to this can be observed in the telecommunication world today, where all network operators agreed on the basic standard technology for interconnectivity and interoperability, and yet able to compete with each other by means of pricing and different service packages.

Author Bio

Kam-Hoong Cheong is a researcher at the Department of Industrial Control Systems, which is part of the Center of Excellence in Electric Power Engineering at KTH, Stockholm, Sweden. The Center, which was established in November 1995, focuses on the designs of future distribution systems and use of electricity. The Center acts as a platform for cooperation between the Swedish industry (vendors), all Swedish power utilities and the university. Cheong is one of the researchers in the sub-project which focuses on achieving a more efficient distribution system through the application of information technology.

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