Saturday, June 30, 2007

Fast Forward the Electric Business


In January of 2005, EnergyBiz Magazine published an article that I wrote titled "Fast Forward the Electric Business". Two and half years later my article was right on the money and the race is on.

http://energycentral.fileburst.com/EnergyBizOnline/2005-1-jan-feb/Fast%20Forward_janfeb05-16.pdf

Fast Forward the Electric Business
By Andres Carvallo

The electric utility industry, already an economic colossus, is poised to double in size in the next two decades. Technological change will get the credit.

There is an accelerated rush within electric utilities to get more sophisticated about managing innovation and opportunities enabled by new technologies. As such, electric utilities are moving rapidly to define new processes to better manage the four forces that drive innovation (critical price, critical mass, displacement, and near zero cost), which impact their generation, wholesale marketing, transmission, distribution, and retail marketing business.

Let me explain the four forces of innovation, since they play a significant role in the trends and selection of the technologies to go after for the new electric utilities being built.

“Critical Price” is often a psychological barrier threshold. A drop below a certain price triggers a larger adoption of the technology. Achieving this force establishes a real market for the technology.

“Critical Mass” is normally reached when you go from reading about a technology to knowing people that actually use it.

“Displacement,” which usually follows the first two innovation drivers, occurs when technology on the way up hits one on the way down doing significantly more for about the same price.

“Near Zero Cost” leads to ubiquity of the technology as it reaches all target markets; new products, services, and markets are built on top of its original ubiquity and dominance.

These innovation forces are morphing the vertically integrated electric utility model of the past into new models that leverage key core competencies. And it is the ability of the new electric utilities to understand and manage their core competencies along with the new business models enabled by technology advances that will double the size of this industry within the next 20 years and re-make many new electric utilities into end-to-end service providers of the future.

Some of the most significant technology advances already taking place or soon to be adopted in no particular order include: portals, web services, service oriented architectures, collaborative computing, grid computing, composite applications, 64-bit computing, broadband over power line, wireless broadband, sensors and smart tags, petabyte storage systems, energy storage, smart dust, advanced Photo Voltaic, nanotechnology, hydrogen fuel, and agent computing.

The new electric utilities of the future are already being built today at a very high pace in North America and Europe. Many of these utilities have realized that information technology innovation alone can drive their transformation towards new customer satisfaction, reliability, and financial stability levels never achieved before. Driven by this reality, the new electric utilities have empowered the CIO and team to play a central role in helping lead the execution of the new business models.

Some of the best examples of this change include utilities doing the following:

-Deploying service oriented architectures to connect seamlessly geographic information systems, work management systems, outage management systems, design tools, distribution & planning analysis systems, contract management systems, customer information systems, financial systems, payroll systems, asset management systems and inventory management systems to fully automate the delivery of energy to customers. Driving this effort is the need to eliminate the historical silos that built non-connected solutions with too many single points of failure and higher maintenance costs. This trend presents the utility with the opportunity to realize operational savings in the order of 20 percent. Managers will make decisions based on real-time information delivered via portals and monitor key performance indicators for the rest of the work force.

-Installing lower cost and improved sensors managed via wireless that make power plants and grids reach almost zero downtime. Imagine a fleet of monitoring and controlling sensors across the entire grid communicating real-time with SCADA, distribution automation tools, and materials management tools. The need to track the performance of every device that impacts the reliability of service together with predictive analytics software and data warehousing technology presents a unique opportunity to finally leverage telemetry in this industry. This effort can help reach up to 25 percent savings in maintenance costs while almost eliminating downtime.

-Moving to 64-bit computing that enables the horsepower needed to crunch real-time optimization models that drive distributed control systems to waste near zero fuel. This breakthrough is now reality. Lots of work has been going on here in the past by many key vendors, but the new computing capabilities of Intel 64-bit processors enable utility managers to more precisely develop predictive optimization models. The opportunities are many here, but saving fuel should be the primary target. This trend alone can save a typical utility 10 to 15 percent in annual fuel costs.

-New energy generation systems, some using renewable resources, and new energy storage technologies will open the door to new approaches to distributed generation. Through distributed generation, new renewable and energy storage solutions can help reduce transmission and distribution costs trying to balance the grid. The capital cost savings for a service area of 200,000 customers can be in the order of $10 million per year.

-Risk management trading systems powered by grid computing for market making opportunities needed to settle the buy and sell transactions of the new grids with distributed generation. More and more wholesale trading operations will need to offer sustainable prices to their retail energy partners by adopting risk-trading practices that help flatten fuel price spikes for longer periods of time. They will also need to offer a market making safe heaven to those new distributed generation entrants that want to sell their extra energy to the grid. Electric utilities leveraging this trend will see their margins climb 5 to 10 percent on an annual basis while eliminating any downside risk for themselves and ensuring greater customer satisfaction from the partners and end-customers.

-Wireless broadband service area solutions that enable a paperless utility to offer its customers new energy management services. Utilities will place AMR meters across the entire service area and capture sufficient data to offer new and revolutionary pricing programs and services. Some energy companies will rethink their demand-side management programs, leveraging the same wireless broadband infrastructure to control HVAC thermostats, pools, Jacuzzis, spas, refrigerators, water heaters, and other smart large appliances. New smart appliances will talk to an energy management gateway device and software at the premise level via wireless standards, enabling the utility to track and manage the energy consumption remotely. The benefits of this are enormous. Some utilities driving this trend are reaching 10 percent increases in net profit margins – and superb customer satisfaction index levels.

- A self-service centric philosophy enabled by collaborative computing (online interactive access, email, VOIP, instant messaging, video-mail, etc) and wireless broadband and/or broadband over power line coverage for devices and personnel across the service area changes the way customers interact with their services and how they view the service that they get from their new utilities.

All these trends and changes taking place are just the beginning of a total transformation that the electric utility industry will go through within the next 20 years. Just like the automotive, aerospace, computer and telecommunications industries have gone from many players to few, from vertically integrated and proprietary-based solutions to horizontally driven and open standards-based solutions, so will the electric utility industry. Imagine what comes after having built an infrastructure that is built on open standards and completely connected via networks (wired and wireless) and monitored and controlled by software. Imagine where you can take your brand if you are already offering services to each and every customer with the exact price, quality and service that matches their need profiles anytime and anywhere within your service area or target market. All these changes are beginning to take place now and the technology that will speed this profound revolution is in development.

However, the real challenges to the electric utilities go well beyond comprehending the scope of technological change on the horizon. Energy companies must develop the business models to make the new service offerings affordable and profitable. They must have the right change management programs to be successful and competitive. All these new change management programs evolve around new governance decision models, new planning strategies, new quality programs, new portfolio management standards and methodologies, new program management activities, new project management standards, and new risk management initiatives all driven by the objective of achieving robust customer satisfaction and other key performance indicators. The new electric utilities are agile, they are customer friendly, and they are coming to your neighborhood real soon.


Andres Carvallo, Chief Information Officer at Austin Energy, can be reached at andres.carvallo@austinenergy.com.

1 comment:

Edgard Castillo said...

Andres,

Lei muchas de las entredas de tu blog y te felicito por el contenido. Espero que podamos comunicarnos pronto.

Un abrazo
Edgard Castillo