Lighting the Way

Persistent climate change concerns, volatile energy prices and a growing awareness of technological advancement in energy are leading consumers across the globe to reconsider their role in the electric power value chain. Likewise, substantial increases in utility infrastructure investment are likely due to global demands for climate change mitigation; the need to support aging networks and generation plants; and proliferation of government stimulus plans for weakened economies.

For energy and utility companies, this presents an historic opportunity to encourage new, mutually beneficial behaviors and create business models to meet new consumer demands.

Our last report, "Plugging in the Consumer: Innovating Utility Business Models for the Future," explored the radically changing relationship between energy providers and consumers who took part in a survey conducted in late 2007. Even during the global economic downturn, progress has continued along the two dimensions shaping these changes: technology advancement and consumers’ desire for more control. Ultimately, this will result in movement of the basis of the industry to a participatory network – an interconnected environment characterized by a wide variety of grid and network technologies that enable shared responsibility and benefits. It will drive the creation of entirely new markets and products.

To continue our research about consumer expectations, we launched a followup survey in the fall of 2008. We surveyed over 5,000 customers from an expanded group of countries. This included the "core group" from our prior survey – the U.S., the U.K., Germany, the Netherlands, Australia and Japan – plus Canada, Denmark, Belgium, France, Ireland and New Zealand. Our survey findings strongly suggest the historical view of customers as "like-minded" is already outdated in most places.

Encouraging New Behaviors

In our surveys over the past two years, many consumers demonstrated at least one goal associated with asserting more control over their energy usage. The features of a participatory network appeal tremendously to them, because it would offer abundant service options and information to manage energy usage according to specific goals, such as cost reduction or environmental impact.

There is not much evidence that consumers think lower rates are coming. Over half see the cost increasing at roughly the same pace as usage. Forty percent see their bills increasing more rapidly than their usage (or not decreasing as much as any reduction in usage). Six percent think their bills will increase more slowly (or decrease more rapidly) than their usage. Overall, this year’s respondents have a slightly more pessimistic view of the next five years than those last year.

Cost remains the powerful motivator behind a desire for control over energy usage and a willingness to change behavior. Four in five consumers are willing to change the time-of-day in which they perform energy-consuming housework in exchange for cost savings of 50 percent or more. With the prevalent feeling that prices will move inexorably upward and awareness of smart meters growing, over 90 percent of respondents indicated that they would like a smart meter or other tools to manage their usage, with 55 percent to 60 percent of these respondents willing to pay a one-time or monthly fee for that capability.

Consumers’ emphasis on climate change and the availability of renewable energy programs in response to this demand for more carbon-neutral products remained about the same year to year. Across the core group countries, the percentage reporting that they did not have renewable power programs available dropped to 16 percent from 21 percent in the new survey (see Figure 1). Rather than changing their answers to the affirmative, however, most of the movement was to "don’t know" (up to 50 percent from 46 percent).

According to industry experts in some of the countries surveyed, the high level of "don’t know" responses, in part, reflects doubts in some countries about the veracity of green power claims. Still, if to a larger extent many customers truly cannot answer that question, this could indicate a valuable opportunity lost to ineffective communication with customers in countries with significant renewable resources and high participation levels.

In addition to environmental concerns, the global economic downturn of 2008 is clearly having severe impact on consumers. Across the core group countries, the number of consumers paying a premium for green products and services is down 20 percent to 30 percent (see Figure 2).

This change in spending patterns also seems to influence perceptions of green power options among consumers from core group countries that do not have (or are unsure if they have) green power options. The percentage of people who say they want green power options is down slightly, falling to 78 percent in 2008 from 85 percent in 2007. But, during that one-year period, the percentage of those willing to pay an additional 20 percent or more monthly dropped by nearly two-thirds, to just 6 percent from 16 percent.

The percentage of those who have green power options and actually buy them remained about the same, however. This is not surprising given contractual commitments, significantly higher prices for nonrenewable fuels in the past year (which eliminated some of the cost differential between standard and green power), and the overall commitment to the environment expected of "green" consumers.

Analyzing Consumers

In "Plugging in the Consumer," we described an emerging segmentation comprised of four consumer types: passive ratepayers (PR), frugal goal-seekers (FGs), energy epicures (EE) and energy stalwarts (ES) (see Figure 3). Our latest survey results reinforce these segments as likely outcomes of current trends. Two main attributes are associated with variances in consumers’ behavior profiles:

  • Personal Initiative. A consumer’s willingness to make decisions and take action based on specific goals such as cost control, reliability, convenience and climate change impact.
  • Disposable Income. A consumer’s financial wherewithal to support energy-related goals. In early adoption phases, only those with sufficient resources will be able to implement new technologies and buy more expensive products.

We also found that other demographic characteristics – such as age and country of residence – affect the speed of technology adoption, ability to leverage control "behind the meter," goals embedded in accepting more responsibility for energy choices, among others.

Consumer Profiles

PRs that embody a passive preference for the status quo remain the most prevalent of any of the four consumer archetypes. However, we see a remarkable transition in progress. In the past, these typically uninvolved, acquiescent customers comprised virtually 100 percent of the customer base. They represent just 31 percent of our 2008 survey respondents.

The number of more engaged and goal-oriented customers all along the income spectrum is approaching one-half of the total customer base. Frugal goal-seekers (FGs), about 22 percent of the survey population, have limited resources but strong will to change the way they use energy and manage its consumption. This group desires low-cost control of energy choices. Energy stalwarts (ES) have enough strength in both will and wallet to proactively take measures from making simple efficiency improvements to generating their own electricity. They have a clear willingness to invest in energy choices and represent about one in five consumers surveyed. Both of these groups will strongly influence the other half of consumers as they succeed in meeting their goals.

The remaining respondents (26 percent) are the EEs, who are curious but not committed. While they actually demonstrate more knowledge about their provider and options than any other group, they do not share the cost concerns or clear desire for information and control. This appears to be a matter of choice and not ignorance. While passive in some ways, this group is open to experimentation, particularly when the cost and lifestyle impact of a behavioral change are low.

Generational Change

In the short term, changes in customer needs will occur based on personal initiative and income. In the long run, even more radical changes may emerge as the millennial generation continues to move into adulthood and the energy customer base. By varying definitions, the first wave of these information-hungry, technology-savvy consumers is somewhere in our 25- to 34-year-old demographic grouping and fully encompasses the 18- to 24-year-old age group.

Precisely at this juncture, we see major changes in the survey results related to the ways consumers learn about companies and products, what they value and what they will pay for, as well as how they communicate with each other and the companies with which they do business. This, ultimately, may give way to new customer segments that will influence the shape of the industry in ways unimagined just a decade or two ago. To effectively determine the best strategy for a customer-focused transition to the participatory network of the future, every provider of energy or related services will need to construct an inventory of existing customer interactions with a wide variety of current and future service and product models.

In the following sections, we outline how specific consumer segments view the technology and business advances associated with key interactions.

Learning about Providers

Important messages from providers do not always reach consumers, as evidenced by consumers’ lack of awareness of available green power options (see Figure 1).

Additionally, only one in six consumers foresees a decrease in usage over the next five years, and only about a third say their provider can help them save energy despite strong efforts by the industry and governments to promote efficiency. In particular, provider messages are not reaching the youngest consumers. For example, those aged 18 to 34 are 40 percent more likely to not know if they have a choice in providers versus those 35 and older. The under-34 group also is twice as likely to not even know their provider’s name.

While all age groups will continue to rely heavily on their providers for information about energy (85 percent to 90 percent of respondents indicated this was a likely source), reliance on other sources differed starkly. Those over 55 are more than 10 times more likely to look to government for energy information than to social networks and other Web 2.0 content. Current trends also imply that those under 25 are becoming almost as likely to use the latter, rather than the former. To reach all generations, companies need to understand how different consumers tend to educate themselves about providers and their offerings with the wide variety of media available.

Controlling Costs

Not surprisingly, those aged 18 to 34 were most eager for the types of "self-service" and automated energy management that smart metering and smart grids will bring. What may be surprising, however, is that this age group – and particularly those under 25 – is the most willing to pay a stated premium for these services of approximately $100 U.S. as a one-time fee, or a monthly fee of $5 U.S. (see Figure 4).

Having a message sent to a mobile device when power is out at the consumer’s home also garnered significantly higher interest from the under-25 age group. About 30 percent were more likely than the other age groups to pay $1 per month for such a service. This finding may be related to the generally higher willingness we observed of younger age groups to subscribe to these programs, to their higher rate of ownership of mobile data devices and plans, or a combination of the two.

Investing in the Consumer

Substantial new increases in investment in utility infrastructure will come with a great deal of public, regulatory and shareholder scrutiny. All of these stakeholders will want to know how the public as a whole can benefit.

Energy and utility companies will need a strategy for aligning customer wants and needs with technology deployment roadmaps, beginning with rigorous customer segmentation and building an inventory of customer interactions. This must be followed by a program to analyze the interactions that are anticipated with each consumer segment and to assess whether existing capabilities are sufficient to leverage the new infrastructure in ways that support the new customer experience:

  • Identifying customer wants and needs specific to the interactions that will be most important to each particular segment;
  • Identifying the interactions that can be most effectively enhanced through participatory network deployment strategies;
  • Defining new or augmented business capabilities and regulatory models that must be developed to translate technological capabilities into customer benefits;
  • Determining which capabilities, if any, will be ceded to other providers for further development;
  • Integrating the development of specific new business capabilities into the participatory network deployment roadmap; and
  • Communicating these new capabilities clearly and effectively to all stakeholders.

The outcome of this process will lead to critical decisions about the customer-facing business capabilities on which the enterprise will focus.

Existing organizational strengths and new capabilities to be developed – one by one or in combinations – will form the basis for a broad menu of new products and services that the energy provider can offer. Each energy or service provider must be prepared to analyze its customer base to determine specific wants and needs before assessing how customers want to see new products and services emerge. After preferences are evaluated, they need to be applied to the customer interaction inventory in a way that identifies what should to be enhanced through technological improvements, regulatory change or improvements to communication channels.

This needs to be an ongoing process; customer assessment will not cease to be important once the participatory network is in place. The good news is that the data required to perform this continual assessment will be ubiquitous and arrive in real time from multiple sources of value-generating insights. But with this capability comes a challenge: finding new and powerful ways to collect, assimilate and evaluate this torrent of data in a way that will lead to inspiration for new programs and products that appeals to an expanding number of involved consumers.

Shaping a New Era in Energy

In the last few years, the world has seen the energy & utilities business accelerate into a significant period of transformation as a result of the smart grid and related technologies. Today, with some early proponents leading the way, the industry is on the verge of a step-change improvement that some might even classify as a full-scale revolution. Utilities are viewed not only as being a critical link in solving the challenges we face related to climate change and the care of our planet’s energy resources, but they’re becoming enablers of growth and innovation – and even new products, services and jobs. Clearly the decisions the industry is making today around the world’s electricity networks will impact our lives for decades to come.

If the current economic environment has muted any enthusiasm for this transformation, it hasn’t been much. With the exception, perhaps, of plummeting oil prices temporarily providing some sense of calm in the sector, there are probably few people left who don’t believe the world needs to urgently address its clean, smart energy future. As of this writing, fledgling signs of an economic recovery are emerging, and along with it, increases in fossil fuel prices. As such, enthusiasm is growing over the debate about how countries will utilize billions in stimulus funding to enable the industry to achieve a new level of greatness.

There is a confluence of events helping us along this path of dramatic and beneficial change. IBM’s recent industry consumer survey (selected findings of which are featured in this publication in "Lighting the Way" by John Juliano) signals a future that is being shaped in part by a younger generation of digitally savvy people who care about – and are willing to participate in – our collective energy future. They willingly engage in more open communication with utility providers and tend to be better at understanding and controlling energy utilization.

As utilities instrument virtually all elements of the energy value chain from the power plant to the plug, they will improve service quality to these customers while reducing cost and improving reliability to a degree never before achievable. Customers engage because they see themselves as part of a larger movement to forestall the effects of climate change, or to battle price instability. This fully connected, instrumented energy ecosystem takes advantage of the data it collects, applying advanced analytics to enable real-time decisions on energy consumption. Some smart grid projects are already helping consumers save 10% of their bills, and reduce peak demand by 15%. Imagine the potential total savings when this is scaled to include companies, governments and educational institutions.

While positive new developments abound, they also are creating a highly complex environment, raising many difficult questions. For example, are families and businesses truly prepared to go on a "carbon diet" and will they stay on it? How will governments, with their increased stake in auto manufacturers, effectively and efficiently manage the transition toward PHEVs? Will industry players collaborate with one another to deal with stealth attacks on smart grids that are no longer the stuff of spy novels, but current realities we must face 24/7? How do we responsibly support the resurgence of nuclear-based power generation?

Matters of investment are also complex. Will there be sufficient public/private partnership to effectively stimulate investment in new businesses and models to profitably progress safe alternative energy forms such as solar, tidal, wind, geothermal and others? Will we have the "smarts" – and the financial commitment – to build more smarts into the reconstruction of ailing infrastructures?

Leading the Way

IBM has been a leading innovator in smart grid technology, significantly investing in energy and environmental programs designed to promote the use of intelligent energy worldwide. We created the Global Intelligent Utility Network Coalition, a strategic relationship with a small group of select utilities from around the world to shape, accelerate and share in the development of the smart grid. With the goal to lead industry organizations to smart grid transformation, we actively lead and participate in a host of global organizations including the GridWise® Alliance, Gridwise Architecture Council, EPRI’s Intelligrid program, and the World Energy Council, among others. By coming together around a shared vision of a smarter grid, we have an unprecedented opportunity to reshape the energy industry and our economic future.

The IBM experts who engage in these groups – along with the thousands of other IBMers working in the industry – have contributed significant thinking to the industry’s progress, not the least of which is the creation of the Smart Grid Maturity Model (SGMM) which has been handed over to the Carnegie Mellon Software Engineering Institute (SEI) for ongoing governance, growth and evolution of the model. Furthermore, the World Energy Council (WEC) has become a channel for the global dissemination of the model among its worldwide network of member committees.

IBM’s own Intelligent Utility Network (IUN) solution enables a utility to instrument everything from the meter in the home to miles of power lines to the network itself. In fact, the IUN looks a lot more like the Internet than a traditional grid. It can be interconnected to thousands of power sources – including climate-friendly ones – and its instrumentation generates new data for analysis, insight and intelligence that can be applied for the benefit of businesses and consumers alike.

Our deep integration skills, leading-edge technology, partner ecosystem and business and regulatory expertise have earned us roles in more than 50 smart grid projects around the globe with showcase projects in the U.S. Pacific Northwest, Texas, Denmark and Malta (See "The Smart Grid in Malta" by Carlo Drago in this publication) to name just a few. IBM also has a role in seven out of the world’s 10 largest advanced meter management projects.

The IBM Solution Architecture for Energy (SAFE), is a specialized industry framework focused on the management, maintenance, and integration of a utility’s assets and information, inclusive of generation, transmission and distribution, and customer operations. This is complemented by a world-class solution portfolio based on the most comprehensive breadth of hardware, software, consulting services, and open standards-based IT infrastructure that can be customized to meet the needs of today’s energy and utilities enterprises around the globe.

These activities are augmented by the renowned IBM Research organization that engages in both industry-specific and cross-industry research that influences our clients’ progress. This includes new computing models to handle the proliferation of end-user devices, sensor and actuators, connecting them with powerful back-end systems. How powerful? In the past year IBM’s Roadrunner supercomputer broke the "petaflop" barrier – one thousand trillion calculations per second using standard chip sets. Combined with advanced analytics and new computing models like "clouds" we’re turning mountains of data into intelligence, making systems like the smart grid more efficient, reliable and adaptive – in a word, smarter.

IBM Research also conducts First-of-a-Kind research – or FOAKs – in partnership with our clients, turning promising research into market-ready products and services. And our Industry Solution Labs around the world give IBM clients the chance to discover how leading-edge technologies and innovative solutions can be assembled and proven to help solve real business problems. For example, we’re exploring how to turn millions of future electric vehicles into a distributed storage system, and we maintain a Center of Excellence for Nuclear Power to improve design, safety analysis, operation, and nuclear modeling / simulation processes.

IBM is excited to be at the forefront of this changing industry – and our changing world. And we’re honored to be working closely with our clients and business partners in helping to evolve a smarter planet.

Thinking Smart

For more than 30 years, Newton- Evans Research Company has been studying the initial development and the embryonic and emergent stages of what the world now collectively terms the smart, or intelligent, grid. In so doing, our team has examined the technology behind the smart grid, the adoption and utilization rates of this technology bundle and the related market segments for more than a dozen or so major components of today’s – and tomorrow’s – intelligent grid.

This white paper contains information on eight of these key components of the smart grid: control systems, smart grid applications, substation automation programs, substation IEDs and devices, advanced metering infrastructure (AMI) and automated meter-reading devices (AMR), protection and control, distribution network automation and telecommunications infrastructure.

Keep in mind that there is a lot more to the smart grid equation than simply installing advanced metering devices and systems. A large AMI program may not even be the correct starting point for hundreds of the world’s utilities. Perhaps it should be a near-term upgrade to control center operations or to electronic device integration of the key substations, or an initial effort to deploy feeder automation or even a complete production and control (P&C) migration to digital relaying technology.

There simply is not a straightforward roadmap to show utilities how to develop a smart grid that is truly in that utility’s unique best interests. Rather, each utility must endeavor to take a step back and evaluate, analyze and plan for its smart grid future based on its (and its various stakeholders’) mission, its role, its financial and human resource limitations and its current investment in modern grid infrastructure and automation systems and equipment.

There are multiple aspects of smart grid development, some of which involve administrative as well as operational components of an electric power utility, and include IT involvement as well as operations and engineering; administrative management of customer information systems (CIS) and geographic information systems (GIS) as well as control center and dispatching operation of distribution and outage management systems (DMS and OMS); substation automation as well as true field automation; third-party services as well as in-house commitment; and of course, smart metering at all levels.

Space Station

I have often compared the evolution of the smart grid to the iterative process of building the international space station: a long-term strategy, a flexible planning environment, responsive changes incorporated into the plan as technology develops and matures, properly phased. What function we might need is really that of a skilled smart grid architect to oversee the increasingly complex duties of an effective systems planning organization within the utility organization.

All of these soon-to-be-interrelated activities need to be viewed in light of the value they add to operational effectiveness and operating efficiencies as well as the effect of their involvement with one another. If the utility has not yet done so, it must strive to adopt a systems-wide approach to problem solving for any one grid-related investment strategy. Decisions made for one aspect of control and automation will have an impact on other components, based on the accumulated 40 years of utility operational insights gained in the digital age.

No utility can today afford to play whack-a-mole with its approach to the intelligent grid and related investments, isolating and solving one problem while inadvertently creating another larger or more costly problem elsewhere because of limited visibility and “quick fix” decision making.

As these smart grid building blocks are put into service, as they become integrated and are made accessible remotely, the overall smart grid necessarily becomes more complex, more communications-centric and more reliant on sensor-based field developments.

In some sense, it reminds one of building the space station. It takes time. The process is iterative. One component follows another, with planning on a system-wide basis. There are no quick solutions. Everything must be very systematically approached from the outset.

Buckets of Spending

We often tackle questions about the buckets of spending for smart grid implementations. This is the trigger for the supply side of the smart grid equation. Suppliers are capable of developing, and will make the required R&D investment in, any aspect of transmission and distribution network product development – if favorable market conditions exist or if market outlooks can be supported with field research. Hundreds of major electric power utilities from around the world have already contributed substantially to our ongoing studies of smart grid components.

In looking at the operational/engineering components of smart grid developments, centering on the physical grid itself (whether a transmission grid, a distribution grid or both), one must include what today comprises P&C, feeder and switch automation, control center-based systems, substation measurement and automation systems, and other significant distribution automation activities.

On the IT and administrative side of smart grid development, one has to include the upgrades that will definitely be required in the near- or mid-term, including CIS, GIS, OMS and wide area communications infrastructure required as the foundation for automatic metering. Based on our internal estimates and those of others, spending for grid automation is pegged for 2008 at or slightly above $1 billion nationwide and will approach $3.5 billion globally. When (if) we add in annual spending for CIS, GIS, meter data management and communications infrastructure developments, several additional billions of dollars become part of the overall smart grid pie.

In a new question included in the 2008 Newton-Evans survey of control center managers, these officials were asked to check the two most important components of near-term (2008-2010) work on the intelligent grid. A total of 136 North American utilities and nearly 100 international utilities provided their comments by indicating their two most important efforts during the planning horizon.

On a summary basis, AMI led in mentions from 48 percent of the group. EMS/ SCADA investments in upgrades, new applications, interfaces et al was next, mentioned by 42 percent of the group. Distribution automation was cited by 35 percent as well.

Spending Outlook

The financial environment and economic outlook do not bode well for many segments of the national and global economies. One question we have continuously been asked well into this year is whether the electric power industry will suffer the fate of other industries and significantly scale back planned spending on T&D automation because of possible revenue erosion given the slowdown and fallout from this year’s difficult industrial and commercial environments.

Let’s first take a summary look at each of the five major components of T&D automation because these all are part and parcel of the operations/engineering view of the smart grid of the future.

Control Systems Outlook: Driven by SCADA-like systems and including energy management systems and distribution management software, this segment of the market is hovering around the $500 million mark on a global scale – excluding the values of turn-key control center projects (engineering, procurement and construction (EPC) of new control center facilities and communications infrastructure). We see neither growth nor erosion in this market for the near-term, with some up-tick in spending for new applications software and better visualization tools to compensate for the “aging” of installed systems. While not a control center-based system, outage management is a closely aligned technology development, and will continue to take hold in the global market. Sales of OMS software and platforms are already approaching the $100 million mark led by the likes of Oracle Utilities, Intergraph and MilSoft.

Substation Automation and Integration Programs: The market for substation IEDs, for new communications implementations and for integration efforts has grown to nearly $500 million. Multiyear programs aimed at upgrading, integrating and automating the existing global base of about a quarter million or so transmission and primary distribution substations have been underway for some time. Some programs have been launched in 2008 that will continue into 2011. We see a continuation of the growth in spending for critical substation A&I programs, albeit 2009 will likely see the slowest rate of growth in several years (less than 3 percent) if the current economic malaise holds up through the year. Continuing emphasis will be on HV transmission substations as the first priority for upgrades and addition of more intelligent electronic devices.

AMI/AMR: This is the lynchpin for the smart grid in the eyes of many industry observers, utility officials and perhaps most importantly, regulators at the state and federal levels of the U.S., Canada, Australia and throughout Western Europe. With nearly 1.5 billion electricity meters installed around the world, and about 93 percent being electro-mechanical, interest in smart metering can also be found in dozens of other countries, including Indonesia, Russia, Honduras, Malaysia, Australia, and Thailand. Another form of smart meters, the prepayment meter, is taking hold in some of the developing nations of the world. The combined resources of Itron, coupled with its Actaris acquisition, make this U.S. firm the global share leader in sales and installations of AMI and AMR systems and meters.

Protection and Control: The global market for protective relays, the foundation for P&C has climbed well above $1.5 billion. Will 2009 see a drop in spending for protective relays? Not likely, as these devices continue to expand in capabilities, and undertake additional functions (sequence of event recording, fault recording and analysis, and even acting as a remote terminal unit). To the surprise of many, there is still a substantial amount (perhaps as much as $125 million) being spent annually for electro-mechanical relays nearly 20 years into the digital relay era. The North American leader in protective relay sales to utilities is SEL, while GE Multilin continues to hold a leading share in industrial markets.

Distribution Automation: Today, when we discuss distribution automation, the topic can encompass any and all aspects of a distribution network automation scheme, from the control center-based SCADA and distribution management system on out to the substation, where RTUs, PLCs, power meters, digital relays, bay controllers and a myriad of communicating devices now help operate, monitor and control power flow and measurement in the medium voltage ranges.

Nonetheless, it is beyond the substation fence, reaching further down into the primary and secondary network, where we find reclosers, capacitors, pole top RTUs, automated overhead switches, automated feeders, line reclosers and associated smart controls. These are the new smart devices that comprise the basic building blocks for distribution automation. The objective will be achieved with the ability to detect and isolate faults at the feeder level, and enable ever faster service restoration. With spending approaching $1 billion worldwide, DA implementations will continue to expand over the coming decade, nearing $2.6 billion in annual spending by 2018.

Summary

The T&D automation market and the smart grid market will not go away this year, nor will it shrink. When telecommunications infrastructure developments are included, about $5 billion will have been spent in 2008 for global T&D automation programs. When AMI programs are adding into the mix, the total exceeds $7 billion. T&D automation spending growth will likely be subdued, perhaps into 2010. However, the overall market for T&D automation is likely to be propped up to remain at or near current levels of spending for 2009 and into 2010, benefiting from the continued regulatory-driven momentum for AMI/ AMR, renewable portfolio standards and demand response initiatives. By 2011, we should once again see healthier capital expenditure budgets, prompting overall T&D automation spending to reach about $6 billion annually. Over the 2008-2018 periods, we anticipate more than $75 billion in cumulative smart grid expenditures.

Expenditure Outlook

Newton-Evans staff has examined the current outlook for smart grid-related expenditures and has made a serious attempt to avoid double counting potential revenues from all of the components of information systems spending and the emerging smart grid sector of utility investment.

While the enterprise-wide IT portions (blue and red segments) of Figure 1 include all major components of IT (hardware, software, services and staffing), the “pure” smart grid components tend to be primarily in hardware, in our view. Significant overlap with both administrative and operational IT supporting infrastructure is a vital component for all smart grid programs underway at this time.

Between “traditional IT” and the evolving smart grid components, nearly $25 billion will likely be spent this year by the world’s electric utilities. Nearly one-third of all 2009 information technology investments will be “smart grid” related.

By 2013, the total value of the various pie segments is expected to increase substantially, with “smart grid” spending possibly exceeding $12 billion. While this amount is generally understood to be conservative, and somewhat lower than smart grid spending totals forecasted by other firms, we will stand by our forecasts, based on 31 years of research history with electric power industry automation and IT topics.

Some industry sources may include the total value of T&D capital spending in their smart grid outlook.

But that portion of the market is already approaching $100 billion globally, and will likely top $120 billion by 2013. Much of that market would go on whether or not a smart grid is involved. Clearly, all new procurements of infrastructure equipment will be made with an eye to including as much smart content as is available from the manufacturers and integrators.

What we are limiting our definition to is edge investment, the components of the 21st century digital transport and delivery systems being added on or incorporated into the building blocks (power transformers lines, switchgear, etc.) of electric power transmission and delivery.

The Smart Grid Maturity Model

The software industry has been using maturity models to define and measure software development capabilities for decades. These models have helped the industry create a shared vision for these capabilities. They also have driven individual software development organizations to set and pursue aggressive capabilities goals while allowing these groups to measure progress in reaching those objectives along the way.

As the utility industry embarks on the complex and ambitious transformation of the outdated power grid to the new smart grid, it has struggled to develop a shared vision for the smart grid end-state and the path to its development and deployment. Now, the smart grid maturity model (SGMM) is helping the industry overcome these challenges by presenting a consensus vision of the smart grid, the benefits it can bring and the various levels of smart grid development and deployment maturity. SGMM is helping numerous utilities worldwide develop targets for their smart grid strategy, and build roadmaps of the activities, investments and best practices that will lead them to their future smart grid state.

IBM worked closely with members of the Intelligent Utility Network Coalition (IUNC) to develop, discuss and revise several drafts of the SGMM. This team was assisted by APQC, a member-based nonprofit organization that provides benchmarking and best-practice research for approximately 500 organizations worldwide. The goal in the development process was to ensure the SGMM reflects a consensus industry vision for the smart grid, and brings together a wide range of industry experts to define the technical, organizational and process details supporting that vision.

APQC has a long history of benchmarking, performance measurement and maturity definition, and was therefore able to provide critical experience to drive development of a clear, measureable maturity model. IBM has worked on smart grid initiatives with numerous utilities around the world, and provided guidance and some initial structure to help start the development process. But the most important contributors to the SGMM were utilities themselves, as they brought a wealth of deep technical and strategic knowledge to build a shared vision of the smart grid and the various stages of maturity that could be achieved.

Because of this consensus development process, the SGMM reflects a broad industry vision for the smart grid, and it now gives utilities a tool for both strategic and tactical use to guide, measure and assess a utility’s smart grid transformation:

Strategic uses of the SGMM:

  • Establish a shared vision for the smart grid journey;
  • Communicate the smart grid vision, both internally and externally;
  • Use as a strategic framework for evaluating smart grid business and investment objectives;
  • Plan for technological, regulatory, and organizational readiness; and
  • Benchmark and learn from others

Tactical uses of the SGMM:

  • Guide development of a specific smart grid roadmap or blueprint;
  • Assess and prioritize current smart grid opportunities and projects;
  • Use as a decision-making framework for smart grid investments;
  • Assess resource needs to move from one smart grid level to another; and
  • Measure smart grid progress using key performance indicators (KPIs).

The SGMM structure is based on three fundamental concepts:

Domains: eight logical groupings of functional components of a smart grid transformation implementation;

Maturity Levels: five sets of defined characteristics and outcomes; and

Characteristics: descriptions of over 200 capabilities that are expected at each stage of the smart grid journey.

As Figure 1 shows, the domains span eight areas covering people, technology, and process, and comprise all of the fundamental components of smart grid capabilities.

Maturity levels range from an entry level of 1, up to a top level of 5, and can be summarized as follows:

Level 1 – Exploring and Initiating: contemplating smart grid transformation; may have a vision, but no strategy yet; exploring options; evaluating business cases and technologies; may have some smart grid elements already deployed.

Level 2 – Functional Investing: making decisions, at least at a functional level; business cases in place and investments being made; one or more functional deployments under way with value being realized; strategy in place.

Level 3 – Integrating Cross Functional: smart grid spreading; operational linkages established between two or more functional areas; management ensuring decisions span functional interests, resulting in cross-functional benefits.

Level 4 – Optimizing Enterprise-Wide: smart grid functionality and benefits realized; management and operational systems rely on and take full advantage of observability and integrated control, both across and between enterprise functions.

Level 5 – Innovating Next Wave of Improvements: new business, operational, environmental, and societal opportunities present themselves, and the capability exists to take advantage of them.

It is important to note that a utility may not choose to target maturity level 5 in every domain – in fact, it may not target level 5 for any domain. Instead, each utility using the SGMM must consider its own strategic direction and performance goals, and then decide on the levels of smart grid maturity that will support those goals to determine the target maturity in each domain. For example, a utility that is strategically focused on the retail side of the business may want to achieve relatively high maturity in the customer management and experience domain, but have a much lower target for maturity in the grid operations domain.

The key point is that the SGMM is not a report card with those utilities reaching the highest maturity levels "winning the game." Instead, each utility uses the SGMM to understand how the smart grid can help optimize its planning and investment to achieve its aspirations.

With over 200 characteristics describing the capabilities for each domain and maturity level, it is not possible to describe them here, but an example of a typical characteristic shown in Figure 2 provides a good sense of the level of detail in each characteristic of the SGMM.

Taken together, the domains, maturity levels, and characteristics form a detailed matrix that describes smart grid maturity across all critical areas.

Evaluating Smart Grid Maturity

A utility uses two surveys in conjunction with the SGMM structure described above to: assess its smart grid maturity; and track its progress and the resulting benefits during deployment. The first survey is the maturity assessment, which asks a series of about 40 questions that cover the current state of the utility’s smart grid strategy and spending, and the current penetration of smart grid capabilities into various areas of the business. The assessment yields a detailed report, providing the results for each domain, as well as higher-level reports that show the broader view of the utility’s current state and aspirations for the smart grid.

In this example, the utility’s current smart grid maturity is shown by the green circles, while its maturity aspirations are shown by the yellow circles. This highlevel view can be very useful as support for detailed plans on how to get from current state to aspirational state. It is also helpful for conveying maturity concepts and results to various stakeholders – both inside and outside the utility.

The second survey is the opportunity and results survey, which focuses on KPIs that track progress in smart grid deployment, as well as realization of the resulting benefits. For example, many questions in the survey cover grid operations, with the focus on cost, reliability and penetration of smart grid capabilities into the "daily life" of grid operations. The survey is expected to be completed annually, allowing each utility using the SGMM to track its deployment progress and benefits realization.

Using SGMM Results

The results from the SGMM can be applied in many ways to gauge a utility’s smart grid progress. From a practical management standpoint, the following important indicators can be derived directly from the SGMM process:

  • How the utility compares to other survey participants overall;
  • Where the utility has deficiencies in one domain that may adversely affect other domains;
  • Effects of being potentially projectoriented rather than program-driven, resulting in a jagged, "peaks and valleys" maturity profile with uneven advancement;
  • Indications that some domains are too far ahead of others, resulting in the risk of putting the "cart before the horse;" and
  • Confirmation of progress in domains that have been given particular focus by the utility, and indications of domains that may require increased focus.

More broadly, completion of the SGMM surveys provide a utility with the information needed to establish a shared smart grid vision with both internal and external stakeholders, mesh that vision with the utility’s overall business strategy to set maturity targets, and then build a detailed roadmap for closing the gaps between the current and target maturity levels.

Transition of SGMM Stewardship

IBM has been pleased to work with APQC and members of the IUNC to support definition and early roll-out of the SGMM. But as an important and evolving industry tool, IBM believes that the SGMM should be supported and maintained by a broader group. Therefore, we are planning to transition to a stewardship model with three organizations each playing a critical role:

  • Governance, Management, and Growth: the Carnegie Mellon Software Engineering Institute will govern the SGMM, working in conjunction with Carnegie Mellon University and the Carnegie Mellon Electricity Industry Center. The institute and its 500 employees will leverage its 20 years of experience as stewards of the Capability Maturity Model for software development.
  • Global Stakeholder Representation and Advocacy: the World Energy Council will provide representation for stakeholders around the globe. The council was established in 1923, represents 95 member countries and regularly hosts the World Energy Congress. Its mission is to promote the sustainable supply and use of energy for the greatest benefit of all people. This mission fits well with the development of the smart grid and the expanding use of the SGMM.
  • Data Collection and Reporting: APQC will provide further support for the SGMM survey process. With over 30 years of quality and process improvement research, APQC will continue the work it has done to date to assist utilities in assessing their smart grid maturity and tracking their progress during deployment.

Summary

All utilities should consider using the SGMM as they develop their vision for the smart grid and begin to plan and execute the projects that will take them on the journey. The SGMM represents the best strategic and technical thinking of a broad cross-section of the utility industry. We believe that the SGMM will continue to represent a thoughtful and consensus view as the smart grid – and the technology that supports it – evolves over the next few years.

At Your Service

Today’s utility companies are being driven to upgrade their aging transmission and distribution networks in the face of escalating energy generation costs, serious environmental challenges and rising demand for cleaner, distributed generation from both developing and digital economies worldwide.

The current utilities environment requires companies to drive down costs while increasing their ability to monitor and control utility assets. Yet, due to aging infrastructure, many utilities operate without the benefit of real-time usage and distribution loads – while also contending with limited resources for repair and improvement. Even consumers, with climate change on their minds, are demanding that utilities find more innovative ways to help them reduce energy consumption and costs.

One of the key challenges facing the industry is how to take advantage of new technologies to better manage customer service delivery today and into the future. While introducing this new technology, utilities must keep data and networks secure to be in compliance with critical infrastructure protection regulations. The concept of “service management” for the smart grid provides an approach for getting started.

A Smart Grid

A smart grid is created with new solutions that enable new business models. It brings together processes, technology and business partners, empowering utilities with an IP-enabled, continuous sensing network that overlays and connects a utility’s equipment, devices, systems, customers, partners and employees. A smart grid also enables on-demand access to data and information, which is used to better manage, automate and optimize operations and processes throughout the utility.

A utility relies on numerous systems, which reside both within and outside their physical boundaries. Common internal systems include: energy trading systems (ETS), customer information systems (CIS), supervisory control and data acquisition systems (SCADA), outage management systems (OMS), enterprise asset management (EAM); mobile workforce management systems (MWFM), geospatial information systems (GIS) and enterprise resource planning systems (ERP).

These systems are purchased from multiple vendors and often use a variety of protocols to communicate. In addition, utilities must interface with external systems – and often integrate all of them using a point-to-point model and establish connectivity on an as-needed basis. The point-to-point approach can result in numerous complex connections that need to be maintained.

Service Management

The key concept behind service management is the idea of managing assets, networks and systems to provide a “service,” as opposed to simply operating the assets. For example, Rolls Royce Civil Aerospace division uses this concept to sell “pounds of thrust” as a service. Critical to a utility’s operation is the ability to manage all facets of the services being delivered. Also critical to the operation of the smart grid are new solutions in advanced meter management (AMM), network automation and analytics, and EAM, including meter asset management.

A service management platform provides a way for utility companies to manage the services they deliver with their enterprise and information technology assets. It provides a foundation for managing the assets, their configuration, and the interrelationships key to delivering services. It also provides a means of defining workflow for the instantiation and management of the services being delivered. Underlying this platform is a range of tools that can assist in management of the services.

Gathering and analyzing data from advanced meters, network components, distribution devices, and legacy SCADA systems provides a solid foundation for automating service management. When combined with the information available in their asset management systems, utility companies can streamline operations and make more efficient use of valuable resources.

Advanced Reading

AMM centers on a more global view of the informational infrastructure, examining how automatic meter reading (AMR) and advanced metering infrastructure (AMI) integrate with other information systems to provide value-added benefits. It is important to note that for many utilities, AMM is considered to be a “green” initiative since it has the ability to influence customer usage patterns and, therefore, lower peak demand.

The potential for true business transformation exists through AMM, and adopting this solution is the first stage in a utility’s transformation to a more information-powered business model. New smart meters are network addressable, and along with AMM, are core components of the grid. Smart meters and AMM provide the capability to automatically collect usage data in near real time and to transport meter reads at regular intervals or on demand.

AMR/AMIs that aggregate their data in collection servers or concentrators, and expose it through an interface, can be augmented with event management products to monitor the meter’s health and operational status. Many organizations already deploy these solutions for event management within a network’s operations center environments, and for consolidated operations management as a top-level “manager of managers.”

A smart grid includes many devices other than meters, so event management can also be used to monitor the health of the rest of the network and IT equipment in the utility infrastructure. Integrating meter data with operations events gives network operations center operators a much broader view of a utility’s distribution system.

These solutions enable end-to-end data integration, from the meter collection server in a substation to the back-end helpdesk and billing applications. This approach can lead to improved speed and accuracy of data, while leveraging existing equipment and applications.

Network Automation and Analytics

Most utility companies use SCADA systems to collect data from sensors on the energy grid and send events to applications with SCADA interfaces. These systems collect data from substations, power plants and other control centers. They then process the data and allow for control actions to be sent back out. Energy management and distribution management systems typically provide additional features on top of SCADA, targeting either the transmission or distribution grids.

SCADA systems are often distributed on several servers (anywhere from two to 100) connected via a redundant local area network. The SCADA system, in turn, communicates with remote terminal units (RTUs), other devices, and other computer networks. RTUs reside in a substation or power plant, and are hardwired to other devices to bring back meaningful information such as current megawatts, amps, volts, pressure, open/closed or tripped. Distribution business units within a utility company also utilize SCADA systems to track low voltage applications, such as meters and pole drops, compared to the transmission business units’ larger assets, including towers, circuits and switchgear.

To facilitate network automation, IT solutions can help utilities to monitor and analyze data from SCADA systems in real time, monitor the computer network systems used to deploy SCADA systems, and better secure the SCADA network and applications using authentication software. An important element of service management is the use of automation to perform a wide range of actions to improve workfl ow efficiency. Another key ingredient is the use of service level agreements (SLAs) to give a business context for IT, enabling greater accountability to business user needs, and improving a utility’s ability to prioritize and optimize.

A smart grid includes a large number of devices and meters – millions in a large utility – and these are critical to a utility’s operations. A combination of IT solutions can be deployed to manage events from SCADA devices, as well as the IT equipment they rely on.

EAM For Utilities

Historically, many utility companies have managed their assets in silos. However, the emergence of the smart grid and smart meters, challenges of an aging workforce, an ever-demanding regulatory environment, and the availability of common IT architecture standards, are making it critical to standardize on one asset management platform as new requirements to integrate physical assets and IT assets arise (see Figure 1).

Today, utility companies are using EAM to manage work in gas and electric distribution operations, including construction, inspections, leak management, vehicles and facilities. In transmission and substation, EAM software is used for preventative and corrective maintenance and inspections.

EAM also helps track financial assets such as purchasing, depreciation, asset valuation and replacement costs. This solution helps integrate this data with ERP systems, and stores the history of asset testing and maintenance management. It integrates with GIS or other mapping tools to create geographic and spatial views of all distribution and smart grid assets.

Meter asset management is another area of increasing interest, as meters have an asset lifecycle similar to most other assets in a utility. Meter asset management involves tracking the meter from receipt to storeroom, to truck, to final location – as compared to managing the data the meter produces.

Now there is an IT asset management solution with the ability to manage meters as part of the IT network. This solution can be used to provision the meter, track configurations and provide service desk functionality. IT asset management solutions also have the ability to update meter firmware, and easily move and track the location and status of the assets over time in conjunction with a configuration database.

Reducing the number of truck rolls is another key focus area for utility companies. Using a combination of solutions, companies can:

  • Better manage the lifecycles of physical assets such as meters, meter cell relays, and broadband over powerline (BPL) devices to improve preventive maintenance;
  • Reconcile deployed asset information with information collected by meter data management systems;
  • Correlate the knowledge of physical assets with problems experienced with the IT infrastructure to better analyze a problem for root cause; and
  • Establish more efficient business process workflows and strengthen governance across a company.

Utilities are facing many challenges today and taking advantage of new technologies that will help better manage the delivery of service to customers tomorrow. The deployment of the smart grid and related solutions is a significant initiative that will be driving utilities for the next 10 years or more.

The concept of “service management” for the smart grid provides an approach for getting started. But these do not need to be tackled all at once. Utilities should develop a roadmap for the smart grid; each one will depend on specific priorities. But utilities don’t have to go it alone. The smart grid maturity model (SGMM) can enable a utility to develop a roadmap of activities, investments and best practices to ensure success and progress with available resources.

The Smart Grid in Malta

On the Mediterranean island of Malta, with a population of about 400,000 people on a land mass of just over 300 square kilometers, power, water and the economy are intricately linked. The country depends on electrically powered desalination plants for over half of its water supply. In fact, about 75 percent of the cost of water from these plants on Malta is directly related to energy production. Meanwhile, rising sea levels threaten Malta’s underground freshwater source.

Additionally, in line with the Lisbon strategy and the other European countries, the government of Malta has set an objective of transforming the island into a competitive knowledge economy to encourage investment by foreign companies. Meeting all of these goals in a relatively short period of time presents a complex, interconnected series of challenges that require immediate attention to ensure the country has a sustainable and prosperous future.

In light of this need, the Maltese National Utilities for Electricity and Water – Enemalta Corp. (EMC) and Water Services Corp. (WSC) – reached a partnership agreement with IBM to undertake a complete transformation of its distribution networks to improve operational efficiency and customer service levels. IBM will replace all 250,000 electricity meters with new devices, and connect these and the existing water meters to advanced information technology applications. This will enable remote reading, management and monitoring throughout the entire distribution network.

This solution will be integrated with new back-office applications for finance, billing and cash processes, as well as an advanced analytics tool to transform sensor data into valuable information supporting business decisions and improving customer service levels. It will also include a portal to enable closer interaction with – and more engagement by – the end consumers.

Why are the utility companies in Malta making such a significant investment to reshape their operations? To explore this question, it helps to start with a broader look at smart grid projects to see how they create benefits – not just for the companies making the investment, but for the local community as well.

Smart Grid Benefits

A case is often made that basic operational benefits of a smart grid implementation can be achieved largely through an Advanced Metering Infrastructure (AMI) implementation, which yields real-time readings for use in billing cycles, reduced operational cost in the low voltage network and more control over theft and fraud. In this view, the utility’s operational model is further transformed to improve customer relationship management through the introduction of flexible tariffs, remote customer connection/disconnection, power curtailment options and early outage identification through low voltage grid monitoring.

But AMI extended to a broader smart grid implementation has the potential to achieve even greater strategic benefits. One can see this by simply considering the variety of questions about the impact of the carbon footprint of human activity on the climate and other environmental factors. What is a realistic tradeoff between energy consumption, energy efficiency and economic and political dependencies on the local, national and international levels? Which energy sources will be most effective with such tradeoffs? To what extent can smaller, renewable resources replace today’s large, fossil-based power sources? Where this is possible, how can hundreds or thousands of dispersed, independently operated generators be effectively monitored?

Ultimately, distribution networks need to be smart enough to distinguish among today’s large-scale utility generators; customers producing solar energy for their own needs who are virtually disconnected from the grid; those using a wind power generator and injecting the surplus back into the grid; and end-use customers requiring marginal or full supply. An even more dispersed model for distributed generation will emerge once electric vehicles circulate in towns, placing complex new demands on the grid while offering the benefit of new storage capabilities to the network.

Interdependence

Together, water and power distributors, transmission operators, generators, market regulators and final customers will interact in a much more complex, interconnected and interdependent world. This is especially true in a densely populated, modern island ecosystem, where the interplay of electricity, water, gas, communications and other services is magnified.

These points of intersection take numerous shapes. For example, on a national scale, water and sewer services can consume a large portion of the available energy supply. Water service, which is essential to customer quality of life, also presents distribution issues that are similar in many ways to those embedded in the electric grid. At a more local scale, co-generation and micro-CHP generation plants make the interdependency of electricity and gas more visible. Furthermore, utilities’ experience at providing centrally managed services that afford comfort and convenience makes the provision of additional services – communication, security, and more – imaginable. But how to make these interconnections effective contributors to quality of life raises real economic questions. Is it sensible to make an overarching investment in multiple services? How can this drive increased operational efficiency and bring new benefits to customers? Can a clear return on investment be demonstrated to investors and bill payers?

Malta is an example of an island that operates a vertically integrated and isolated electricity system. Malta has no connections with the European electricity grid and no gas pipelines to supply its generators. In the current configuration of the energy infrastructure, all of its demand must be fulfilled by the two existing power plants, which generate power using entirely imported fossil fuel. Because of these limitations on supply, and dependencies on non-native resources, electricity distribution must be extremely efficient, limiting any loss of energy as much as possible. Both technical and commercial losses must be kept fully under control, and theft must be effectively eliminated from the system to avoid unfair social accounting and to ensure proper service levels to all customers.

Estimates of current economic losses in Malta are in the millions of Euros for just the non-technical losses. At these levels, and with limited generation capacity, quality of service and ability to satisfy demand at all times is threatened. Straining the system even further is the reality that Malta, without significant natural water sources, must rely on a seawater purification process to supply water to its citizens. This desalinization process absorbs roughly one-third of the annual power consumption on the island.

But the production process is not the only source of interdependency of electricity and water as the distribution principles of each have strong ties. In most locations in the world, electricity and water distribution have opposing characteristics that allow them to enjoy some symbiotic benefits. Electricity cannot be effectively stored, so generation needs to match and synchronize in time with demand. Water service generally has the opposite characteristic: in fact, it can be stored so easily that it is frequently stored as pre-generation capacity in hydro generation.

But on an island like Malta, this relationship is turned on its head. There is no natural water to store, and once produced, purified water should be consumed rather quickly. If it is produced in excess, then reservoir evaporation and pipeline losses can affect the desalinization effort and the final efficiency of the process. So in Malta, unlike much of the rest of the world, water providers tend to view customer demand in a similar way as electricity providers, and the demand profiles are unable to support each other as they can elsewhere.

These are qualitative observations. But if electricity and water networks can be monitored, and real-time data supplied, providers can begin to assess important questions regarding operational and financial optimization of the system, which will, among other benefits, improve reliability and service quality and keep costs low.

Societal Implications

An additional issue the government of Malta faces is its effort to ensure that the population has a sufficient and diverse educational and technical experience base. When a company is attracted to invest in Malta, it benefits from finding local natives with appropriate skills to employ; costs increase if too many foreign nationals must be brought in to operate the company. Therefore, pervasive education on information and communication technology-related topics is a priority for the government, aimed at young students, as well as adult citizens.

Therein lies a further – but no less important – benefit of bringing a smart grid to Malta. Energy efficiency campaigns supported by smart meters will not only help its citizens control consumption behavior and make more efficient and effective electricity and water operations a reality, but they will prove to be a project that helps raise the island’s technology culture in a new dimension. Meter installers will deal with palmtop and other advanced IT applications, learning to connect the devices not only to the physical electrical infrastructure, but also to the embedded information infrastructure. From smart home components to value-added services, commercial and industrial players will look to new opportunities that leverage the smart grid infrastructure in Malta as well, adding highly skilled jobs and new businesses to the Maltese economy.

Benefits will expand down to the elementary education levels as well. For example, it will be possible for schools to visit utility demonstration centers where the domestic meter can be presented as an educational tool. This potential includes making energy efficiency a door to educational programs on responsible citizenship, science, mathematics, environmental sustainability and many other key learning areas. Families will find new incentive to become familiar with the Internet as they connect to the utility’s website to control their energy bill and investigate enhanced tariffs for more cost-effective use of basic services.

Conclusion

Malta is famed for its Megalithic Temples – the oldest free-standing buildings in Europe, older than the Pyramids of Egypt [1]. But with its smart grid project, it stands to be the home of one of the newest and most advanced infrastructure projects as well. The result of the Maltese smart grid effort will be an end-to-end electricity and water transmission and distribution system. It will not only enable more efficient consumption of energy and water, but will completely transform the relationship of Maltese consumers with the utilities, while enhancing their education and employment prospects. These benefits go well beyond the traditional calculation of benefits of, for example, a simple AMI-focused project, and demonstrate that a smart grid project in an island environment can go well beyond simply improving utility operations. It can transform the entire community in ways that will improve the quality of life in Malta for generations to come.

Reference:

  1. 1 The Bradshaw Foundation, 2009

Empowering the Smart Grid

Trilliant is the leader in delivering intelligent networks that power the smart grid. Trilliant provides hardware, software and service solutions that deliver on the promise of Advanced Metering and Smart Grid to utilities and their customers, including improved energy efficiency, grid reliability, lower operating cost, and integration of renewable energy resources.

Since its founding in 1985, the company has been a leading innovator in the delivery and implementation of advanced metering infrastructure (AMI), demand response and grid management solutions, in addition to installation, program management and meter revenue cycle services. Trilliant is focused on enabling choice for utility companies, ranging from meter, network and IT infrastructures to full or hybrid outsource models.

Solutions

Trilliant provides fully automated, two-way wireless network solutions and software for smart grid applications. The company’s smart grid communications solutions enable utilities to create a more efficient and robust operational infrastructure to:

  • Read meters on demand with five minute or less intervals;
  • Improve cash flow;
  • Improve customer service;
  • Decrease issue resolution time;
  • Verify outages and restoration in real time;
  • Monitor substation equipment;
  • Perform on/off cycle reads;
  • Conduct remote connect/disconnect;
  • Significantly reduce/eliminate energy theft through tamper detection; and
  • Realize accounting/billing improvements.

Trilliant solutions also enable the introduction of services and programs such as:

  • Dynamic demand response; and
  • Time-of-use (TOU), critical peak pricing (CPP) and other special tariffs and related metering.

Solid Customer Base

Trilliant has secured contracts for more than three million meters to be supported by its network solutions and services, encompassing both C&I and residential applications. The company has delivered products and services to more than 200 utility customers, including Duke Energy, E.ON US (Louisville Gas & Electric), Hydro One, Hydro Quebec, Jamaica Public Service Company Ltd., Milton Hydro, Northeast Utilities, PowerStream, Public Service Gas & Electric, San Diego Gas & Electric, Toronto Hydro Electric System Ltd., and Union Gas, among others.

An Australian Approach to Energy Innovation and Collaboration

Just as global demand for energy is
steadily increasing, so too, are the
recognized costs of power generation.
A recent report about the possibility
of creating a low-emissions future by Australia’s
Treasury noted that electricity production
currently accounts for 34 percent
of the nation’s net greenhouse gas emissions,
and that it was the fastest-growing
contributor to greenhouse gas emissions
over the period from 1990 to 2006 [1].

This growing realization of the true
cost of energy production will be brought
into stark relief, with the likely implementation
of a national emissions trading
scheme in 2010.

Australia’s energy producers are entering
an era of great change, with increasing
pressure to drive efficiencies in both the
supply and demand sides of their businesses.
These pressures manifest themselves
in the operation of energy and utilities
organizations in three basic needs:

  • To tighten the focus on delivering value,
    within the paradigm of achieving more
    with less, and while concentrating on
    their core business;
  • To exploit the opportunities of an industry
    in transformation, and to build new
    capabilities; and
  • To act with speed in terms of driving
    leadership, setting the agenda, managing
    change and leveraging experience
    – all while managing risk.

The net effect of the various government
initiatives and mandates around energy
production is to drive energy and utility
companies to deliver power more responsibly
and efficiently. The most obvious
evidence of this reaction is the development
of advanced metering infrastructure
(AMI) and intelligent network (IN) programs
across Australia. Yet a more fundamental
change is also starting to emerge – a
change that is leading companies to work
more openly and collaboratively toward a
smarter energy value chain.

This renewed sense of purpose gives
energy and utilities organizations an opportunity
to think and act in dynamic new ways
as they re-engineer their operations to:

  • Transform the grid from a rigid, analog
    system to a responsive and automated
    energy delivery system by driving operational
    excellence;
  • Empower consumers and improve their
    satisfaction by providing them with near
    real-time, detailed information about
    their energy usage; and
  • Reduce greenhouse gas emissions to
    meet or exceed environmental regulatory
    requirements while maintaining a
    sufficient, cost-effective power supply.

A Global Issue

In Australia, Country Energy, a leading
essential services corporation owned by
the New South Wales Government, is leading
the move to change not just its own
organization, but the entire electricity
supply industry.

With the strength of around 4,000
employees, and Australia’s largest power
supply network covering 95 percent of
New South Wales’ landmass, Country
Energy recognized the scale and scope of
this industry challenge meant no single
player could find all the answers by himself.

A Powerful Alliance

Formed by IBM, the Global Intelligent
Utilities Network (IUN) Coalition represents
a focused and collaborative effort
to address the many economic, social and
environmental pressures facing these
organizations as they shape, accelerate
and share in the development of the
smart grid. Counting just one representative
organization from each major urban
electricity market, the coalition will collaborate
to enable the rapid development of solutions, adoption of open industry-based
standards, and creation of informed
policy and regulation.

Not only does the coalition believe
these three streams of collaboration will
help drive the adoption of the IUN, or
smart grid, in markets across the planet,
but the sharing of best practice information
and creation of a unified direction for
the industry will help reduce regulatory,
financial, market and implementation
risks. And, like all productive collaborative
relationships, the rewards for individual
members are likely to become amplified as
the group grows, learns and shares.

Global Coalition, Local Results

As Australia’s only member of the coalition,
Country Energy has been quick to
capitalize on – and contribute to – the
benefits of the global knowledge base,
adapting the learnings from overseas
operators in both developed and emerging
markets, and applying them to the unique
challenges of a huge landmass with a
decentralized population.

From its base in a nation rich in natural
resources, the Australian energy and utilities
industry is quickly moving to adapt to
the emergence of a carbon economy.

One of Country Energy’s key projects in
this realm is the development of its own
Intelligent Network (IN), providing the
platform for developing its future network
strategy, incorporating distributed generation
and storage, as well as enabling consumer
interaction through the provision of
real-time information on energy consumption,
cost and greenhouse footprint.

Community Collaboration

Keen to understand how the IN will work
for customers and its own employees,
Country Energy is moving the smart grid
off the page and into real life.

Designed to demonstrate, measure and
evaluate the technical and commercial
viability of IN initiatives, two communities
have been identified by Country Energy,
with the primary goal of learning from
both the suitability of the solutions implemented
and the operational partnership
models by which they will be delivered.

These two IN communities are intended
to provide a live research environment
to evaluate current understandings and
technologies, and will include functionality
across nine areas, including smart meters,
electrical network monitoring and control,
and consumer interaction and response.

Demonstrating the Future

In preparing to put the digital age to
work, and to practically demonstrate to
stakeholders what an IN will deliver, Country
Energy has developed Australia’s first
comprehensive IN Research and Demonstration
Centre near Canberra.

This interactive centre shows what the power network of the not-too-distant
future will look like and how it will
change the way power is delivered, managed
and used.

The centre includes a residential setting
to demonstrate the “smart home of
the future,” while giving visitors a preview
of an energy network that automatically
detects where a power interruption
occurs, providing up-to-date information
to network operators and field crews.

An initiative as far-reaching as the IN will
rely on human understanding as much as it
does on technology and infrastructure.

Regional Delivery Model

In addition to the coalition, IBM and
Country Energy developed and implemented
an innovative new business model
to transform Country Energy’s application
development and support capability. In
2008, Country Energy signed a four-year
agreement with IBM to establish a regional development centre, located in
the city of Bathurst.

The centre is designed to help maximize
cost efficiencies, accelerate the pace of
skills transfer through close links with the
local higher-education facility, Charles
Sturt University, and support Country
Energy’s application needs as it moves
forward on its IN journey. The centre is also
providing services to other IBM clients.

Through the centre, Country Energy
aims to improve service levels and innovations
delivered to its business via skills
transfer to Country Energy. The outcome
also allows Country Energy to meet its
commitment to support regional areas
and offers a viable alternative to global
delivery models.

Looking to the Future

In many ways, the energy and utilities
industry has come to symbolize the crossroads
that many of the planet’s systems find themselves at this moment in time:
legacy systems are operating in an economic
and environmental ecosystem that
is simply unable to sustain current levels –
let alone, the projected demands of global
growth.

Yet help is at hand, infusing these systems
with the instrumentation to extract
real-time data from every point in the
value chain, interconnecting these points
to allow the constant, back-and-forward
fl ow of information, and finally, employing
the power of analytics to give these systems
the gift of intelligence.

In real terms, IBM and Country Energy
are harnessing the depth of knowledge
and expertise of the Global IUN Coalition,
collaborating to help change the way the
industry operates at a fundamental level
in order to create an IN. This new smart
grid will operate as an automated energy
delivery system, empowering consumers
and improving their satisfaction by providing
them with near real-time, detailed
information about their energy usage.

And for the planet that these consumers
– and billions of others – rely upon,
Country Energy’s efforts will help reduce
greenhouse gas emissions while maintaining
that most basic building block of
human development: safe, dependable,
available and cost-effective power.

Reference

  1. 1 Commonwealth of Australia. Commonwealth
    Treasury. Australia’s Low Pollution
    Future: The Economics of Climate
    Change Mitigation. 30 October 2008.

Author’s Note: This customer story is based
on information provided by Country Energy
and illustrates how one organization uses IBM
products. Many factors have contributed to
the results and benefits described. IBM does
not guarantee comparable results elsewhere.

Customer Relationships and the Economy

A little over a year ago, the challenges facing the global energy and utilities market were driving a significant wedge between utilities and their customers. In Western European markets, price increases across gas, electricity and water, combined with increased corporate earnings, left many utilities in the uncomfortable position of being seen as profiteering from customers unable to change suppliers for significant benefit.

Headline-makers had a field day, with gross simplification of the many utilities’ business models. They made claims about “obscene profits,” while citing the “long-suffering” consumer position [1]. Now, more than a year later, gas and electricity prices are falling, but the severity and pace of the wider economic downturn has given no time for utilities to re-position themselves with customers. Brand and relationship-enhancing programs such as smart metering and energy efficiency are still largely in their infancy.

The evolving relationship with the customer base, where customer expectations are resulting in a more participatory, multi-channel engagement, comes at a time when the evolution of smart networks and metering solutions are on the cusp of driving down cost to serve and improving service levels and options. Significant benefits accrue from consumption measurement and management capabilities. Benefits also result from the opportunity to transform the consumer relationship by pushing into new areas such as home device management, more personalised tariffs and easier debt arrangements. The position for utilities, therefore, should be favourable – finally being seen as working on a more participatory relationship with their customers.

For consumers, the consequences of recession include an increased pressure on household spending. In competitive markets, there could be increased churn as the ever-changing “best-buys” attract customers. For utilities, increased churn rates are obviously bad news – the cost of new customer acquisition often wipes out profit associated with consumption by that customer for months, even years. Moreover, while utilities are working on marketing the best deals to acquire and retain customers – and on piloting smart technologies in the home – consumers’ familiarity with new technologies and their allegiance to some brands presents an opportunity for third parties to gain greater hold on the customer relationship.

Take the case of smart metering, for example, where many utilities are engaging upon pilot and larger rollouts. This is an area of innovation that should deliver benefits to both consumers and utilities. The assured business benefits to the utility companies come not only from applying the technology to lower operational costs, but also from enhancing their brand and customer service reputation. To the customer, smart technologies offer consumption details in an understandable form and give the promise of accurate commodity billing.

The risk is that the potentially lucrative relationship between customer and utility is currently damaged to a point where telecommunications providers, retailers or technology companies could step in with attractive, multi-service offerings. That could relegate the utility to simple supply activities, unable to gain a significant hold in home engagement. Certainly, utilities will still witness savings from automated meter reading and improved billing accuracy, but this commoditisation path for the utility company will limit profitable growth and push them further away from customers. Combine this with increased churn, and suddenly the benefits of smart technology deployment could be wiped out for the utility company.

This is not just an issue associated with smart technologies – the entire customer relationship journey with a utility is under threat from non-utility entrants (See Figure 1). Consider the area of consumer marketing and sign-up. Third parties that simply market other companies’ services have already taken a position in this part of the customer journey by providing Internet sites that allow tariff comparison and online switching of suppliers. The brand awareness of the comparison sites has already begun to gain the trust of the customer and the utility brand becomes more remote – the start of an uneasy decline. Additionally, in receiving fees for bringing customers to utilities, these companies thrive on churn – driving up utility cost and driving an even greater gap into the consumer-utility relationship.

Further credence to the challenges comes in the areas around presentation of information to customers. Any utility information channel will demand attention to “stickiness” when using technology such as the Internet for displaying utility bills and consumption data. This information has to be pushed to consumers in an attractive, understandable, and above all, personal format. Does the traditional utility information quality and flow have enough appeal for the average consumer to repeatedly view over time? It could be argued that third parties have the ability to blend in more diverse information to improve stickiness on, for example, handheld devices that give the consumer other benefits such as telephony, traffic and weather updates.

Customer Experience Risks

Traditionally, utilities are seen as relatively “recession proof,” operating on longer- term cycles than financial and retail markets. It is this long-term view that, coupled with an already disjointed customer relationship, poses a significant risk to utilities in the next two years. Customers will react in the competitive markets to the feeling of being “cornered” in an environment where few utilities truly differentiate themselves on customer service, product, tariff or brand. Research suggests that consumers are driving change in the relationship with their utilities, and it is this change that opens up opportunity for others (“Plugging in the Consumer”, IBM Institute for Business Value, 2007).

Reaction may not come soon; rarely do new entrants come into a recessionary market. But the potential for non-utilities to begin exploiting the gap between customer and utility should be cause for concern.

The parallel of these changes and risks was seen in the telco landline market over the last two decades. Several of the big, former-monopoly landline carriers are now perceived as commodity bandwidth providers, with declining core customer numbers and often-difficult regulatory challenges. Newer, more agile companies have stepped into the role of “owning” the consumer relationship and are tailoring the commodities into appealing packages. The underlying services may still come from the former-monopoly, but the customer relationship is now skewing toward the new entrant.

There are strategies that can be proactively deployed, individually or in combination, that improve the resilience of a utility through a recession, and that indeed redraw the client relationship to the point where profitability can increase without attracting the appearance of excess. These strategies resist the potential demise of the utilities to commodity providers, allowing for a value-add future based on their pervasive presence in the home.

The five steps outlined below revolve around the need to focus on the fundamentals, namely customer relationships and cash:

  1. Know Your Customer. Like most companies, utilities can benefit greatly by knowing more about customers. By engaging upon a strategy of ongoing information collection, customer segmentation and profitability analysis, plans can be put in place to detect and react to customer attrition risks. This includes early identification of changes to a customer’s circumstances, such as the ability to settle debt, allowing the utility to work proactively with the customer to address the issue. An active relationship style will show consumers that utilities care and understand, increasing brand loyalty, and hence, lowering the cost to serve.
  2. Free Up Locked Cash. Although recession-resistant in the short-term, identifying organic sources of improved cash flow can be an important source of funding for utilities that need to invest in improving customer relationships and capabilities. Industry benchmarks indicate that most utilities have opportunities to plug leaks in their working capital processes, with the potential of tapping into a significant and accessible source of free cash flow. For example, consider the traditionally neglected, under-invested area of consumer debt. With the economic downturn, debt levels are likely to rise, and, if unchecked, costs and cash flow will be adversely impacted.

    Focus areas for addressing the issue and freeing up locked cash include:

    • Using process management techniques such as activity-based management or Lean Six Sigma to identify opportunities for performance improvement across the billing, collections and credit-management processes;
    • Focusing on developing the skills and operational structures required to better integrate the meter to cash functions; and
    • Optimizing the use of utility-specific debt tools that work with the core systems.

Additionally, gaining insights through precision analytics to better manage debt functions – similar to best practices in banking and telecommunications – needs to be accelerated.

  1. Focus on the Future. Cost cutting is inevitable by many companies in this economic environment. It is important to understand the medium-to-long-term impact of any cuts on the customer relationship to determine if they could hurt profitability by increasing churn and related cost-to-serve metrics. Thus, utilities must achieve a clear understanding of their baseline performance, and have a predictive decision-making capability that delivers accurate, real-time insights so they can be confident that any actions taken will yield the best results.
  2. Innovate. Utilities traditionally work on longer investment cycles than many other businesses. When compared to consumer-facing industries, that can result in consumer perception that they are lacking innovation. Many consumers readily accept new offerings from retailers, telcos and technology firms, and the promise of a smart home will clearly be of strong commercial interest to these individuals. That’s why utilities must act now to show how they are changing, innovating for the future and putting control into the hands of the consumer. Smart metering programs will help the utilities reposition themselves as innovators. The key will be to use technology in a manner that bonds the customer better with the utility.
  3. Agility is King. Longer investment cycles in the utility sector, combined with the massive scale of operations and investment, often restrict a utilities’ ability to be agile in their business models. The long-term future of many utilities will depend upon being able to react to new consumer, technology and regulatory demands within short timescales. Innovation is only innovative for a short time – businesses need to be ready to embrace and exploit innovation with new business models.

Take Action Now

Many will argue that the current utility programs of change, such as core system replacement, smart metering and improving customer offerings, will be enough to sustain and even enhance the customer relationship. The real benefit, however, will be from building upon the change, moving into new products, delivering personalized services and tariffs, and demonstrating an understanding of individual consumer needs.

Still, utilities may struggle to capture discretionary spending from customers ahead of telcos, retailers, financial firms and others. Simply put, action needs to be taken now to prevent the loss of long-term customer relationships. For utilities, doing more of the same in this dynamic and changing market may simply not be good enough!

References:

  1. Multiple references, especially in the British press, including this one from Energy Saving Trust: http://www.energysavingtrust.org.uk/Resources/Daily-news/Gas-and-Electricity/Probe-demanded-into-energy-rip-off/(energysavingtrust)/20792

Turning Information Into Power

Around the world, utilities are under pressure. Citizens demand energy and water that don’t undermine environmental quality. Regulators seek action on smart grids and smart metering initiatives that add intelligence to infrastructure. Customers seek choice and convenience – but without additional costs.

Around the globe, utilities are re-examining every aspect of their business.

Oracle can help. We offer utility experts, mission-critical software applications, a rock-solid operational software suite, and world-leading middleware and technology that can help address these challenges. The result: flexible, innovative solutions that increase efficiency, improve stakeholder satisfaction, futureproof your organization – and turn information into power.

Utilities can begin with one best-of breed solution that addresses a specific pain point. Alternatively, you can implement several pre-integrated applications to ease the development and administration of cross-departmental business processes. Our complete applications and technology footprint can be standardized to focus on accountability and reduce the resources spent on vendor relations.

Oracle Is A Leader In Utilities: 20 of the Top 20 Global Utilities Get Results With Oracle

Oracle provides utilities with the world’s most complete set of software choices. We help you address emerging customer needs, speed delivery of utility-specific services, increase administrative efficiency, and turn business data into business intelligence.

Oracle Utilities offers the world’s most complete suite of end-to-end information technology solutions for the gas, water, and electric utilities that underpin communities around the world. Our revolutionary approach to providing utilities with the applications and expertise they need brings together:

  • Oracle Utilities solutions, utility-specific revenue and operations management applications:
    • Customer Care and Billing
    • Mobile Workforce Management
    • Network Management System
    • Work and Asset Management
    • Meter Data Management (Standard and Enterprise Editions)
    • Load Analysis
    • Load Profiling and Settlement
    • Portfolio Management
    • Quotation Management
    • Business Intelligence
  • Oracle’s ERP, database and infrastructure software:
    • Oracle E-Business Suite and other ERP applications
    • Times Ten for real-time data management
    • Data hubs for customer and product master data management
    • Analytics that provide insight and customer intelligence
    • ContentDB, SpatialDB and RecordsDB for content management
    • Secure Enterprise Search for enterprise-wide search needs
  • Siebel CRM for larger competitive utilities’ call centers, customer order management, specialized contacts and strategic sales:
    • Comprehensive transactional, analytical and engagement CRM capabilities
    • Tailored industry solutions
    • Role-based customer intelligence and pre-built
  • Oracle’s AutoVue Enterprise Visualization Solutions:
    • Make business and technical documents easily accessible by all enterprise users
    • Expedite document reviews with built-in digital annotations and markups
    • Boost the value of your enterprise system with integrated Enterprise Visualization
  • Oracle’s Primavera Solutions:
    • Effectively manage and control the most complex projects and project portfolio
    • Deliver projects across generation, transmission and distribution, and new clean-energy ventures
    • Optimize a diminishing but highly skilled workforce

Stand-alone, each of these products meets utilities’ unique customer and service needs. Together, they enable multi-departmental business processes. The result is an unparalleled set of technologies that address utilities’ most pressing current and emerging issues.

The Vision

Cross-organizational business processes and best practices are key to addressing today’s complex challenges. Oracle Utilities provides the path via which utilities may:

  • Address the "green agenda:"
    • Help reduce pollution
    • Increase efficiency
    • Complete software suite to enable the smart grid
  • Advance customer care with:
    • Real-time 360-degree views of customer information
    • Tools to help customers save time and money
    • Introduce or retire products and services quickly, in response to emerging customer needs
  • Enhance revenue and operations management:
    • Avoid revenue leakage across end-to-end transactions
    • Increase the visibility and auditability of key business processes
    • Manage assets strategically
    • Bill for services and collect revenue cost-effectively
    • Increase field crew and network efficiency
    • Track and improve performance against goals
    • Achieve competitive advantage with a leading-edge infrastructure that helps utilities respond quickly to change
  • Reduce total cost of ownership through access to a single global vendor with:
    • Proven best-in-class utility management solutions
    • Comprehensive, world-class capabilities in applications and technology infrastructure
    • A global 24/7 distribution and support network with 7,000 service personnel
    • Over 14,000 software developers
    • Over 19,000 partners

Strategic Technology For Every Utility

Only Oracle powers the information-driven enterprise by offering a complete, integrated solution for every segment of the utilities industry – from generation and transmission to distribution and retail services. And when you run Oracle applications on Oracle technology, you speed implementation, optimize performance, and maximize ROI.

When it comes to handling innovations like daily or interval meter reading, installing, maintaining, and replacing plant and linear assets, providing accurate bills and supporting your contact center and more, Oracle Utilities is the solution of choice. Utilities succeed with Oracle. Oracle helps electric, gas, water and waste management meet today’s imperatives to do the following:

  • Help customers conserve energy and reduce carbon footprints
  • Keep energy affordable
  • Strengthen and secure communities’ economic foundation

Meeting the Challenges of the Future, Today

Utilities today need a suite of software applications and technology to serve as a robust springboard from which to meet the challenges of the future.

Oracle offers that suite.

Oracle Utilities solutions enable you to meet tomorrow’s customer needs while addressing the varying concerns of financial stakeholders, employees, communities, and governments. We work with you to address emerging issues and changing business conditions. We help you to evolve to take advantage of new technology directions and to incorporate innovation into ongoing activity.

Partnering with Oracle helps you to futureproof your utility.