Under pressure from four distinct sources – aging assets, growing peak demand,
the emergence of new power generation technologies and revenue constraints from
regulation and theft – distribution companies around the world are seeking a
new, smarter approach to operating their networks.

Intelligent networks are based on advanced network analytics, automated meter
management, remote asset monitoring and control, mobile workforce management
and Internet-enabled supervisory control and data acquisition (SCADA). Distribution
companies operating intelligent networks have a much stronger business case
to present when they seek regulatory approval for asset investments since intelligent
networks are designed to enable electricity grids to deliver better service
without sudden price increases.

The Older Generation

In much of the electrified world, modern grids were built in the 1950s, 1960s
and 1970s. Now, many of the assets critical to running these networks (such
as power transformers and substations) are approaching the end of their expected
life spans. Yet with regulators reluctant to approve capital-intensive infrastructure
upgrades (due to the price increases they may trigger), distribution companies
find themselves operating assets beyond those design limits.

The average accounting age of assets is declining, but this can be misleading:
For accounting purposes, that age does not include the fully depreciated assets
that remain in operation. While the average accounting age of assets in the
U.S. has declined from 24.1 years in 1999 to 15.8 years in 2003, many assets
are fast approaching the end of their design life (see Figure 1). A similar
situation exists in the United Kingdom and Australia, where investment in distribution
assets peaked in the late 1960s and early 1970s.

Many Small Generators

The economics of the electricity industry show some signs of changing to favor
small-scale power generation connected to the distribution system. Two trends
push this shift. First, concern over emissions is sparking interest in new electricity
generation technologies. Second, the quest for efficiency is driving onsite
use of small-scale, gas-fired generators. New technologies, such as fuel cells,
will also be used in buildings and homes to generate electricity and heat water.

When producing electricity with a greater number of smaller generators, it
makes more economic sense to place the generator closer to the customer so that
less power is lost over the network. As a result, a myriad of small power sources
are being embedded in grids originally designed for large, centralized power
production and are designed to adjust automatically to provide voltage control
to meet requirements within a small tolerance. The presence of many small generators
can wreak havoc with these controls. Moreover, while central transmission networks
are designed to handle power flows with sufficient flexibility to prevent a
failure, peripheral distribution networks – where distributed power generators
are being added – can handle only the maximum flow required by customers. These
networks are simply not built to handle the complex power flow management issues
that come with distributed generation, such as sudden reverse flows when customers
disconnect generators.

Consequently, distribution companies face a choice in how to handle the complexities:
either passively, by upgrading wires and other components to handle the maximum
flow from each generator, or actively, by building in sensors and switches to
monitor and control the output of generators, avoid bottlenecks, keep fault
currents within safe levels and keep voltages within statutory limits.

Under Pressure

Added to this, revenue pressures from regulation and theft are constraining
their ability to invest in new infrastructure. Despite key differences in regulatory
regimes globally, in most markets changes in network pricing and rates of return
will continue to require regulatory clearance. Regulators are often reluctant
to authorize investment in distribution assets and protect the interests of
customers by ensuring a continuous, high-quality supply of electricity; but
they also seek to avoid the political ramifications of rate hikes. This combination
of motives gives officials an acute cost-benefit sensitivity. In this climate,
distribution companies must demonstrate the business case that the money they
propose for renewing the network is money well invested.

Revenue lost to theft also represents a constraint on investment. Theft of
electricity is a major issue affecting distribution company balance sheets worldwide.
In 2002, the estimated range of power theft in the United Kingdom was $72 million
to $541 million; in 1998, companies in the U.S. experienced a whopping $1.6
billion to $10.9 billion loss. (In the context of electricity, “loss” is taken
to mean how much power is “lost” between the power station and the paying customer
– which includes theft, but also includes electrical losses.) To reduce theft,
distribution companies need a much more detailed view of where and how electricity
exits their networks.

Keeping Up

Today, in almost every electricity market, peak demand is growing, creating
a need to augment the capacity of aging networks. Peak demand for electricity
generally grows as a function of gross domestic product. So unless GDP stagnation
is a permanent fixture in a country’s economy, that country’s grid can be expected
to face a nearcontinuous need to increase capacity.

Demand growth boosts the overall yearly capital costs of operating the network.
In a regulatory climate where rate hikes are problematic at best, the options
are clear: Keep up with growth or risk letting service levels slide. If left
unaddressed, growing demand can leave the electricity distribution company with
significant problems.

Using What You Have

These growing pressures are forcing electricity distribution companies to make
difficult choices. By avoiding investment in network upgrades and by operating
transformers and other capital-intensive network components beyond their design
life, they keep costs low in the short term.

Historically, technological constraints have forced network designers to plan
around worst-case scenarios. This approach requires distribution companies to
build components larger than needed and replace them earlier than necessary.
But in today’s cost-conscious regulatory environment, erring on the side of
caution is an expensive strategy.

However, as sensor technologies decline in price and the industry develops
advanced network analytics and real-time monitoring, reconfiguration of the
network is a growing possibility.

The intelligent network offers a more granular, real-time view of its status.
It does away with point-to-point communications in favor of standardized, packet-based
networking (like the Internet). Intelligent networks provide not only data that
predict and help prevent faults, but also a real-time picture of what is happening
when a fault does occur, allowing network operators to dispatch engineers to
the right location with the right equipment.

Traditional network operators respond to growing peak demand by adding equipment.
With limited ability to monitor spikes, these networks must build in extra capacity
to cope with periods of peak load. With this approach, both the nominal and
short-rated capacity of assets must grow along with peak demand, and every kilowatt
of peak demand growth costs networks $120 to $180 per year in perpetuity.

In handling distributed generation, the traditional approach is capitalintensive:
Build dedicated wires and upgrade components. The intelligent network approach
enables the existing network to accommodate distributed generation while avoiding
costly upgrades. To identify demand spikes on distributed generators, network
operators can run the worstcase scenario against real-time data on the system’s
actual capacity and estimates of near-term demand – say, when a weather forecast
predicts a cold snap.

Building the Networks

With the growing ability of sensors and smart meters to monitor the status
of the intelligent electricity network continuously, distribution companies
can store the constant stream of data they provide in a data warehouse, where
advanced network analytics can be applied to boost operational efficiency.

With advanced network analytics, sensor and meter data can be mined to support
strategic actions:

• Targeting investment at components that are about to fail or are running
  near full capacity;
• Enabling real-time reconfiguration in the event of a blackout (reducing
  downtime, revenue loss and public ill will);
• Optimizing the configuration of the network (keeping components within operating
  tolerances); and
• Satisfying regulators that prudent investment decisions are being made.

Asset life analytics, for example, focus on the life span of network components.
Network components (e.g., transformer insulation) deteriorate with use. Because
similar assets fail in similar ways, their life spans can be analyzed based
on historic usage patterns. As assets begin to fail, detailed analytics can
suggest how to adjust the network to protect the asset.

Also, network design optimization can lower the cost of operating networks
and help reduce capital expenditures. Without granular information from the
intelligent network, distribution companies must respond to growing demand by
upgrading the network across the board, as if every customer is the hypothetical
“biggest consumer.” Analysis of individual customer load patterns, on the other
hand, can enable distribution companies to avoid upgrading circuits where upgrades
are not actually needed.

And network operations analytics can focus on power flows within the network,
helping improve reliability and reduce or defer capital expenditures. With real-time
monitoring of contingent fault currents, operators can keep fault currents from
overloading critical components, for instance. Data from smart meters allow
engineers to be dispatched to fault zones with the right equipment, enabling
quicker recovery from network failures. Real-time control of power flows also
enables networks to handle distributed generation.

Four Technology Enablers

Automated meter management. Automated meters can mitigate demand growth and
curtail theft. Smart meters placed in homes and businesses also enable time-of-use
pricing. Peak-sensitive pricing has been proven to lower demand in markets where
it has been implemented. Southern Company’s “Good Cents” time-of-use program
cut consumption by nearly 45 percent during peak hours.

Time-of-use pricing is also popular with regulators, as it mitigates peak demand
growth and allows distribution companies to defer network upgrades, keeping
prices stable for consumers.

Remote asset monitoring and control. Remote sensors can detect whether events
on the network are consistent with the network’s capacity and warn operators
when a component begins to operate outside of optimum ranges. With the ability
to monitor whether power flows are within optimum range, operators can load
components higher than otherwise possible. Sensors can detect when parts of
the network begin to fail. Based on the feedback from these sensors, the control
center can adjust network configurations to reduce the load on compromised assets
and warn field engineers when deterioration creates a probability (albeit low)
that an asset will be unsafe. Data from sensors can also be used to optimize
the maintenance and replacement of assets.

Sensors on transmission wires can also yield improved customer service by warning
when trees or other foliage grow too close to power lines.

Mobile workforce management. This boosts the speed and accuracy of maintenance
and repairs by electronically streamlining the flow of data from sensors through
the central control center to field crews equipped with handheld computers and
PDAs.

Internet-enabled SCADA. This replaces cost-intensive, proprietary SCADA systems
with the standard Internet communications protocol. It can also cut telecommunications
costs by 20 percent or more and offers a robust, fault-tolerant architecture
that scales easily to support the deployment of sensors, smart meters and remote
PDAs across the network.

Internet-enabled SCADA can release utilities from reliance on the proprietary
communications protocols of equipment manufacturers and offers the higher fault
tolerance of a packet-based network. The Internet technology can also provide
a communications platform for future services.

More Than the Sum of the Parts

In addition to the benefits conferred by individual intelligent network components,
implementation of the intelligent network yields synergies in scalability; an
Internet-enabled SCADA network can lower the cost of implementing the systems
and devices that make up the larger intelligent network. Once the digital SCADA
network is built, the incremental cost of adding components is small.

Other synergies are realized via the combination of automated meter management
and remote asset monitoring and control, which can cut the need to deploy sensors
since electricity distributors use fewer sensors to monitor assets on the network
by inferring network currents from meters.

Synergies are also found in the combination of automated meter management and
mobile workforce management. In the event of a fault, this combination can lower
the time and cost of restoring service, as data can be gathered to pre-diagnose
the fault before dispatching an engineer.

Finally, the combination of remote asset monitoring and control and mobile
workforce management can help distribution companies defer the replacement of
failing assets and even avoid upgrading assets where fault current limits are
exceeded only briefly each year. By enabling the distribution company to set
up exclusion zones around affected assets, these combined capabilities allow
at-risk assets to continue to operate.

Caught between a need to renew and upgrade aging networks and a customer base
accustomed to steady rates, distribution companies are fast approaching a point
where they need to make choices. New technological capabilities are becoming
a reality, but only by leveraging them effectively – to operate networks more
intelligently – will electricity distribution companies be able to navigate
the challenges of the 21st century.