The electric utility industry is currently undergoing the greatest period of transformation in its history. Utilities are facing new challenges, and these challenges present opportunities for them to reevaluate business processes that have remained unchanged for decades. This blog series delves into six of the most prominent challenges, dissects them, and hypothesizes how they will shape the future of the utility industry. To better understand how the utility industry is changing, we would like to spend this introductory blog post contrasting the past and the future, while introducing each of these six challenges.
Let us introduce you to a typical utility in the 1950s. We’ll call it Ameritown Electric Company. Business is great in 1950. Each year, Ameritown makes significant strides in generating electricity more efficiently each year, and as a result, it lowers the cost of kilowatt-hours for its customers each year. Furthermore, Ameritown’s customer base, especially the residential sector, is growing so fast that it can barely keep up with demand. If we had to sum up Ameritown’s business model and the electric grid in general, the phrase would be “centralized power plants.” In 1950, the grid was made up of large power plants located many miles away from the majority of utility customers. Ameritown and other utilities of 1950 were able to amass the funds needed to build these power plants and extensive power lines because of the yearly growth in their customer base and their significant energy efficiency gains.
Fast forward 100 years, and the Ameritown Electric Company of 2050 has a completely different business model. Its customer base has stabilized, the fossil fuel industry is no longer making huge strides in innovation, and customers and regulators have become more concerned about environmental impacts. To keep up with these new challenges, Ameritown has had to innovate its business model with new technology and modernized business processes.
By 2050, the smart grid movement, or the modernization of the electric grid via information and communication technology, is reaching maturity. Utilities like Ameritown can monitor and understand the condition of their grid like never before. Decisions can be carried out in an instant through automation and remote control. Power quality and reliability are better than ever, thanks to sensors throughout the grid. The grid is more resilient due to its ability to instantly identify outages and reroute electricity. These advancements all significantly changed the way utilities operate and respond to problems, but one object had more transformational impact to the grid than any other technology: smart meters.
Just as centralized power plants were the foundation of the 1950s grid, smart meters and ancillary technologies now provide the backbone of the electric grid and all the services it provides. Their installation enables utilities to collect usage in small intervals as opposed to lump sums once a month and to communicate to and receive communications from the meters in real-time.
The most remarkable concept that smart meters helped Ameritown realize and establish is the partnership between the utility and its customers. In 1950, Ameritown customers knew almost nothing about their energy usage, except that someone would come to their property to read their meter every month, and they would get a bill mailed to them with a flat fee per kWh. Customers in 2050 now receive communication from the utility in a variety of ways. Their bills have changed. Some customers get bills emailed to them, or they view their bills online. Others are on pre-paid agreements, where they pay the same amount every month. Furthermore, the utility is no longer communicating to the customer only once per month. Some customers receive daily reports on the price of electricity. Others use apps on their smart phones to monitor their energy usage.
These tools and a variety of service agreements are necessary for customers in 2050, because they are no longer just consumers of electricity. Ameritown customers have distributed generation resources installed on their property. Residential customers might have solar panels on their roofs and electric vehicles or battery storage in their garages. Commercial or industrial customers might have invested in solar or wind farms and own private fuel cells or backup generators. Not only do these sources provide energy for their owners, the excess electricity that the owners cannot use is transferred to Ameritown’s grid and is used by other Ameritown customers. As a result, Ameritown pays its customers for their excess generation.
Now that customers in 2050 are also producers of electricity, the grid can no longer be described as a system of large, centralized power stations. The grid is decentralized, meaning it consists of many smaller generation units dispersed throughout its jurisdiction. Even though the architecture of the grid has changed, 2050 Ameritown stills faces issues with operating near capacity. In 1950, there were periods of the day when the grid was operating at peak capacity, mostly when the entire family came home from work and school and started to turn on appliances. Ameritown’s solution was to build more power plants. 2050 Ameritown still has periods of the day with peak usage, but the solution has changed. Instead of building more generation sites when only incremental increases are needed, Ameritown has a supplemental solution called demand response. Its customers willingly sign up to be alerted during periods of heavy load, and when they receive those alerts, they will reduce their usage. In return, the utility reimburses them for their flexibility.
Demand response is not the only customer-centric program offered by Ameritown Electric Company in 2050. It has electric vehicle charging stations installed around the city of Ameritown, which allows customers to charge their vehicles while running errands. The customers then pay for the electricity on their monthly service bill. Ameritown also provides lease agreements to customers who cannot afford or choose not to own solar panels. For a small monthly fee, customers get utility-owned solar panels installed on their roofs, and they do not have to worry about maintenance and operation of the solar systems. This sampling of programs is diverse and complex. When implementing these programs, Ameritown did not have the in-house expertise needed to install these systems, nor do they have the resources to operate all these components on a daily basis. Therefore, Ameritown partnered with third-party vendors to make these programs a reality. One vendor owns and maintains the electric vehicle charging stations, another installs solar panels for the utility, and a third operates a control center focused on forecasting periods of high use and alerting demand response customers to reduce their usage.
To interface with myriad vendors and software applications that Ameritown now requires in an efficient and cost-effective way, it utilizes communication standards such as MultiSpeak and Common Information Model (CIM). These standards are necessary since the number of software applications, and therefore, the number of interfaces has increased manyfold in the last 100 years. From a governance and cost perspective, it is simply unfeasible to have multiple interfaces, each with its own format. Hence, Ameritown worked with several other utilities a few decades ago to determine standards with which several software applications are compliant. This helps in building robust and product-independent integrations, as opposed to point-to-point integrations that change from vendor to vendor.
With high amounts of automation, inter-communication, and digitization, Ameritown now must account for a unique set of challenges that it did not have some 100 years ago. These challenges are related to that of information security and protecting customers from data theft, fraud, and potential terror attacks. Ameritown has had to invest in ensuring all its software systems can pass security audits and meet information security standards set by local councils and organizations such as NERC. Furthermore, Ameritown has trained its staff to reduce data breaches and notice security vulnerabilities and breaches.
As a whole, 2050 Ameritown Electric Company is a much more diverse utility than 1950 Ameritown. In 1950, its business model focused on reliably and safely delivering electricity from large power plants across many miles of transmission and distribution lines to its customers. In 2050, Ameritown is still focused on delivering electricity safely and reliably, but it is receiving electricity from many different sources, and its customers have become active contributors. Ameritown provides them with a multitude of information about their energy usage and customizable service agreements to fit their needs. Customers are now willing to actively control their energy usage for incentives. This expansion of service offerings is made possible through Ameritown’s partnerships with vendors, and it is able to safely and reliably provide these services through its investment in communication standards and security.
So how does a utility like Ameritown successfully adapt to thrive in an increasingly digital world, with very different customer and regulatory requirements than those that existed for the first hundred years of the grid’s existence? Please follow our blog over the next six weeks as we explore how the most prominent challenges electric utilities face today present opportunities to improve business processes and operations.
About the Authors
As a senior consultant for Red Clay Consulting, Ankit Malik works primarily in analysis of software functionality and client requirements, designing a complete solution, leading teams performing the configuration or custom development required to meet requirements, leading testing efforts including unit, string and migration testing, and delivery support. Ankit offers a strong background of C and C++ programming, as well as significant experience in XML, XPath and many other scripting languages. Ankit has worked with SOAP, AJAX, and is knowledgeable of web services. He is also experienced in Middleware architecture and technologies, including BPEL and Oracle SOA Suite, and has worked extensively with two-way device communications.
As a consultant at Red Clay Consulting, Megan Milam has comprehensive training and functional experience with Oracle Utilities Application Framework software and Oracle Utilities Lodestar software. Furthermore, her Bachelor of Science degree in electrical engineering, with an emphasis in power systems and smart grid technology, and her previous work experience at a transmission System Operator give her a technical background with a firm understanding of industry best practices and an ability to implement optimal solutions.