Change is constant in the utilities industry, and 2018 is no exception. How can companies navigate the complex factors at play while continuing to create value for their stakeholders?
After several decades of industry-wide change from a variety of external and internal forces, utilities now face a new wave of powerful disruption from progressing technology and shareholder performance expectations. At the same time, converging pressures such as grid modernization, an aging workforce, growing client demand for affordable, reliable and environmentally sustainable electricity, governmental regulation and IT/OT integration are bringing immense challenges that companies must solve through effective lean operations, all while driving utilities to strategically maneuver and create value for their stakeholders.
Governmental policy and regulation
One thing is certain when it comes to regulation, there is no certainty. Even if lawmakers roll back regulations, companies must run effective and efficient businesses as part of risk and compliance analysis so they are able to meet the expectations of any applicable legislation. Utilities must continue on the path of finding new ways to generate power with plants reaching their end of life. In order to do this, updating the infrastructure will remain a critical need from 2018 and beyond.
Updating grid infrastructure
Modernizing the U.S. power grid to make it smarter and more resilient is one of the largest undertakings in utility history. The Grid Modernization Multi-Year Program Plan (MYPP) developed by the U.S. Department of Energy (DOE) seeks to increase the grid’s reliability and resilience.
For utilities, a modernized grid means improved security, reduced peak loads, increased integration of renewables and lower operational costs. The goal is to use technologies, equipment and controls that communicate and work together to deliver electricity more reliably and efficiently. Consumers will also benefit from the reduction in the frequency and duration of power outages, reduced impact from storms and having service restored more quickly when outages occur. In addition, with easy access to their usage data, consumers can better manage their own energy consumption and costs.
In 2018, expect to see consumers calling the shots. It’s predicted by 2023 that the “smart home” market will reach $138 billion and smart meters will be a big part of this; meanwhile the market is starting to see increased competition from Amazon Alexa, Google and others. This should serve as a wake-up call for utilities to be agile, flexible and operationally sound. Utilities will want to stick to what is core to their business and look for partners that can guide them through this potential threat and make a competitive advantage.
The most significant challenge facing the industry today is an aging workforce coupled with a decline in available talent. According to the Department of Labor, as much as 50 percent of the nation’s utility workforce will retire in the next five to 10 years. Many utilities require additional support to work on new capital projects, and those projects are increasingly complex. This need is particularly acute with engineering and design, where the talent supply is greatly diminished and most high-tech companies have done a good job of recruiting and developing top STEM talent. According to a 2015 survey by the U.S. Department of Energy, 72 percent of energy employers report having difficulty finding talent. We expect this gap to only increase over time in 2018.
Integrating renewable energy sources
With global markets in Asian and European countries leading the charge, another goal of the MYPP is increasing supply-side opportunities that incentivize customers to participate in electricity markets. Many utilities are recommitting to the customer relationship, achieving retail revenue growth by providing popular commodities like solar energy and battery storage to the consumer. In the UK for example, energy providers are looking to adapt “pay as you go” business models through transparent billing and flexible payment options, putting customer service at the forefront.
In the U.S., reliable integration of renewable and distributed resources is of great interest, according to 60 percent of utility respondents in Utility Dive’s 2017 State of the Electric Utility survey. In the same survey from prior-year 2016, 94 percent indicated they saw a compelling reason to invest in renewable energy.
IT/OT integration, AI and IoT
A 2016 white paper from Accenture notes that “driving effective IT/OT integration will be critical to enable data and operations to seamlessly work together to achieve business outcomes and greater future performance." While utilities are making tremendous progress, by adding advanced sensors and devices to their networks that drive smart grids and help them align with the growing imperatives of renewables, they are also beginning to realize that IT will substantially multiply returns on OT investments.
According to IT company Wipro, IT/OT integration offers the critical ability to ensure predictive maintenance through OT readings and IT updates so that:
Gartner predicts that “by 2022, more than 80 percent of enterprise IoT projects will have an AI component, up from less than 10 percent today.” Consider a country that relies heavily on importing oil, and then consider the impacts of an advanced monitoring system that could monitor and control the spillover of energy. The dependency on imported oil would go down, meanwhile energy efficiency, cost savings and customer satisfaction would go up.
Utility companies are addressing industry headwinds by extending technical and managerial capacity with the right people, processes and technologies to address many strategic initiatives through valued partnerships. Complicating this charge is the aging workforce coupled with a decline in available talent that is being absorbed by high tech companies. Further, aging infrastructure vital to the grid has reached the end of its lifespan. These three trends are creating a perfect storm that utility leadership must navigate successfully. To supplement their internal expertise, extend their capabilities and stay ahead of market needs, utilities often turn to service providers for needed support and industry knowledge.
So, what should utilities look for in a service provider?
As a baseline, the highest quality service provider should be able to demonstrate expertise in these five areas:
Ability to ensure safety, security and risk mitigation planning
It’s crucial to create a plan that identifies risks and issues as early as possible in the project so resolution or mitigation options can be executed to reduce the potential for changes. Your service provider should also be experienced at analyzing project risk factors to ensure a safe environment, safeguard from cyber threats and reduce risks. This plan should also include a supplier’s Health & Safety program, one that aligns with the client’s vision and safety culture, as well as a security breach action plan that aligns with most current NERC-CIP Standards.
Flexible engineering programs and solutions
With overhead expenses impactingearnings, companies are continuously seeking ways to decrease expenses and improve efficiencies. To support capitalized efforts, they will often turn to strategic partners who can offer alternative, flexible methods of delivering projects. Ideally, ones with expertise in solving business problems to deliver technical solutions and strategic initiatives, and who are capable of implementing IT integration that utilizes diverse, multi-industry best practices.
Utilities need solutions to new business problems while also keeping up with a high volume of capital projects that align with their internal quality and design standards. Look for a strategic partner to provide creative solutions to help develop new standards for an evolving grid. In turn, focus can be placed on critical projects and operational initiatives that align with implementing your business strategies.
Ability to automate routine/standardized processes
As the volume of capital projects increases, it is critical for utilities to optimize, standardize and automate their project execution process by maximizing efficiencies.
The ability to automate these processes through multi-industry best practices, document, and operationalize allows for better visibility into capital initiatives. By automating project workload through technology and utilizing historical data, utilities can keep up, stay ahead and better serve its customer base by determining how Artificial Intelligence and IoT can be an opportunity before it’s a threat through this technological revolution.
Strategic maneuvering through business initiatives
By working with a consultative services partner, utilities can address shifting business needs while continuing to complete current projects on-time. The right partner will provide business solutions that address emerging challenges, operational gaps and business requirements.
From as-needed consulting services to multi-year programs, utilities may need an array of specific project related engineering and technical services that optimize project scope, schedule and cost. They can benefit from access to an experienced staff of professionals with diverse backgrounds in the electric utility industry.
As always, communication is key. Look for a project team to track all deliverables with metric evaluations of safety, cost, quality and schedule, and work together to develop applicable and customized key performance indicators (KPIs) for reporting and communicating throughout the project. Look for partners who are willing to invest near you with “brick and mortar” engineering operations. This provides a high level of collaboration, customer service and the communication needed for successful project execution, while ensuring a long standing relationship, eliminating unnecessary overhead and driving maximum quality through continuous improvement.
Channel subcontracting partnerships and social responsibility
An engineering partner will look to have strong subcontracting partnerships in the industry to ensure coverage for the entire project lifecycle, maximize outputs, control costs and execute on high-quality deliverables. These partnerships are set up to meet critical needs, as well as develop core social responsibility and economic efforts for local economies by mentoring Diverse Business Enterprises (DBE) to develop and complement core capabilities.