Cognizant—Smarter Utilities Survey 2017—The Programmable Grid · 2020-07-07 · bidirectional...

Commercial & Industrial customers

Centralized & decentralizedrenewable energy

Intelligent electronicdevices

Commercial & industrial customers

Smart citiesElectric vehicles

Smart houses

Nuclear and fossilfuel power plants

Storage

Micro grid

Electricity retailer,distribution operation, &

transmission operator

SMARTER UTILITIES SURVEY 2017 – THE PROGRAMMABLE GRID

2 TMT intelligence informa © 2018 Ovum. All rights reserved.

ContentsForeword ..........................................................................................................................................................3

Introduction ......................................................................................................................................................4

Key findings .................................................................................................................................................... 4

What is the programmable grid and why do we need it? .................................................................................4

What is a programmable grid? ...................................................................................................................... 4

Why is a programmable grid needed? .......................................................................................................... 5

What is the journey toward a programmable grid? ...................................................................................... 6

Where are utilities on this journey? .................................................................................................................6

Which programmable grid investments are being prioritized and why? .........................................................6

The threats and opportunities from arbitraging DERs should be driving more utilities to higher maturity .............................................................................................................................................8

Utilities are underestimating the change in business models, value share, and competitive dynamics that will accompany the shift to DERs ...................................................................... 8

Higher maturity levels of the programmable grid offer opportunities to take advantage of new business possibilities created by DERs ........................................................................................... 11

Overcoming barriers to building the programmable grid .............................................................................. 11

Board leadership can overcome the challenges ............................................................................................ 12

Conclusions..................................................................................................................................................... 13

About the author ............................................................................................................................................. 14

Appendix ......................................................................................................................................................... 15

Acronyms ...................................................................................................................................................... 15

Survey methodology ..................................................................................................................................... 15

3TMT intelligence informa© 2018 Ovum. All rights reserved.

ForewordDigital technologies have spread at an unprecedented pace, taking into their fold both new and traditional industries. While the new industries have the advantage of being digital-native and, therefore, remain in the spotlight, there is massive transformation taking place in traditional industries which is equally exciting.

Utilities are the prime example of such transformation. The industry is as old as electricity itself, but the last few years have ushered in a revolution of sorts with smart devices, wireless connectivity, and the convergence of information technology and operating technology (IT-OT) changing the very nature of utility operations. Used to a centralized and linear way of working in the past, utilities are gearing up to adopt a more distributed and real-time model.

It is important to understand these tectonic shifts. The role of the utilities industry goes beyond technology and business, covering society as a whole. Transformation that is already underway will have a profound impact on how energy is generated and consumed for years to come.

As one tries to understand these shifts, one realizes that they bring with them entirely new levels of complexity. The question, therefore, is: Can technology help manage this complexity, which has arguably been created by technology itself?

The Ovum – Cognizant Smart Utilities Survey 2017 attempts to demystify some of these challenges. It presents artificial intelligence (AI) as a possible answer, provided the AI systems are built with the purpose of making the entire electric grid function in a synchronous fashion. The report calls it the Programmable Grid. It lays out the framework for the Programmable Grid, assesses the maturity level of different categories of players against it, and recommends a plan of action.

This survey stands out in terms of detailing various aspects of technology as it applies to utilities, and goes a long way in developing fresh insights into the changing landscape. It will serve as a guiding tool for practitioners and help them shape the digital future of utilities.

Raj Radhakrishnan, Global Markets Head, MLEU – Manufacturing, Logistics, Energy & Utilities Cognizant Technology Solutions


IntroductionDecarbonization, decentralization, and digitization are transforming the power grid so that it is no longer a unidirectional demand-driven pipe, but a complex bidirectional energy network containing a new generation of assets comprising: renewable generation, storage, micro grids, and ancillary services.

These assets are being added not just by utilities and distribution operators, but also in decentralized models by consumers, companies, and communities. Decentralization of assets is being accompanied by decentralization of business models (e.g., peer-to-peer trading). One day we may even see decentralization of governance1 of some energy sector organizations facilitated by blockchain.

While some of the decentralized models result in less demand for electricity from traditional utilities, in some newer utilities, the decentralized models create surplus energy that can be retailed in competition with the more traditional utilities. Many energy assets (generation, storage, and ancillary services) can be arbitraged with one another, leading to shifting of value in the value chain, new business models, and the creation of new competitors.

In the end state, this explosion of complexity can be managed by using distributed artificial intelligence (AI) systems to analyze data from thousands of smart network sensors. These AI systems then provide automated real-time control signals to thousands of relays as well as real-time price signals to other parts of the value chain. All this occurs in a real-time feedback loop. We call this the programmable grid.

Ovum's survey of 100 utilities in the US, Europe, Australia, and the Middle East has sought to understand the drivers, threats, and opportunities of this transformation to the programmable grid and to determine where utilities are on the journey, what the barriers are, and how they are being overcome.

Key findings• Over 80% of utilities think that the growth of distributed energy resources (DERs) will have an evolutionary

or transformative impact on their business – 56% think it will be transformational.• Most utilities are already investing heavily in smart sensors, communications, and storage to protect their

networks from the stress of volatile, bidirectional, decentralized renewables. However, especially for non-vertically integrated utilities, much of this investment is better characterized as isolated business cases rather than as parts of a grand plan to achieve a fully automated end-to-end grid.

• Vertically integrated utilities are furthest ahead (by a wide margin) in pursuing an end-to-end programmable grid.

• Utilities are underestimating the differentiation opportunities (and competitive threats) caused by a multitude of potential arbitrage models that can be unlocked by a programmable grid.

• Creating a totally flexible programmable grid has many challenges. Board-level leadership and regulatory intervention are essential to overcome these challenges.

What is the programmable grid and why do we need it?What is a programmable grid?In its end state, the programmable grid is a software-controlled electricity network (SCEN) that supports bidirectional energy and spans micro grids, distribution networks, transmission networks, generators, and storage.

Smart sensors and devices will proliferate throughout the network, with data shared across departmental and value-chain boundaries. Distributed artificial intelligence will analyze the data to predict energy flows and problems, and will send control signals to smart relays, storage, generation plants, and demand-response networks to take automated, preemptive action. It will also send real-time price signals to other parts of the value chain via virtual power plants and ancillary services.

1 Examples of decentralized and autonomous organizations can be found in the governance structure of some of the well-known public blockchain projects, for example, Ethereum and Dash.

http://www.ethereum.org

http://www.dash.org


Why is a programmable grid needed?Traditional electrical networks were designed for large-scale, predictable generation to be transmitted and distributed in one direction through the network. But in recent years there has been a huge increase in the volume of small-scale, unpredictable generation being built on customer sites and on third-party solar or wind farms. The network is not designed to handle this bidirectional, highly volatile energy, and a programmable grid can address this.

We are also moving toward a world where it is possible to arbitrage generation with storage and with ancillary services, whereby a company can be paid to have its consumption switched off at a peak time.

LEVEL1

LEVEL2

LEVEL3

LEVEL4

LEVEL5

1. IT-OT convergence/integration already exists or is under development.

2. Opportunities are identified to use technology to enable programmable/flexible grid.

3. Business cases for new equipment like smart devices/ sensors and systems like next-generation EMS/ADMS/ DERMS are finalized/approved.

4. Strategy and roadmap are being developed for smart grid, demand-response programs, and integration and optimization of DERs (distributed energy resources) and micro grids.

Initiation &planning

Initiation, evaluation of products and solutions, feasibility studies, blueprinting, development of clear strategy and roadmap, etc.

1. Strategy for selection of standards to support enterprise IT-OT architecture and data communications is finalized.

2. Advanced digital technology platforms for information systems/customer experience/analytics and business intelligence/Internet of Things are explored.

3. Pilots for electric energy storage, installation/retrofit of smart devices (smart sensors, PQ meters, smart switching devices, PMUs, IEDs, BCUs, TMUs, RTUs, FRTUs) in the network are underway.

4. Advanced protection and islanding schemes are being developed for micro grids.

Strategy &development

Selection of products and solutions, implementation/ development of proofs of concept/pilot projects

1. Large-scale deployment/installation and integration of smart devices and sensors in the network with enterprise OT applications.

2. The use of advanced next-gen EMS/ADMS/DERMS/ETRMS and analytical capabilities using digital technology platforms is enabled.

3. Identified areas of potential automation: automated workflows, business rules engines, search engines, smart alarms, and event management systems, etc.; machine learning (ML); and artificial intelligence (AI) .

4. Dynamic and wide area monitoring and control using robust network of PMUs is established.

5. Integrated DERs and energy storage-VPP.

Integration &realization

Integration of systems, automation, realization of measurable, improved performance and results

1. Rationalization of business processes and results is optimized to increase operational efficiencies of IT and OT systems.

2. Adequate situational awareness, real-time monitoring and control of dynamic network and assets, optimization of DERs.

3. Distributed energy resource management system (DERMS) in place.

4. Integrated utility-scale electric energy storage options within the network.

Rationalization &streamlining

Fine-tuning – applications/ results/performance optimization to increase operational efficiency

1. Artificial intelligence, machine learning, big data, and augmented reality solutions are implemented.

2. Power system network able to handle variable load, reverse power flow, frequency instability, and voltage instability and also has self-healing capability.

3. Decision support systems (DSS) based on big data platforms that integrate with multiple systems/data sources; aggregate the data; and correlate, automate, and visualize power system data in real time into one dashboard view.

4. Integrated and optimized residential and bulk energy storage along with AC and DC micro grids in the network.

Innovation &leading

Increased use of automation, use of innovative and cutting-edge technology, example setting

Figure 1: Cognizant programmable grid maturity model framework

Source: Cognizant


If this were not complicated enough, these storage and ancillary services are being built at multiple places along the value chain: on customer sites (which can be aggregated by a new entrant), in overlay storage networks, at distribution companies, in micro grids that are being built to protect cities from adverse storms and hurricanes, and at the grid operator. It will be impossible to control and align all these moving parts without some kind of software-defined network that has a high degree of artificial intelligence and sufficient distributed databases, along with the ability to send real-time price and relay-control signals.

What is the journey toward a programmable grid?Our programmable grid maturity model (shown in Figure 1) describes how utilities typically move to the end state in stages.

At Level 1, a utility is typically initiating and planning a strategy and roadmap for demand response and optimization of DERs and has had some isolated business cases approved for smart sensors and devices.

At Level 2, a utility is developing advanced protection and islanding for micro grids, piloting energy storage and installation/retrofit of smart devices, finalizing standards strategy for IT and communications, and investigating technology platforms for customer intelligence and information analysis.

By Level 3, utilities are integrating distributed resources into their core energy and IT infrastructure.

By Level 4, utilities have deployed distributed energy resource systems, integrated utility-scale storage options, and begun to rationalize and transform their business processes.

By Level 5, utilities are leading the industry and undertaking cutting-edge innovation to harness new business model opportunities from the smart grid.

Where are utilities on this journey?Over 80% of strategy and operational executives believe that distributed energy resources will have a major evolutionary or transformational impact on the industry by 2030. The majority think the impact will be transformational.

Because vertically integrated utilities have broad control over the value chain and can capture the full end-to-end value from a programmable grid, it is not surprising to find they are the furthest ahead on the journey to programmable grid and are moving quickly.

We found that 38% of vertically integrated utilities aspire to be at Level 4 or Level 5 of the programmable grid maturity model, and that of these, 13% are already at Level 4.

By contrast, non-vertically integrated utilities are much further behind, with fewer thinking it is important to automate the grid and the majority only aspiring to be at Levels 2 or 3.

These findings suggest countries or states with non-vertically integrated business models may be missing out on huge potential operational cost efficiencies that will come from an automated grid, and that board members and regulators should consider being more proactive to narrow this gap.

Which programmable grid investments are being prioritized and why?The concerns driving programmable grid investment stem from an urgency to ensure utilities can continue doing today's business in a world of distributed energy resources, i.e., keeping the lights on, doing so at acceptable operating costs, and continuing to meet regulatory mandates (see Figure 3).

“ ”


Respondents (%) Respondents (%)

0204060 0 20 40 60

Level 1 - Initiating

Level 2 - Enabling

Level 3 - Integrating

Level 4 - Optimizing

Level 5 - Pioneering

Which level of the programmable grid maturitymodel do you aspire to reach?

Where are you today on the programmable gridmaturity model?

Vertically integrated utilitiesNon-vertically integrated utilities

Figure 2: Utilities’ aspirations and current positions on the maturity framework

Source: Ovum

Respondents (%)

0 10 20 30 40 50 60 70

The retail arm of the utilities won't be able to meet its revenue growth targets for new services to customers, such

as renewables, storage, or peer-to-peer energy trading

Failure to adapt will enable third-party aggregators to grab a key piece of value from the value chain, threatening to reduce

the retail arm of the utilities to a commodity

Other

The grid will have blackouts and brownouts

The ability to manage the network and grid will be severely compromised

Operational costs will rise fast, because switchesneed to work harder when handling intermittent energy

We will face high regulatory fines or risk our license by failing to comply 62%

57%

57%

48%

39%

35%

2%

Figure 3: If you were unable to adapt fast enough to handle the level of renewables you have committed to for 2020 and beyond, what would be the three worst consequences?

Source: Ovum


Investments in handling distributed energy resources are being prioritized for two reasons: to make the grid more bidirectional by increasing adoption of communications and sensors, and to lower the volatility of renewables through the use of storage and micro grids.

Investment cases for the high-priority areas can be approached tactically on a case-by-case basis. However, we believe these investments would benefit from being made in the context of a more strategic framework, a conclusion that many of the vertically integrated utilities have also reached.

The threats and opportunities from arbitraging DERs should be driving more utilities to higher maturity

Utilities are underestimating the change in business models, value share, and competitive dynamics that will accompany the shift to DERs

We saw in Figure 3 that utilities are far less concerned about new entrants and new business models than on continuing to meet regulatory obligations and controlling costs as the number of distributed energy resources grows.

In our view, this is a mistake and ignores the recent explosion of new business models, including those listed below:• Multiple contenders in the existing value chain aspire to run ancillary services, so there is competition

between traditional players within the value chain for some services.• We asked who should run ancillary services, and 48% of utilities thought TSOs (transmission system

operators), 37% thought DSOs (distribution system operators), and 15% thought third parties.

Respondents (%)

% of participants saying this was a high or very high investment priority

0 10 20 30 40 50 60 70

Communication technologies

Smart sensors and protection systems

Storage

Micro grids

Large-scale Internet of Things

Ancillary grid services

Local energy marketplaces

Virtual power plants

Distribution management systems

Decision support systems (big data analytics) for real-time decision-making

Building a new model of grid operations thatcombines transmission and distribution

Energy-trading/market management systems

Energy management systems

Enabling technologies for two-way energy Other high-level grid investment areasEnd-to-end smart-grid aspiration

Figure 4: Technologies in which utilities are heavily investing to modernize the grid so it can handle distributed energy and two-way power flows

Source: Ovum

“ ”


• Current utility customers, including railways, airports, ports, universities, and business campuses, are moving to micro grids.

Apple has requested that the Federal Energy Regulatory Commission allow it to sell surplus solar energy to end customers.

• Virtual power plants and demand-response aggregators, such as Flexitricity.• New over-the-top P2P (peer-to-peer) trading models like Vandebron and Piclo. • The trend of micro grids being financed by private/enterprise initiatives (PFIs) will help to stimulate the

growth of micro grids. Facebook and Microsoft raised a fund for micro grids in the third world. What will they do in the US?

• Tesla is helping Puerto Rico rethink its network rebuild, with solar and batteries at the heart of the strategy.

• RWE Innogy has a blockchain e-car charging solution that allows people to share their charging stations with others and be paid. Ultimately, one might have a mobile bank account for electricity that can be added to or debited in complex ways at home or on the move.

The industry as a whole seems to be in relative denial about these potential value shifts.

If utilities want to know where these new business models will lead, they have only to retrace what happened in the telecoms industry. Figure 5 below shows that the power industry's transition to decentralized, unpredictable energy resources is eerily similar to the transition already made by the telecoms industry a decade earlier, which enabled that industry to provide users with high bandwidth and to deal with user-generated video (and voice and data) at the edge of the network.

“ ”

Figure 5: Comparison of the impact of decentralized resources in telecoms versus the power sector in order to draw conclusions about who the winners and losers are likely to be

Implications of decentralized, distributed resources

Telecoms sector Power sector Winners Losers

1. The shift of asset generation to the edge of the network

Growth of video drives capex investment in bandwidth while user-generated video drives networks to become more bidirectional.

Regulatory stimulus for renewable generation and electric vehicles drives networks to become more bidirectional and dimensional for peaky loads.

OTT players, solar companies

Incumbents

2. Arbitrage of central generation and transmission with local/ offsite networks

Investment in home Wi-Fi networks, private business networks, virtual private networks, and dark-fiber Google Wi-Fi all reduce need for bandwidth from telcos.

Growth in onsite renewables, campus micro grids, and city micro grids reduce need for central transmission and distribution.

Hardware players, dark fiber, micro grid consortia

Incumbents

3. Arbitrage of central generation and transmission with storage

Personal device storage (phones, tablets, etc.); home device storage (RAID disks, set-top box, etc.); international network caching (e.g., Akamai); and content delivery networks reduce need for real-time streaming.

Onsite batteries, networked battery models will reduce need for central generation and transmission.

Storage companies, networked storage companies

Incumbents

4. New incentive structures The war of net neutrality (any content carried at equal price) vs. ISPs’ selective bandwidth throttling allows innovative incentive models in Europe where net neutrality hasn’t prevailed

Ancillary services at grid (TSO) and increasingly DSO allow generation or demand reduction to be bid for extra revenue.

Aggregators plus innovative incumbents

Incumbents

5. New business models Over the top (e.g., Netflix, Skype); supplier switching (e.g., Comparethemarket.com); P2P network (e.g., BitTorrent); bundles (quad play, connected home, insurance)

Over the top (e.g., Vandebron); P2P (e.g., some developing-world micro grids); supplier switching (e.g., My Utility Genius); bundles (e.g., energy and telecoms); upsell (e.g., telecoms, energy services, connected home, insurance); aggregator models (e.g., virtual power plant and aggregators)

New entrants plus those incumbents that adapt

Incumbents that don’t transform

Source: Ovum

PREDICTIVEANALYTICS

DISTRIBUTED DATABASE

SENSOR-BASED NETWORKS

MICRO GRID

STORAGE

ELEMENTS OF PROGRAMMABLE GRID

Figure 6

EXAMPLE OF BASIC USE CASE

EXAMPLE OF A SIMPLE VALUE-ADDED SERVICE

EXAMPLE OF A MEDIUM-COMPLEXITY VALUE-ADDED SERVICE

EXAMPLE OF A COMPLEX VALUE-ADDED SERVICE

ANCILLIARYSERVICES

The utility could provide a Dimplex-type electric heating system for a fraction of its real capital cost to the customer. Through a combination of financing and arbitraging solar, storage, ancillary services, and preheating the home, it is possible to reduce the customer's heating bill and use the saving to pay off the financing cost of the radiators.

Basic use case for an electric car uses predictive analytics to shift the charging period of the car from peak to off-peak, accounting for when the customer will next need their car. A more sophisticated version also uses the car battery as storage for the home’s solar, with a view to storing solar (or cheap grid energy) when available and powering the home when prices rise. Excess capacity can also be bid into ancillary services.

Micro grid becomes self sufficient with generation and storage. No one on the micro grid ever buys electricity from a traditional electricity retailer. A mesh of local micro grids emerges, with distribution lines between them controlled by a community or third party.

P2P trading of solar (or solar + battery) capacity to neighbors across the street within a micro grid. Either a virtual micro grid or (less commonly) an actual physical one.

Solar vendors like Solar City aim to use batteries to take homes almost entirely off-grid.

Gamify the experience, awarding points (tokens) to the customer when they reduce peak consumption. Offer redemption of the points (tokens) for goods and services. Monetized by bidding energy savings into ancillary services.

Store generation for later use.

Turn off air conditioners or manufacturing plant in the peak period and bid the saved energy into the grid or DSO.

Smooth out dependence on the main grid by sending price signals to the micro grid to turn on or off its own generation and storage.

Ability for the micro grid to shut off from the main grid if there is a storm.

Based on time of day, storage, and other factors, offer the customer a rental price for heat and manage the complexity, including time-of-use transmission.

Reduce heating bill by preheating and cooling a house according to time-of-day price signals, weather, and customer usage.

Forecast when a new air-conditioning unit is needed or an engineer to repair the problem.

Forecast peak event so companies can plan demand response.

Consumers and businesses have an artificial agent that connects over an Internet of Things network and constantly makes decisions about whether to buy electricity or sell generation or shift consumption.

A US blockchain company is looking at use cases such as securing KYC (know your customer) details or signals to SCADA systems.

A charging mechanism that allows homes or offices to rent out their electric-car-charging stations to passing motorists.

Distributed databases can be used to facilitate energy trading in the wholesale market, reducing the role of the middle man and increasing liquidity for smaller players.

The end state of the programmable grid is that every element of the value chain has sensors, and that data can be shared in real time to any part of the value chain that needs it, with an appropriate fee chargeable where it is to be monetized.

Increasing addition of predictive analytics to all sensors in the network (and to appliances on customer sites) so that faults can be rectified before service failure. Increases uptime, time between scheduled inspection visits and improves the efficiency of logistics.

We are beginning to see a proliferation of sensors closer to customers, to monitor weather, machine use, TV habits, etc. This will allow tailored services, the simplest of which is monitoring temperature and customer location through onsite smart thermostats and customers’ mobile phones.

Today’s networks are full of sensors to monitor electricity quality and faults.


Many lessons can be learnt from the experiences within the telecoms sector.

The network stress caused by the trend toward decentralized, consumer-generated content requires huge capex investments in upgrading the transmission and distribution network for capacity and resilience.

The ability for new entrants to arbitrage storage and transmission in some cases, and to simply ride over the top of an existing network in other cases, is significant. Those incumbents who do nothing will see their value hollowed out by new entrants who take a large slice of the value while leaving the incumbents with a cost-plus-commodity business. The good news is that those incumbents who move ahead of the curve into high-margin adjacent markets, end-to-end automation, and new propositions can be winners.

In the telecoms sector, companies like AT&T proved that by being innovative, they could remain relevant and retain value. However, companies like Cable & Wireless, which was ultimately infamously acquired by Vodafone for £1bn, serve as a warning for what happens to those who stand still.

If you want to be an AT&T – and not a Cable & Wireless – of the power industry, you need to chart your strategy now.

Higher maturity levels of the programmable grid offer opportunities to take advantage of new business possibilities created by DERsFigure 6 shows that utilities are already deploying most of the key components of smart grid for basic use cases. However, much more ambitious services can be fashioned out of some of these components when they are combined or used in a different way. The more complex the proposition and the more arbitrage involved, the greater the need to be at Level 4 or Level 5 on the programmable grid maturity model.

Overcoming barriers to building the programmable gridTransforming a value chain toward a programmable grid is a huge undertaking with a long list of perceived barriers to be overcome (see Figure 7).

Respondents (%)

% of total number of mentions as a top three barrier

0 2 4 6 8 10 12 14 16 18

Hard to build a roadmap given multiple movingparts beyond the span of control of utilities

Lack of a collaborative culture in business andinsufficient incentives to encourage innovation

Lack of board leadership/vision

Lack of industry-wide regulations, guidelines,and standards for automation and security

Lack of vendors with digital transformation skills

Legacy systems (poor data quality, inabilityto integrate across disparate data sets)

Not enough budget

The business lacks relevant experienceand/or digital skills, such as cloud computing

Too many siloes in your organizationor in the value chain as a whole

Vertically integratedNon-vertically integrated

Figure 7: Top three barriers organizations face when transforming to a programmable grid model

Source: Ovum


Utilities are finding it challenging to build a roadmap with so many moving parts and across so many siloed interests when there are so many legacy systems to upgrade. Not surprisingly, the vertically integrated utilities are finding it the hardest, because they have the most ambitious programs.

All utilities are facing challenges with organizational siloes – the difference is that for vertically integrated utilities, the siloes are internal (and slightly more manageable), whereas for non-vertically integrated utilities, the siloes are external between different organizations and therefore need a higher degree of regulation to overcome.

The perceived need for greater regulation is not just limited to forcing disparate organizations to cooperate but is also about seeking greater clarification and definition around interconnection, contracts for grid use, and contracts for incentives and pricing. Fortunately, there are some regulatory approaches that can be followed as best practice. For example, the city of New York is being driven toward programmable grids by Governor Andrew M. Cuomo's comprehensive energy strategy called "Reforming the Energy Vision (REV)."

The need to modernize legacy systems is a common challenge in any IT transformation and is equally vital for the transition to a programmable grid in order to improve overall operational efficiency.

The programmable grid requires real-time, low-latency data from its network assets, such as transformers, phasor measurement units (PMUs), IEDs (intelligent electronic devices)/relays, and other smart devices in order to output more data than today, with better error detection and correction, and to make the data available to more advanced computing systems or data lakes than occurs with the traditional grid.

For the grid to become programmable and controllable, existing network assets need to be upgraded to become more intelligent. This does not always require the assets to be replaced: often they can be upgraded with better smart sensor capability and with more flexible input control capability so that they can respond to a wider range of signals, from a wider range of systems than before.

Finally, lack of board-level leadership is cited as another barrier.

Board leadership can overcome the challengesAlthough greater board leadership is cited as just one of the big barriers to the programmable grid, addressing this one issue could overcome most of the other barriers.

To start with, a C-level executive should set out a 5-year vision for where the organization needs to be. This might include an outline of some types of smart grid opportunities they want the organization to pursue, for example:• Grid monetization – Utilities own grid infrastructure worth billions of dollars. How about forming a

collaborative of parties with mutually beneficial interests, such as solar providers, or electric mobility, and coming up with models for monetizing dormant capabilities?

• Reinvigorating business models – There are alternative models for electric utilities existing today that would have been mainstream but for regulatory protection and the substantial head start that traditional utilities have had. Can utilities take the lead in reinvigorating these business models?

• Blurring of industry lines – Storage in utilities and electric vehicles in automotive can bring these two industries together in ways seemingly unimaginable before. In what ways can you disrupt either or both of these industries? This is the equivalent of the telcos marching into the TV rights and distribution market and then (in the US) into the home security market. How about other sectors like manufacturing (solar), retail (smart energy, building management), or banking (through technology like blockchain that can increase energy–currency fungibility)?


• Demography shift – A lot has been said about customer preferences changing. But as the definition of energy takes newer meanings and consumption patterns change, how should the energy sector, and utilities specifically, view and prepare for these changing perceptions?

A C-level executive can overcome the funding barrier that many utilities cited by quickly and strategically reviewing opportunities. With budget and the help of consultants and/or suppliers, a list of potential smart grid initiatives can be compiled, followed by an assessment of strategic fit, return on investment, and difficulty. This will yield a shortlist of low-hanging fruit (medium return, easy initiatives) for quick implementation, while simultaneously suggesting longer-term initiatives (higher return, more difficult initiatives) for more detailed feasibility testing and/or trials.

A C-level executive can also put in place a matrix organization above the organizational siloes and can ensure there is a regulatory lobbying agenda at multiple levels throughout the organization, including meetings among C-level stakeholders from both the utility and regulator.

One place to look for inspiration of good leadership through transformations is the telcos. Many of them found it hard to make the business case for expensive mobile data licenses, the programmable voice network, fiber to the cabinet, or the diversification into TV. Those that were successful had a C-level leader at the top with a vision, that also implemented matrix organizations, lobbied regulators hard, and provided budgets for early investigation, feasibility, and business case development.

Conclusions• Over 80% of utilities think that the growth of distributed energy resources (DERs) will have an evolutionary

or transformative impact on their business – 56% think it will be transformational.• Most utilities are already investing heavily in smart sensors, communication, and storage to protect their

networks from the stress of volatile, bidirectional, decentralized renewables. • Non-vertically integrated utilities are better characterized as pursuing isolated business cases to solve

immediate problems, such as network dimensioning.• Vertically integrated utilities are furthest ahead (by a wide margin) in pursuing an end-to-end

programmable grid.• Utilities are underestimating the competitive threats and opportunities caused by the many arbitrage

models that can be unlocked by a programmable grid. Some customers or micro grids will aspire to become suppliers, illustrated by Apple’s recent application to sell retail energy using its micro grid. Some peer-to-peer models such as Vandebron almost eliminate the traditional utility entirely. Several roles in the value chain will be in competition with each other for storage and ancillary services.

• Creating a totally flexible programmable grid has many challenges.• Board-level leadership is essential to overcoming these challenges, starting with a 5-year vision for

where the organization should be in terms of harnessing the opportunities and minimizing the threats of the programmable grid.

• This leader can also put in place a matrix organization to overcome the organizational silos and kick-start a strategic review of which smart grid opportunities should be put in place in the short term (medium reward, easy to do) and which should form part of a longer-term approach (high return, harder to do).

• The board should also initiate high-level lobbying discussions with the regulator to create more clarity around interconnection, contracts for grid use, and contracts for incentives and pricing.


About the author

Susan Furnell Associate, Ovum Telecoms and Energy sectors

Susan specializes in helping industries understand how digital transformation can transform their service offering, business models, value chains, and organizations. The transformation she looks at typically comes about through the adoption of industrial IoT (Internet of Things), artificial intelligence, blockchain, and data analytics.

Susan spent 20 years in the telecoms industry, both in-house in strategy for British telecoms and for strategy consultancies, for example, setting up and running Roland Berger's London telecoms practice before moving to help start up its New York office.

Susan then entered the energy industry to lead smart strategies for one of the UK's Big 6 utilities, RWE nPower, a subsidiary of German pan-European player RWE. While there she led strategy for smart metering and connected home and was responsible for the company-wide strategic review for determining how the energy value chain would be disrupted.

She continues to work for telcos, energy companies, insurance companies, and technology platform providers and is a regular speaker at major European and US conferences on smart energy, connected home, and blockchain. She also writes for publications – for example, a series for the UK utility industry's main publication, "Utility Week," on the disruptive potential of IoT within the energy sector.


AppendixAcronymsADMS = advanced distribution management systemAI = artificial intelligenceBCU = bay controller unitDER = distributed energy resourceDERMS = distributed energy resource management systemDSO = distribution system operatorDSS = decision support systemEMS = energy management systemETRMS = energy-trading and risk management systemFRTU = feeder remote terminal unit IED = intelligent electronic deviceIoT = Internet of ThingsML = machine learningOT = operational technologyOTT = over the topP2P = peer to peerPFI = private finance initiativePMU = phasor measurement unitPQ = power qualityRTU = remote terminal unitTMU = transformer-monitoring unitTSO = transmission system operatorVPP = virtual power plant

Survey methodologyWe interviewed 100 utilities across four regions (US, Europe, Australia, and the Middle East).

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