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Energy andUtilities

 A Smarter

Planet

 A Smarter Planet | Energy and Utilities 1*IBM Internal Use Only

What is the energy andutilities industry?

Industry definitionThe global energy and utilities industrycovers electric power generation,transmission and distribution, and retailing;transmission, distribution and retailing o natural gas; and the provision o waterservices. Electricity is moved romgeneration sources —either large-scale,conventional power plants (powered by

coal, nuclear, natural gas, oil) or solar orwind arms resources —through longer-distance high voltage transmissionnetworks (typically 50kV or above) to localelectrical substations, which then eedlocal distribution networks (below 50kV)and deliver (usually via transormers thatreduce voltage) electric power tocommercial and consumer retail electricitycustomers. Smaller-scale distributedgeneration is connected to the low voltagedistribution networks, and may “back-eed”excess power into the system. At the pointo consumption, the amount o electric

power used is tracked over time via a meter.

Electric power, natural gas, and watersystems are generally consideredoundational “public services” thatunderpin much o what is consideredmodern civilization. Energy and utilitiesorganizations may be owned by national,state or regional, or local government,partially state-owned, publicly held, orprivate corporations. The industry is heavilyregulated, oten with controls over electricityprices that can be charged to customersand standards or quality and availability

o electric power service.

Key segmentsThe ve key segments o client addressedby IBM’s energy and utilities industry are:

Generation (electricity)Includes organizations that generateelectric power rom sources includingnuclear, coal, gas, hydro, large-scale wind,large-scale solar, and other sources.

Transmission and distribution(electricity)Transmission organizations are regulated

entities that own and/or operate electricpower transmission acilities. Theseorganizations are responsible or thewholesale trading or sale o electric power.

Distribution organizations are regulated orunregulated entities that own and operatethe networks that deliver electricity tocustomers, such as commercial, industrial,and residential consumers.

Retail (electricity and gas)Retail service providers in regulated orunregulated markets sell electric power

directly to commercial, industrial, orresidential customers. In competitivemarkets, retailers compete or customers,who can switch retail electric providers.

Natural gas transmission anddistributionOwn and/or operate natural gas pipelinesand networks or the distribution o naturalgas to customers.

 Water providersInclude organizations that own and/oroperate acilities and pipelines that treat,

distribute, and provide water to end-usercustomers.

Industry size and

growth trends

• Worldwide energy demand is projected toincrease by 53 percent by the year 2035.

• World electricity demand is expected tocontinue to grow more strongly than anyother nal orm o energy with projectedgrowth o 2.2 percent per year between2008 and 2035. More than 80 percent o this increase will occur in non-OEDCcountries.

• $38 trillion global investment in energy

supply and delivery inrastructure isexpected between 2011 and 2035 (U.S.$).

• Coal-red power generation is decliningin North America due to low-cost naturalgas, and investment generally is limitedto extending the lie and improving theperormance o existing plants in Europe.New coal generation is being built inChina, India, South Arica, and someother locations such as Eastern Europe,Turkey, and other growth markets.

• China, Russia, Korea, and the MiddleEast are continuing to build new nuclear

plants, with limited plant growth in otherOECD countries.

• Fity percent o new electric powergeneration capacity is expected tobe rom renewable energy sources.

• By 2035, annual subsidies or renewablesare expected to reach almost $250billion (U.S.$).

• Solar photovoltaic generation and windgeneration capacity are growing rapidly,with Germany, China, India, Japan, andthe U.S. having signicant solar growth,and China, Europe, the U.S., and India

installing signicant wind generationcapacity. The cost o solar generationcontinues to drop, making growth likelyto continue, though policies that subsidizewind and solar generation are underreview in many countries because o the uncertain global economic situation.

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Ensuring security and privacy is anotheressential aspect o the move to smarterenergy. Security has always been aundamental element o energy systems,but the convergence o operations andinormation technology demands a moreintegrated approach that encompassesboth physical and cyber-security. Criticaloperations and inormation systems musthave integral protections and backup andrecovery capabilities. And the availabilityo new data about customer energyconsumption and consumer behaviorrequires privacy protections that meetboth legal requirements and customerexpectations.

The continued market interest in exploitingnatural gas resources (particularly romshale gas in North America) is increasingutility client interest in solutions thatenhance the eciency and reliability o gas operations and make them “smarter.”

E&U industrystrategic imperativesMuch o the public discussion abouttransorming the electrical system hasocused on the idea o “smart grids.”But that term is arguably too conning.IBM uses the term, “Smar ter Energy,”by which we mean an integrated, scalablesystem that extends rom businessesand homes, through the distribution andtransmission systems, back to the primar ysources o energy.

The energy and utilities industry is beingdriven by three key imperatives, namely:

Transorm the utility network – which canbe electric, gas, or water inrastructure — toa dynamic, automated, and reliable networkTo do so, various unctional areas within theenergy “ecosytem” must be engaged:consumers, business customers, energyproviders, regulators, and the utility’s ownoperations (both “IT” and “OT”). Keyelements o the transormation includesmart meters, grid operations, work andasset management, communications, andthe integration o distributed resources.

• Natural gas demand will reach 4.5T cubicmeters in 2035, up 44 percent over 2008,an average rate o increase o 1.4 percentper year.

• The “gas renaissance” in North Americabased on the availability o large reserveso natural gas rom shale is changing theeconomics o generation rom naturalgas, which is being billed as a “clean”alternative to coal-red generation.

• Freshwater withdrawals have tripled overthe last 50 years. Demand or reshwateris increasing by 64 billion cubic meters ayear (1 cubic meter = 1,000 liters).

Growing ocus on climate change and

environmental concerns – or example,the commitment the European Union hasmade to reduce EU greenhouse gasemissions to at least 20 percent below1990 levels; to have 20 percent o EUenergy consumption come rom renewableresources, and to make a 20percentreduction in primary energy use comparedwith projected levels, to be achieved byimproving energy eciency . . . all by theyear 2020.

More engaged consumers – or example,people want more immediate and accuratenotications regarding power outages, andgreater inormation about their energy useso they can make more inormed decisions.More than 50 percent o consumerssurveyed with an opinion expect smartgrid technologies will lower total householdcosts or energy use. But challenges inconsumer understanding and trust remain:49 percent o consumers were concernedthat erroneous smart meter readings wouldresult in overcharges. (IBM Institute orBusiness Value study, “Knowledge ispower: Driving smarter energy usagethrough consumer education” )

Increasing energy-ow variability driven by growth in renewable generationand distributed resources – integratingrenewable energy resources and emergingtechnologies such as electric vehicles intothe grid continues to be a challenge.

New market entrants and disruptive

 technologies – at the same time, the riseo technologies and new businesses thatspur more active consumer interplay withelectric power systems – electric vehicles,smart meters, “dispatchable” peak loadcontrol, and distributed solar generation –is making customer relationships moredynamic. (For some examples, see SmartGrid Consumer Collaborative video,“Top 10 Things Consumers Want romSmart Grids.” )

What drives performancefor energy and utilitiesorganizations?

Major market dynamicsShits in energy policy, technology, andconsumer ocus – driven by concerns

about energy security, environmentalsustainability, and economiccompetitiveness – are creating a muchmore dynamic environment. Currentareas o ocus in the industry include:

Changing demand dynamics vs. pressure

 or reliability – or example, ast-growingeconomies may be challenged to upgradeelectric power systems ast enough to meetdemand and keep systems reliable (e.g.,India). But countries with slower growth(e.g., some markets in countries in WesternEurope and the U.S.) may actually be

acing a decline in demand or electricpower, which can make it harder to makeinvestments in technologies that maintainor improve reliability, par ticularly in the aceo pressure to keep electricity rates low.

 Aging asset perormance with increased

expectations or reliability and workorce

productivity – or example, in countrieswith more established electric powerinrastructure, utilities are oten workingwith systems that were installed 50-100years ago, but businesses and government-owned utilities continue to ace pressure

to improve operational eciencieswhile improving reliability and resiliencyto support economic growth anddevelopment.

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Improve generation perormance byapplying instrumentation, automation, andanalytics to optimize the generationportolio to meet contractual and regulatoryrequirements while continuously improvingeciency and maintaining nancial viability(as with the rst imperative, these principlesalso apply to gas and water inrastructures).

Control systems are applied to automateand standardize operations, and assetsare monitored and managed to providea consolidated view o plant operations,on demand. With automated perormancereporting available across the feet inreal-time, maintenance can be coordinatedcentrally, and feet generation can beoptimized. The addition o highly accurateweather and load prediction and dynamicmanagement allows plant dispatch alsoto be optimized, even with large-scaleintermittent generation rom renewablesources. As analysis and orecasting

capabilities become more sophisticated,utilities can optimize their generationstrategies, balancing actors such as ueland emissions costs against electricityprice – while taking into account otheractors, such as planned outages andmarket orecasts.

Transorm customer operations requiresthat a oundation o technical capabilitiesand new skills or managing customerrelationships be put in place. For example,while many utilities have invested inupgrading their customer systems over

the past several years, many still lack a“single view” o the customer and theability to support time-specic pricing and

Generally, the trend is or more competitionand independence in operations, withtransmission entities being separate romdistribution organizations, competitionamong retail energy providers, and “spot”markets or electric power where availableenergy can be sold at market prices. Insome markets, in addition to utility-scalegeneration o electric power traded on themarket, individuals with solar or windgeneration capacity can sell their electricpower to the utility or a “eed-in tari”payment, and industrial generators cansell excess power on the spot market.

enhanced services. Once the oundationalcapabilities are in place, energy and utilityorganizations can start to engagecustomers across various channels (withcustomized messaging and targeted oers),better understand customer preerencesand behavior, and track the eectivenesso customer programs. Insights gained

rom analyses o more complete customer-related data can be applied to improvethe customer experience and gain newoperational eciencies. More sophisticatedsegmentation o customers can help boostthe perormance o specic programs andincentives designed to improve customerretention or to help consumers contributeto achieving broader energy goals. Andmore collaborative relationships withcustomers can be used to develop newrevenue streams, via plat orms that enableservices in areas such as inormationexchange (relating to energy use, or

example), energy management, ordemand integration.

 Figure 1: Transorming the utility network by redening the relationship between utilities and customers,enabling new business models.

What is the marketenvironment for E&Uorganizations?

Market trends Around the world, older monopolies orelectricity and natural gas production,transmission, distribution, and retailingare being “liberalized,” and competition

introduced. Power generation and retailingare more oten competitive, whiletransmission and distribution networkstypically still are heavily regulatedmonopolies.

Major companiesSome o the key organizations in theenergy and utilities industry include(not a comprehensive list):

IOT Utility

North America

• Exelon• Hydro Quebec• NiSource

• Oncor• CenterPoint Energy• Southern Caliornia

Edison• Sempra• Southern Company• Duke Energy• Xcel Energy• National Grid• Pepco Holdings Inc.

Europe

• National Grid• Veolia, EDF• Alliander• DONG Energy•

Enel• Electrabel• E.ON• Lyse• Finngrid• Endesa• Iberdrola• ESB• GDF Suez• RWE

Japan

 

• TEPCO• Tohoku EPC• Kansai EPC• Chubu EPC

Growth

Markets

•

Tata Power DelhiDistribution, Ltd.• Ausgrid• CPFL Energia• Light S.A.• State Grid• China Southern

Power Grid• Meralco• Tenaga Nasional Berhad• Eskom• KEPCO• EnergyAustralia• ČEZ, a.s.

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What are typical roles andresponsibilities for E&U clients?

Business unctional areas that are common to energy and utilities companies include:

Department Responsibilities Sample titles

Transmission

Operations

• Asset Management and Maintenance• Engineering design and Construction• NERC CIP Compliance• Risk and Regulatory Compliance• Outage Management• Grid Operations

• COO• Director o smart grid• VP, grid operations• CIO• VP Engineering

Distribution

Operations

• Asset Management and Maintenance• Engineering design and construction• Smart Metering• Distribution Management• Outage Management

• Director o smart grid• CIO• COO• VP, grid operations• VP Engineering

Customer 

Operations

 

• Customer Billing• Customer Service• Product and Service Marketing

• Credit and Collections• Demand Side Management Programs• Electric Vehicle Customer Operations

• Director customeroperations

• CMO• Chie Customer Ocer• VP customer service• VP product develop-

ment

Enterprise / 

Corporate

Services

• Risk and Regulatory Compliance• Rate Case Management• Procure to Payment process• Financial Perormance

• COO• CFO• CSO / CRO• Chie Counsel

Supply / 

Generation

• Asset Management and Maintenance• NERC CIP and NRC Compliance• Risk and Regulatory Compliance• Nuclear Condition Based Maintenance• Nuclear Commission/Decommission• Distribution / Generation Plant Portolio Protability• Distribution / Generation Plant Management• Water Resource Management• Water Treatment• Water Conservation• Gas Procurement

• Plant manager• VP generation• COO• CIO• CFO• VP engineering and

construction• VP procurement and

uels

Market

Operations

• Load Forecasting and Scheduling• Unit Commitment Optimization• Network Model Analysis• Settlements & Payments• Security• Credit and Risk Analysis• Settlements Process Optimization• Pricing Optimization• Trade Content Tracking

• COO• CFO• COO• CIO• VP trading and risk 

Sample utility metrics

SAIDI— the System Average InterruptionDuration Index is commonly used as areliability indicator by electric power utilitiesand the entities that regulate them. SAIDIis the average outage duration (in minutes/ year) or each customer served, calculatedby dividing the sum o all customerinterruption durations by the total numbero customers served by the utility. (See

also SAIFI, CAIDI, etc.)

 Asset utilization— important or capital-intensive operations such as energyand utilities. This category can includemetrics such as plant availability, which isthe number o hours a generation plant isin service divided by the total number o hours.

Cost per kWh — cost (capital cost, uelcosts, etc.) to produce one kilowatt houro electric energy.

Heat rate — the eciency o a conventionalpower generation unit measured as Btu/ kWh.

Return on equity — the required returnnecessary to attract investment or capitalprojects, such as building a new powerplant, transmission line, or distributionnetwork and supporting systems. Forutilities, their cost o capital is a mix o the cost o debt and the cost o equity.

Energy efciency or “carbon” emissions — are used to track progress towardsustainability goals, particularly in marketswhere utilities ace targets or reducingenergy consumption, conserving energy,or reducing greenhouse gas emissionsassociated with electric power.

Total shareholder returns (e.g., dividends,stock price increases)— are a measure o the success o investor-owned utilities — asthey are with other public companies.

Sample industry terms

Demand response— mechanisms tomanage customer consumption o electricity in response to supply conditions.In most cases, customers (actively or viapre-programmed settings built into heatingand cooling systems, and other energy-using devices) respond to explicit requeststo shut o or reduce consumption duringtimes o stress on the electric power grid.

Distributed generation resources –distributed generation allows collection o energy rom many generation sources suchas solar, wind, uel cells, or smaller-scaleindustrial generation. Integrating distributedgeneration onto the power grid and keepingsupply and demand balanced can bechallenging or utilities.

Feed-in tari—is a policy mechanism

designed to accelerate investment inrenewable energy technologies. FITstypically include three key provisions:guaranteed grid access, long-termcontracts or the electricity produced

and purchase prices based on the costo generation.

Rate Case — a regulatory ling or proceedinto determine the prices to be charged orelectric power, natural gas, or water serviceIn order to change prices and get recoveryor capital investments, most utilities mustle a rate case and get regulatory approval.

 Additional terms can be looked up onWikipedia (see entries such as “electric powdistribution”), and a good list o terms can bound at: http://www.hks.harvard.edu/hepgrlib_glossary.html#U.

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 Customer operations

Contact center Enables utilities to implement a customer-service model that supports theorganization’s overall business strategy.Utilities can improve the eciencyand eectiveness o contact centerperormance across all channels, andreduce the cost per customer by drivingthe highest degree o automation and voicesel-service through the implementation o best practices and better use o technology.

Key Business Partners: Cisco, Nuance, Genesys, Avaya

Customer experienceand engagementEnables utilities to deepen theirunderstanding o customers and improvetheir ability to develop benecialrelationships through improved marketingand a more customized customerexperience. By providing key customerinsights based on existing and newinormation rom market and social mediasources, utilities can become morecustomer-centric, develop dierentiatedcustomer strategies, and oer customer-specic products, programs and servicesthat can drive increased market share annew revenue streams.

Key Business Partners: SAP, Oracle,Teradata, GridManager(DK), SAS,Hilderbrand, Sagemcom, Shaspa,Wireless Glue

Customer systemsHelps utilities improve customer serviceby implementing, modernizing, or replacinglegacy and packaged customer systemsand providing an integrated view o customers across the enterprise. Thesolution also enables utilities to utilize dataand analytics systems to detect energythet and raud and bad debt to increaserevenue.

Key Business Partners: Oracle, SAP,Choice

Transmission and

distribution — intelligent

utility network

Grid operationsProvides energy and utility organizationswith operational and analyticalcapabilities to improve distribution network perormance via an integrated grid-management system that brings together

key operational control systems or outagemanagement, distribution management,geographic inormation, and asset andworkorce management. The solutionalso allows utilities to reduce demandaccording to their business objectives,manage volatility when integratingdistributed generation resources withthe grid, maintain required security andcompliance, and extend investment ROIby ensuring interoperability with evolvingsystems.

Key Business Partners: Telvent, ESRI,

PowerSense, Alstom

IUN communications networksEnables energy and utilities organizationsto design, implement and manage asecure voice and data communicationsconnectivity needed to automate andmonitor the grid. With this solution, utilitiescan design, develop, and monitor theutility-wide voice and data communicationsnetworks that best meet their needs orecient exchange o inormation acrossall components o the smart grid. Thesolution enables utilities to assess their

inrastructure risk and weak links andaddress the issues beore a securitybreach occurs.

Key Business Partners: Cisco, JuniperNetworks, Ciena

Smart metering and beyondUsing this solution, energy and utilitiesorganizations can improve the perormanceo their operations by applying businessanalytics to data collected rom meters andother devices to develop insights into siteinteractions, smart meter inrastructure

operation, and grid enterprise participants.The solution also includes network management support and services tospeed the identication, analysis o root-causes, and resolution o problemsor both the energy and communicationnetworks.

Key Business Partners: Itron, Landis+Gyr,Ecologics, eMeter, SAP, Oracle, ESRI

Intelligent electric vehicleenablement platormEnables utilities to eciently supportgrowing adoption o electric vehicles witha “smarter charging” platorm to manageelectric vehicle charge points. Using thesystem, utilities can:

• Understand the potential impact o electric vehicle adoption on the grid.

•

Integrate and manage charging,payments, and billing securely acrossmultiple charge networks, equipmenttypes, and locations.

• Balance and optimize chargingschedules, variable pricing, and demandresponse actions.

• Minimize costs or charging systemmaintenance, and maximize asset use.

• Dynamically scale to meet growing EVdemand via a cloud-based deploymentmodel that requires minimal up-rontinvestment.

Transmission anddistribution — asset and

workforce management

 Asset and workorce managementThe solution enables energy and utilitiesorganizations to improve operationaleciency in two key domains: assetperormance and mobile workorcemanagement.

•  Asset perormance management helpsutilities reduce downtime and improvecustomer satisaction by allowing them

to proactively manage asset planning,implementation, and maintenance,and helps them ensure they are doingthe right work on these assets toimprove perormance, reduce downtime,prolong asset lie, manage inventory andprocurement process and control costs.

• Mobile workorce management enablesutilities to improve eld workorceproductivity through more ecientscheduling and dispatch o the eldworkorce and real-time, two-waycommunication between the eld andthe dispatch center. The solution also

helps ensure workorce saety andregulatory compliance.

What are the IBM E&Uindustry solutions anddifferentiating points?

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Power generation

Plant liecycle inormationmanagementEnables power generation organizationsto manage and update inormationconsistently across all critical projectphases o design, construction,commissioning, and operation o powerplants, and across all key projectstakeholders, including the owner and

operator; engineering, procurement, andconstruction (EPC); and major systemsuppliers (power plant, wind turbine, etc.).The resulting fow o data can be constantlyvalidated and veried against regulatoryrequirements, and applied to help managerisks and cost throughout the plant liecycle.

Key Business Partners: BCP Engineers

 Asset perormance managementEnables power generation organizations toimprove eciency by closing inormationgaps between operations and maintenance

and across the plant, feet, and corporatelevels o the enterprise. By combiningpower generation-specic analytics, suchas equipment condition monitoring andperormance monitoring, with assetmanagement and asset analytics, powergenerators can improve O&M eciencies,reduce CO2, track emissions, and increaseprots. It enables organizations to applyadvanced weather, power orecasting orintermittent power such as wind, and planor integration o the various uel sources.

Key Business Partners: OSI Sot, Black 

and Veatch

Where can I learn moreabout the energy andutilities industry and whatIBM offers?

Energy and utilities globalindustry community (“E&U

team” community)Contains links to key resources orsolutions, training, and education;industry news, E&U solutioncommunities, inormation aboutupcoming industry events, anddiscussions and notices o interest tothe IBM E&U team. Community membersalso receive “E&U Team” e-mails ontopics o interest. To join the community,go to the main page, and click on the“Join the Community” button.

E&U academy

education callsWe hold regularly E&U Academy

calls that provide education about ourindustry solutions, including developmentprojects, client case studies, salesenablement resources, and other keytopics. E&U Academy calls are generallyheld on Thursdays at 11a.m., U.S. EasternTime, and are always recorded andavailable or replay.

•  Call logistics•  Call schedule•

 Library o E&U Academy educationsessions available or on-demandlearning

The E&U Industry Education OverviewPage contains links to learning resourcesor energy and utilities team members.

 Other key resources•  Energy and utilities industry client

reerences •  IBM Smarter Energy press room•  Energy and utilities market insights

portal•  E&U Business Blueprint (Nov., 2012

update)•  IBM Smarter Energy virtual brieng

center (or clients)