Navigant Research Blog

Exelon’s GE Predix Deal Points to a Cloud-Based Future

— January 16, 2017

IT InfrastructureIn November last year, General Electric (GE) announced that US utility Exelon had signed a major deal to use the Predix platform to analyze data from its entire generation fleet. The enterprisewide agreement covers data from Exelon’s 32,700 MW portfolio of nuclear, wind, solar, hydroelectric, and natural gas power. Initially, Exelon will use Predix to help improve operational efficiency: it is targeting efficiency gains of up to 5% and operating and maintenance cost reductions of around 25%.

This was one of the most newsworthy announcements in the utility IT space in 2016, as it marks one of the first major shifts to cloud-based analytics of a large utility’s OT data. It is also GE’s largest Predix deal to date and helps validate the large bets the company has made in the OT analytics space, particularly its acquisition of Bit Stew (data ingestion) and Meridium (asset performance management).

Utilities and the Cloud

When the cloud was a hot topic in the broader IT world 4 or 5 years ago, there was little to write about in the utilities industry. This changed when utilities started to migrate back-office applications such as enterprise resource planning (ERP) and customer relationship management (CRM) to the cloud. Since then, there has been an acceleration of certain IT systems to the cloud, but utility OT applications have remained resolutely on-premise.

As utilities have become more comfortable with the cloud concept, it was only a matter of time before the OT world caught up with IT. Other IT vendors (e.g., Oracle with its Dataraker product) have already recorded numerous successes analyzing utilities’ grid data in the cloud. However, until now, the vast majority of these projects have been small-scale proofs of concept or have focused on smart meter data analytics.

Real-Time Performance

Exelon’s Predix deal marks a new era in cloud-based OT data analytics, as it involves the analytics of large volumes of operational grid data from preexisting sensors. This data has historically been fed into data historians, where it was then cleansed, extracted, and analyzed. The process was inefficient and relied on significant IT resources. By streaming data as soon as it is created into the Predix cloud, Exelon will be able to build a real-time view of its assets’ performance. And while the project will initially focus on asset performance management, if the project is a success, there is little to stop Exelon developing new use cases, particularly in network management.

GE is excited by the deal—it is one of the three largest software deals the company has ever closed—and expects more data from critical infrastructure to go into the cloud soon. While it has obvious strengths in asset performance management (APM), it also expects network management applications to migrate to the cloud. While we recommend a certain amount of circumspection (after all, one big deal does not signify a lasting trend), if analytics start to deliver the promise for huge cuts in operating costs, regulators will start to demand that utilities use these tools to cut customer costs.

Discussions of the deal with GE late last year highlighted yet again how vital C-level sponsorship is when driving digital transformation within a utility business. Exelon’s C-suite has been instrumental in the company’s adoption of new technologies, and GE has invested a great deal of time with executives to support them in making this change possible. There will be no digital transformation without C-level buy-in: the cultural and technological changes required are too great to be driven from individual departments.

 

2016 Marks a Year of Disruption for the Energy Industry

— December 29, 2016

Energy CloudAs 2016 draws to a close, it’s difficult to identify which events of a tumultuous year will affect the energy industry the most. The UK’s vote to leave the European Union and Donald Trump’s victory in the US presidential election will certainly top most lists for significant events in 2016. However, no one yet knows the extent to which either will affect the industry. I would like to remember 2016 for other events that gained less airplay than Brexit and Trump but still demonstrate the significant disruption that is occurring to traditional energy business models.

For many years, I have discussed the hypothetical risk of competitive disintermediation caused by the future convergence of electricity and telecommunications markets. Until this year, I relied on a handful of small-scale projects and strategies that amounted to little substance to make this point. However, events in 2016 show that the risk is no longer hypothetical, nor will convergence happen in the future: major utilities are planning large-scale telecommunications projects now, while telcoms are entering the mass market for electricity.

The Spread of Smart Grid

Enel is Italy’s largest utility and has led the charge into smart grid technology adoption. Italy was the first country to adopt smart meters, and it also has one of the most advanced distribution automation projects in Europe. However, Enel’s ambitions extend well beyond the utility industry. It is targeting the Italian broadband market, aiming to provide 250 towns and cities with broadband, and the company’s recent Metroweb acquisition sets Enel on this path. Enel has also discussed plans to deliver broadband to its international customers through wholly owned electricity subsidiaries in Spain, Romania, and South America.

SoftBank is Japan’s third largest company and provides fixed and mobile telephony, Internet, and digital TV services. When the Japanese market liberalized in early 2016, SoftBank recognized an opportunity to expand its services into electricity supply. It has partnered with TEPCO—the former Tokyo Electric Power Company—to deliver power products to its telecommunications customer base of 60 million. In a bold statement that highlights SoftBank’s ambitions in Internet of Things (IoT), the company also acquired leading chip manufacturer ARM for $31 billion.

Transactive Energy

Finally, 2016 saw a profusion of announcements of transactive energy proofs of concept. From North America through Europe, across Asia and into Australia, utilities are investigating ways that customers can start trading power between themselves. Again, transactive energy has been something the industry has discussed for several years, but has seen very little activity. The combination of solar PV, storage, and transactive energy platforms threatens to turn the old centralized business model on its head. The three technologies are complementary and each contributes to the accelerated deployment of the others: solar PV provides the opportunity to self-generate; storage enables the use of electricity at other times of the day; and transactive energy allows the owner to sell power to whomever they choose, at an optimal price.

Utilities face innumerable risks. There are threats from new entrants encroaching on the mass supply market, and massive changes in consumer behavior bring their own share of uncertainties. How each utility reacts will depend on market conditions and their appetite for change. Some will do their utmost to force regulators to protect their current businesses, and others will procrastinate their way to extinction. The likely winners will be those that recognize where future value lies and innovate their way to future success.

 

OSIsoft Wants Its PI Database to Sit at the Heart of IIoT

— October 21, 2016

AnalyticsAt OSIsoft’s EMEA Users Conference, the company set out a clear vision for its PI database: to remain resolutely an infrastructure provider and build out its significant number of partnerships. However, the majority of time was dedicated to its customers’ experiences delivering value from their operational data in innovative ways.

OSIsoft Wants to Position PI at the Heart of IIoT

The utility industry will recognize PI as the most widely used SCADA historian. Yet, PI’s scope extends well beyond utilities; it has a strong presence in many industries, including oil & gas, power generation, manufacturing, and pharmaceuticals. The conference had strong representation from across its core verticals, achieving a record attendance of 1,200 people—3 times the number that attended just 2 years ago.

This remarkable growth is indicative of the increasing value of operational data. A decade ago, PI was used to store data from operational control systems, and few people outside of this domain would access this data. Today, OSIsoft wants to position its database at the heart of the Industrial Internet of Things (IIoT). With a strong focus on digital transformation and IT/OT convergence, the Users Conference focused on ways OSIsoft, its customers, and its partners are helping customers deliver value by using operational data in new ways. A large part of this drive is to provide access to PI data to more users, but in a controlled and measured manner.

OSIsoft Must Work Hard to Raise PI’s Profile within Its Clients’ Organizations

This can be a challenge in many organizations, where PI is often not known beyond the departments that currently use it. IIoT, Industry 4.0, and big data create a huge growth opportunity for OSIsoft, but it must work hard to win this new business. The hype surrounding IIoT and big data is driven by myriad cloud-based IoT platform providers promoting the use of relational databases or Hadoop. OSIsoft warns against the proliferation of cloud-based data services, as these lead to the creation of yet more data siloes—the enemy of any large-scale data discovery project that integrates data from multiple sources.

Although OSIsoft has demonstrated success with its product, the company has to make itself heard through the noise of the big data hype machine. And while it is a profitable business, its marketing resources are limited. As a result, OSIsoft is using its biggest group of supporters to help emphasize the message that PI is a critical tool in IIoT data analytics. Many of OSIsoft’s users are also cheerleaders for the product. The Users Conference was full of customers discussing how other users can gain more value out of their PI licenses.

OSIsoft’s Partners Will Be Critical to Its Future Success

OSIsoft has another ace up its sleeve: a long list of partners that are also targeting the IIoT space. This list includes some impressive names: Esri, SAP, Qualcomm, SAS, IBM, Honeywell, Microsoft, and Cisco.

These vendors recognize PI’s strength and want to ensure that their products integrate seamlessly with PI. In the world of IoT, everyone wants to be OSIsoft’s friend—which is unsurprising, given OSIsoft is a monopoly in many industries. However, it is not just OSIsoft’s market penetration that makes it an attractive partner.

From its earliest days, OSIsoft has resisted the temptation to expand beyond its core business. It is resolutely an infrastructure business. While it has augmented the core PI database with various tools—notifications of anomalous events, data visualization, and integration tools—these are not applications. This means that OSIsoft has no competing products with anyone keen to connect their devices or integrate their applications. In the past, I have been critical of this approach, but my stance is weakening. As the IIoT world develops, OSIsoft’s agnosticism toward applications makes more and more sense: it can partner with a whole raft of vendors and consolidate its position as a market-leading repository for operational data.

 

Europe’s Energy Transition Megatrends and Tipping Points, Part VII: The Power of Customer Choice and Changing Demands

— September 9, 2016

Energy CloudJan Vrins coauthored this blog.

In our initial blog on Europe’s energy transition, we discussed seven megatrends that are fundamentally changing how we produce and use power. Customer choice and rapidly changing customer demands are one of the megatrends driving Europe’s energy transition. In this blog we discuss how utilities and new entrants are competing for customers and market share through new energy products and services, as well as how they are implementing new business and revenue models in search of growth and shareholder value. We also discuss a path forward, which we call the Energy Cloud Playbook.

What’s Happening?

Whether residential, commercial, or industrial, more customers want to control their electricity usage and spend, as well as when and what type of power they buy. Historically, customer choice was restricted to switching suppliers. However, the European market is rapidly changing, and utilities will have to prepare themselves for far more complex customer demands and relationships. For example, many customers now want the ability to self-generate and sell that power back to the grid. Many European homeowners have installed rooftop solar and are interested in storage. Additionally, despite the reduction of subsidies in some countries, overall distributed energy resources (DER) will continue to grow in the long term. On the commercial and industrial side, large corporations like IKEA, BMW, Metro AG, Unilever, Swiss Re, Roche, Aviva, and others are increasing their focus on sustainable energy solutions. The key question moving forward is who will capture the value of more local (distributed), broader, energy management and individualized energy—the incumbents or the disruptors?

Increasing Competition

The European power markets are struggling to balance the requirements to reduce prices, invest in renewable generation, secure supply, and improve the customer experience. European electricity customers pay some of the highest prices in the world, yet many customers receive substandard service from their current utility provider. The move toward a single European energy market is the cornerstone of EU energy policy; thus, there is an expectation that power markets will become more competitive, not less. Competition has many consequences for a utility’s customer relationships, which can directly affect the utility’s business model. However, it is not the only factor: consumers are becoming increasingly aware of the financial and environmental cost of their power consumption. They are also increasingly expecting better, more personalised service from suppliers. As a result, customers will engage with the power industry in new ways, demand new services, and seek out alternative suppliers and options (like self-generation, energy management, etc.).

A New Deal for a New Breed of Customer

The European Union wants to put consumers at the heart of the power market. In the second half of 2016, a set of legislative proposals for a new energy market design will be published. This new deal for energy consumers is based around three pillars: saving money through better information, a wider choice of actions when participating in the power market, and maintaining the highest level of consumer protection. The market design will enable customers to actively participate in the market, adapt their consumption according to the requirements, create clearer bills, and accurately compare prices to improve switching rates. The European Union also reiterated its desire to tackle the issue of residential price regulation that hampers competition. Finally, the market design will try to remove barriers stopping customers from generating their own power and selling excess generation back to the grid.

Commercial and industrial (C&I) customers are central to Europe’s transition to a low-carbon economy. Many corporations have incorporated sustainable energy consumption within their corporate responsibility agendas. For example, Swedish furniture retailer IKEA plans to completely shift to renewable energy by 2020 and will invest up to €1.5 billion (~$1.7 billion) in wind and solar energy as part of its new safeguard nature strategy. The company does not rule out becoming a net energy exporter, potentially selling the surplus of energy to suppliers or customers.

Most customers—both residential and commercial—who generate their own power will do so with solar PV (potentially combined with storage). Until a few years ago Europe dominated the market for solar PV installations, driven largely by a range of different subsidies. These subsidies have largely been removed, and the market has flattened. However, we could be witnessing a short-lived consolidation period for solar: the market could soon pick up as the cost continues to decrease and if current import tariffs on cheap Chinese panels are lifted.

Other DER will further transform the way customers consume power. Locally available battery storage will help customers become more self-sufficient; EVs will dramatically change how, when, and where customers use energy; and peer-to-peer trading networks will help customers decide to whom they will buy or sell their power.

A New Business Model for the New Deal

These new customer demands are already reshaping the utility market. The more forward-thinking utilities are making significant investments into new business models, and competition is increasing. Time is running out for the less adventurous: smart metering will be a reality in the majority of European countries by 2020. Those companies that have prepared for a more connected, digital, and personalised customer relationship will be at an advantage against those that have not.

One of the most significant business model changes is the shift from a commodity-based supply business to an energy service provider. Many utilities have expanded their product offerings beyond the regulated power supply model and broken into new areas—smart home technologies, boiler maintenance or replacement, insurance, home appliances, and security systems are just some of the services offered. One other important area is the relatively new phenomenon of broadband and other communications services. Dutch utility Delta sells broadband, fixed-line, and pay TV services alongside power and gas.

The market is not immune to new entrants. Some telecommunications companies such as Croatia Telecom are now bundling energy with their more traditional services. Other telecoms, such as Deutsche Telekom and O2, are heavily investing in smart home technologies. New models of buying power—including collective switching groups and energy cooperatives—are appearing. In the United Kingdom where the model of municipal-owned utilities was scrapped years ago, councils are setting up their own energy businesses to offer low-cost power to their citizens.

Battle for the Grid’s Last Mile

LastMile

(Source: Navigant Research)

Competition will not end there, as many companies will likely enter the market with radically new business models. For instance, as solar PV and battery storage technologies become cheaper and more efficient, many customers could be taken completely off-grid by new entrants. Retailers, technology companies, and telecoms are also looking at smart home technologies that could ultimately cut utilities out of many customer relationships.

New Business Models Need Better Customer Understanding

As new technologies—smart meters, EVs, distributed generation, energy storage, and smart home devices—proliferate and mature, so will the opportunity to develop deeper and more complex relationships with customers. However, as these opportunities grow so does the threat from competition. To create the right products and services and market them in the most effective way, utilities must better understand their customers’ needs. New technologies will bring deep insights into each customer’s requirements. By using advanced analytics, utilities have a unique opportunity to put the voice of the customer at the heart of their business planning.

What Does All This Mean for Utilities?

Utilities have to adapt. Customers will look for better, greener, and cheaper alternatives, and more and more of these alternatives are becoming available. What’s more, the fight for large C&I customers is going to change dramatically. If only a small percentage of large C&I customers switch over to local distributed generation and energy management solutions, current suppliers and network operators will be in trouble. This will affect their revenue streams, roles, and the cost versus value of the centralised managed grid.

Facing declining revenue as customers consume less and produce more of their own power, utilities are confronted with potential stranded generation (and eventually transmission and distribution) assets. This makes it even harder to make large investments aimed at improving reliability and resilience in their current grid while also making it more intelligent. Utilities also have to make investments in developing DER capabilities, offerings, and businesses.

Given these challenges, utilities must play both defence and offense. An updated defensive strategy requires suppliers to engage with customers to understand their changing demands regarding price, sustainability, and reliability. They also have to continue to improve customer service at the lowest prices possible. Network operators must engage with regulators to find equitable ways to charge net metering customers for transmission and distribution services that fairly address the cost to serve. They have to continue to improve grid reliability at the lowest cost possible and streamline asset management and operations, while also developing utility-owned renewable assets to appeal to environmentally conscious customers.

Playing offense is even more important. Suppliers must create new revenue streams through the development of new business models, products, and services. They also have to transform their organisations and culture in order to fully integrate sales, customer service, and operations. Network operators must upgrade the grid and operations to facilitate the integration of DER and explore new revenue streams as a network orchestrator.

There is no going back to the old ways of doing business. Utilities must lead—by playing both defence and offense—or they run the risk of being sidelined.

Utilities conducting strategic planning must embrace an agile mindset focused on achieving two objectives: accelerating the time to market readiness and reliably producing high quality results. This will be crucial to remaining competitive, as value moves down the value chain and barriers to entry are decreased/eliminated. The opportunity lies in continuously shaping DER portfolios, embracing the rise of the digital prosumer, and capitalising aggressively on platform opportunities for unbundled solutions. We believe that utilities must begin transforming their operations and business models today by simultaneously pursuing risk mitigation capabilities and making bold bets on potentially high-growth product offerings. In our newest white paper, we describe how businesses develop and implement a strategic identity and growth plan (10-15 years), as well as an agile Energy Cloud Playbook (6-12 months) that will help them navigate the path forward and take control of their future.

This is the seventh in a series of posts in which we discuss each of the power industry megatrends and impacts (“so what?”) in more detail. Our next blog will cover the emerging Energy Cloud. Stay tuned.

Learn more about our clients, projects, solution offerings, and team in our Navigant Energy Practice Overview.

 

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