Navigant Research Blog

Look to Islands to Teach Us More about IoT

— January 16, 2018

Islands play an important role in the energy sector, and in other sectors. The Hawaiian Islands, for instance, have been a test bed for new technologies at scale, such as rooftop solar and energy storage systems, led by the Hawaiian Electric Company. The concept of islanding, where a distributed energy resource continues to provide power to a location that goes off the grid, has gained stature through the deployment of microgrids. And in the Internet of Things (IoT) realm, both Spain’s Balearic Islands and New Zealand have recently entered the picture as laboratories for IoT technologies.

Case Study: Balearic Islands

Officials in the Balearic Islands are promoting a system involving half a million sensors that will blanket the islands as part of a broad IoT project. The plans call for 50 IoT antennas that can support at least 50,000 sensors. The underlying network infrastructure is based on the emerging LoRa technology, a low power wireless standard for wide area networks that is well-suited for IoT applications.

Several applications for this IoT network are under discussion, from helping tourists identify uncrowded beaches to helping the elderly avoid getting lost. One of the pilot projects uses the network to monitor the availability of some 1,200 parking spaces in a lot at the Balearic Technology Innovation Park.

The Balearic experiment has attracted the attention of Google, which has supplied the local government with its own IoT platform. The online search giant has also brought in its partner Beeva, a Spanish consultancy, to help steer another pilot project that aims to optimize the use of boat moorings in the city of Pollença’s harbor.

Case Study: New Zealand

In New Zealand, similar efforts are underway in that island nation. Telecom carrier Spark is building its own LoRa IoT network, with plans to cover 70% of the population by the middle of 2018. Officials there envision the new network will support connectivity for traffic lights, waterways, and machinery. And they expect to provide such services at lower costs compared to existing infrastructure.

Will these new, island-tested IoT networks prove to be trend-setters? Perhaps. But there are competing IoT network technologies, of course—such as 5G, which has many people in the energy and automotive sectors excited about what it offers (see Navigant Research’s 5G and the Internet of Energy report for some details). No matter how these IoT networks turn out, it pays to keep an eye on the latest advances so one does not get stuck on a technology island.

 

Major Businesses, Beware Myopia

— December 21, 2017

Develop Peripheral Vision to Manage Industry Disruption

The past 50 years have witnessed the collapse of many corporate giants, often caused by the systemic myopia of business leaders. The likes of Blockbuster, Kodak, and Polaroid demonstrated a failure to recognize where the value lay in the digitization of their industries, for example. As we move into 2018, energy industry disruption is accelerating. Huge opportunities stem from increasing complexity and disruption, but the risks of utilities becoming the next Kodak are also increasing. To combat competitive threats, the industry must develop peripheral vision—the use of competitive early warning signals and scenario planning—to exploit opportunities and manage threats.

Identify and Monitor Early Warning Signals

A competitive early warning system delivers this peripheral vision. By maintaining a broad perspective, utility executives can focus on where changes are happening the fastest and identify where future value lies. However, it is imperative for executives to filter signals from noise and focus attention on the developments that have the highest potential to hurt a business in the coming decade. Scenario planning is a useful filtering tool: a signal such as the development of a new technology, product, or service is extrapolated into the future in several scenarios that gauge the likelihood of adoption and potential impact.

For example, there is a growing trend for residential customers in Europe to purchase solar PV bundled with storage. German battery vendor sonnen has developed a solar plus storage product—sonnenFlat—which requires customers to only pay a flat fee every month. As part of the deal, customers provide sonnen with access to their distributed energy resources (DER) to provide grid services. In return, sonnen guarantees customers free grid-sourced power when their DER is unavailable. sonnenFlat is a new, niche product. Nonetheless, utilities globally should be assessing the risk this poses, particularly when combined with community solar programs. A self-sufficient solar plus storage customer is lost to an incumbent supplier for 20 years.

Measure the Likely Impact on Business for Each Signal

No one can claim to know the future, but with careful planning, a company can prepare for the most likely scenarios. The potential scenarios for residential solar plus storage installations span from little or no growth through near ubiquity. The industry should be asking whether solar plus storage could kill the traditional grid supply model. Careful analysis of the market—for instance, using SWOT or PESTLE approaches—will help gauge the likelihood of different scenarios.

In many countries, the cost of financing solar plus storage is less than a household’s annual electricity bill; falling technology costs and rising power prices will make the solar plus storage option more compelling. While the economic argument is increasingly convincing, there are many reasons why adoption is relatively low, including apathy and ignorance.

Expect (and Plan for) the Unexpected

Customer preference is the biggest driver of solar plus storage, and therefore beyond the industry’s sphere of influence. There is little an incumbent energy provider can do to protect existing revenue from power supply by deterring customers from making solar plus storage investments. This strategy also fails to capture the value of solar plus storage. The industry should be planning strategies to respond to the growth of solar plus storage. These include the development of solar plus storage products, aggregation services, providing the infrastructure on which third parties can offer services, or partnering with or acquiring existing providers. It is possible to be as well-prepared as possible by recognizing the biggest threats and creating risk mitigation strategies in advance.

To mitigate risk, utilities must plan scenarios for a large number of signals in a well-defined early warning system.

 

Where Are All the Meter Manufacturers in Transactive Energy Projects?

— December 7, 2017

That’s a question I’ve been asking myself recently. The answer seems to be “nowhere.” In the 110 or so trials of utility industry-related blockchain and transactive energy (TE) Navigant Research has identified, meter vendors are at best the silent, invisible partners of other companies. When asking leading blockchain and TE startups about the meter hardware in their trials, the stock response has been “nothing is available that supports our requirements, so we built our own.” So, why aren’t meter vendors making more noise about a potentially significant growth opportunity?

Blockchain is the hottest, most hyped technology in the energy industry, and TE is its hottest use case. If current TE trials prove successful, I expect rapid adoption, particularly in countries with high penetration of solar, supported by ratepayer-funded incentive mechanisms. TE’s market-based incentives could replace subsidies. Large-scale, fully automated TE platforms have a number of requirements, as discussed in Navigant Research’s Blockchain for Transactive Energy Platforms report:

  • TE pricing requires visibility into local network conditions, including network assets and distributed energy resources.
  • Smart contracts—which determine when transactions are opened and closed—must be hosted locally and fed with market data.
  • Meters measure and record all TE power supplied and consumed.
  • Communication networks will transport data to interested parties.
  • Transactions must be recorded to the blockchain.
  • Significant distributed compute power will support automation of the TE platform.

Meter Vendors Can Support Many TE Functional Requirements

TE markets will have to be settled in much the same way as wholesale power markets are today, in accordance with strict market regulations and technology standards. This is a complex system, where a lot of trust will be placed on the technology platform. Meter vendors have many capabilities that could put them in a commanding position to lead the TE space:

  • Smart meters already provide visibility at the point of consumption.
  • Advanced metering infrastructure communications could provide the data networks on which TE runs.
  • Smart meter data concentrators could be used as nodes for the blockchain, store smart contracts, provide compute power for localized pricing calculations, and so on.

There is another feature that meter vendors have so far overlooked: it is difficult to amend records already committed to the blockchain. Consequently, it is vital to ensure that transaction data is correct before it is recorded. This will be a difficult task in a largely automated TE platform. While smart meter accuracy is generally high—between 99.5% and 99.9%—a validation algorithm is run regularly to estimate missing or erroneous meter readings. In TE, a similar algorithm must run on transaction data. However, it is likely that validation will be distributed alongside the ledger, rather than a centralized batch process. Most meter vendors also offer a meter data management system with an associated validation algorithm.

Despite meter vendors’ requisite hardware and software, they are nowhere to be seen in the TE world. There are many reasons: ongoing major smart meter rollouts command a lot of attention, and there is little money to be made in TE right now. However, I would have expected at least one vendor to have taken the leap into the world of TE. The biggest risk is that meter vendors are trapped in the old utility world, where metering innovation was driven by utilities—with whom meter vendors have decades-old relationships—and adoption of new metering technologies was slow and incremental.

TE adoption will be different. It is driven by startups that have no previous relationship with meter vendors. These startups could develop their own validation algorithms; they could choose to use public 5G networks for data communications; or they may decide to deploy their own distributed compute. If this happens, meter vendors will miss out on potentially billions of dollars of value created by TE. Meter vendors must wake up to the reality of TE and the opportunities and threats the market presents.

 

Utility Cloud Use Soars in 2017

— December 5, 2017

I’ve been analyzing technology markets long enough to have observed the entire cloud computing hype cycle; it’s now a well-understood, mature technology. Which also means that there’s little to write about for an analyst more used to covering emerging technologies. However, from 2008 to 2011, I never got the chance to write a detailed report about cloud computing in the utility industry. While the cloud hype volume was cranked up to maximum, the utilities industry was doggedly refusing to move any IT infrastructure into the cloud. Which was a personal disappointment: for a fan of puns, it was difficult to resist the temptation to write a report titled Utility Computing in the Utility Industry.

I even advised a couple of cloud vendors that wanted me to tell them how to break through the conservatism of the utilities industry. My only advice? “Lobby the regulators, because utilities just aren’t going to budge on this one.” And why? Three primary reasons:

  • Conservatism: No utility ever liked going first with something new. In any monopoly market, moving first was only ever a disadvantage. Rather, utilities would wait for someone else to stump up investment capital and let vendors learn from the mistakes of others before bringing a more reliable product to market.
  • Security: I have been told more than once of security officers halting vendors’ cloud pitches midway because of security concerns.
  • Regulatory: Some regulators would not let data be transported outside of certain geographic areas, killing off any idea for clouds based in other jurisdictions.
  • Finance: The key selling point of cloud is its OPEX-based pricing scheme. While music to the ears of CFOs in other industries, it killed cloud’s chances in utilities rewarded for making capital investments.

Until a year ago, cloud’s adoption by utilities was slow and steady. However, 2017 has marked a dramatic change in the industry’s attitude toward the technology. There is no better way than using cold facts to describe the rapid acceleration of its adoption. In a recent call with SAP, I was astounded at the company’s growth in cloud-based revenue in the first three quarters of 2017: a 90% year-over-year increase on 2016. SAP’s utilities business unit recorded the second-highest growth in cloud revenue across the business, just behind retail.

Market Requirements Have Eroded Resistance to Cloud Adoption

This growth isn’t completely unexpected. European utilities are under significant pressure to reduce costs and are no longer concerned about the OPEX versus CAPEX argument. The cloud is helping them achieve this. Cloud vendors have also made great strides to improve security issues. So much so that investment in security is typically higher than a utility can manage for its onsite data centers. And with the growth in demand for cloud, vendors can build infrastructure in more locations, negating the need to move data across international borders.

What’s next? The industry is becoming more comfortable with cloud, and more IT infrastructure will be moved to it. However, this will be done in a controlled manner. Despite some (frankly laughable) claims to the contrary, private clouds will account for the vast majority of utilities’ use. Core IT infrastructure likely will never be moved to public clouds, due to the inherent increased risk.

Finally, a word of caution. I predict that some utility’s adoption of cloud services will be piecemeal, unstructured, lack a coherent strategy, and uncoordinated. Different departments will procure cloud services for their own departmental means. In effect, reversing the recent trend to consolidate data in a data lake or data warehouse. Instead, new cloud-based operational data siloes will be created, where access to data is restricted. To counter this threat, individual departments must be reined in just enough to ensure enterprisewide data management without choking innovation.

 

Blog Articles

Most Recent

By Date

Tags

Clean Transportation, Digital Utility Strategies, Electric Vehicles, Energy Technologies, Policy & Regulation, Renewable Energy, Smart Energy Practice, Smart Energy Program, Transportation Efficiencies, Utility Transformations

By Author


{"userID":"","pageName":"Utility Transformations","path":"\/tag\/utility-transformations?page=3","date":"2\/24\/2018"}