Navigant Research Blog

Utilities Must Take a Pragmatic Approach to the Energy Transformation

— July 27, 2017

Few will dispute the fact that the industry is undergoing significant change. The shift to clean and distributed energy sources and the adoption of EVs will force significant changes to the way distribution companies run their businesses. However, much of what is written on business transformation can be high level. If everything that is written on the subject is to be believed, then there are huge utility transformation projects occurring across the world. While there is certainly a lot of activity, projects are typically targeted at specific areas rather than businesswide.

Transform Business Models via Planning

As discussed in Navigant Research’s Distribution Utility Transformation Strategies report, which highlights some of the leading examples of business model transformation within distribution networks, transformation does not happen overnight. Rather, it is a decade-long process that requires careful planning and a staged approach. There are many different drivers for transformation, including increasing competition, business process efficiency improvements, a renewed focus on customer experience, new product and service development, and the incorporation of distributed energy resources (DER). These drivers will affect utilities in different ways; the most striking difference is between competitive and monopoly markets.

Create a Vision for the Future

One key takeaway is that as with any large-scale project, utilities must set out a vision for their future businesses and a roadmap detailing how to achieve this goal. Companies cannot do everything all at once, so they must place their bets wisely and invest in projects that deliver the biggest returns. In addition, organizations cannot underestimate the contribution a strong stakeholder engagement program can make to a project’s success.

Develop an Actionable Roadmap

As a result, each utility’s transformation will be different and will happen at different times—and at different rates. Digital Utility Transformation Best Practices builds on some of the recommendations provided in Navigant Consulting’s “Energy Cloud Playbook” to offer best practices for creating an actionable roadmap for transformation. Most utilities will not be able to avoid the inevitable forever. Therefore, they must plan now for their future businesses. The right strategy will help utilities navigate political uncertainty; manage market-specific regulatory policies; access project finance from skeptical and conservative shareholders; and confront legacy issues such as corporate culture, a lack of skills, and outdated technologies.

The latest reports published in Navigant Research’s Digital Utility Strategies Research Service provide specific details on different utilities’ transformation projects. They discuss and compare initiatives in California, New York, the United Kingdom, Italy, and Australia while also providing some practical advice to organizations embarking on their own transformation projects.

 

Realizing the Potential of Street Lighting Networks

— July 27, 2017

Navigant Research expects 73 million connected street lights to be deployed globally by 2026. This will be an immense asset for cities able to use these smart nodes as part of an emerging city mesh of sensors and smart devices. However, while the potential of smart street lighting is clear, there are still several hurdles to faster adoption. As Richelle Elberg noted in a new Echelon-sponsored white paper, we must examine the complex issues around the network choices facing cities—and technical complexities are only part of the problem. The Echelon white paper and Navigant Research’s recent Smart Street Lighting for Smart Cities report both identify five key messages for cities as they consider their street lighting policy:

  • Consider street lighting upgrades as part of an Internet of Things (IoT) strategy. Any city looking to deploy a street lighting network should at least have an outlined plan for how it will engage with the growth in the use of digital and IoT technologies for city operations and services. How do these developments fit with existing city development strategies? What are the priority local issues and what are the local assets that provide the starting point and make the plan distinct to the needs of this city?
  • Find new ways to collaborate across departments. The potential to add future services to a street lighting network means that coordination across city departments on procurement is essential. Restricting the procurement to the traditional concerns of the lighting department may limit the ability to realize future benefits. Coordination of networking requirements and procurement across multiple city departments—and even involvement of other stakeholders such as local utilities—should be considered.
  • Think about problems first. While there are a wide range of potential use cases for a multi-application network, not all will have the same priority. Just because many applications can be supported on a street lighting network does not mean that all will be equally important to all cities. As a leader of a successful smart city program recently said: “our secret is that we always start with a city problem not a technology.”
  • Understand the diversity of requirements. While integration across departments and the consolidation of requirements is a sensible approach, it is also important to realize that one approach will not satisfy all needs. Most cities are likely to require different communication solutions to address the span of smart city applications, from low risk Living Lab projects, to specific services applications such as street lighting and smart parking, to critical city systems for public safety. The future of city networking will be a hybrid.
  • Recognize that street lights are a city asset. In a world that depends on ubiquitous access to power and connectivity, the street lighting network is a valuable resource. In addition to providing a platform for new sensors and applications to improve the efficiency of city services, they can also be a source of new revenue. Street lighting poles are being used to extend cellular and Wi-Fi access, to integrate EV charging equipment, and as digital signage sites for advertisers.

Where Do We Go from Here?

Installing smart controls for street lighting at the same time as an LED upgrade program is a logical and cost-effective step to enhancing the value of the city lighting system. In 2017, smart street lights represent only about 2% of the installed base of street lights; there is still immense potential for better utilization of these valuable city assets.

Installed Base of Smart Street Lights by Region, World Markets: 2017-2026

(Source: Navigant Research)

For further detail on smart city applications, street lighting as a platform, and the relevant connectivity platforms, see the Navigant Research white paper, Smart Street Lighting as a Smart City Platform. The Executive Summary from the Smart Street Lighting for Smart Cities report is also available.

 

Automated Driving Space Threatens to Follow App Store Revenue Model

— July 27, 2017

Ride-hailing provider Lyft has shifted course and decided to develop its own automated driving system, joining most of the major automakers, suppliers, technology companies, and hundreds of startups in Silicon Valley and elsewhere. If the smartphone app economy is any example, this is not a good thing for any of the new players. The land rush into this space seems eerily similar to what happened in the years after Apple began allowing third-party apps onto the iPhone. Lots of early players made some money and many of them got healthy buyouts, but the vast majority never made a dime.

As of 1Q 2016, studies of Apple App Store revenue showed that the top 1% of publishers took home 94% of the more than $1.4 billion generated. The vast majority of apps in the stores of Apple, Google, and other companies have never earned anything. A 2014 analysis of the more than 1.2 million apps then available in Apple’s store showed zero downloads.

And the Automated Vehicle Market?

Most of the startups jumping into the automated vehicle space are focused entirely on developing the control software while using off-the-shelf hardware. Unfortunately, for most of these new entrants, the software side is quickly maturing. It seems increasingly unlikely that anyone is going to make a huge algorithm breakthrough that is going to justify a high purchasing or licensing price as these vehicles start coming to market in the next few years. A few more big acquisitions like Cruise Automation may happen, but it is rapidly becoming a buyer’s market for automated driving startups.

While the software will continue to evolve as engineers learn how to make it deal with edge cases, the real effort now needs to be focused on the hardware side. The cost of sensors and compute platforms must come down along with power consumption. Sensors must get more robust to withstand the rigors of daily use in the real world outside the mostly perfect weather bubble of Silicon Valley. Everything has to be integrated into the rest of the vehicle and made to work in all climates. These are expensive and time-consuming activities that startups are ill suited for.

The Right Moves?

Companies like Waymo are making the right moves in developing both the hardware and software as well the mobility services component for deployment. They are also forming partnerships with automakers to provide vehicles, rental companies for servicing, and network companies like Lyft for additional deployments.

Until now, Lyft has focused on partnerships with vehicle providers, including General Motors (GM), Waymo, nuTonomy, and Jaguar Land Rover. For Lyft to decide to develop its own automated driving stack seems like a needless waste of resources for a company that has yet to approach profitability.

Too Many Players?

Navigant Research’s Leaderboard Report: Automated Driving ranked incumbent OEMs such as Ford, GM, Nissan, and Daimler, along with suppliers like Delphi and newcomers like Waymo, at the head of the pack. There are already too many players in a transportation ecosystem that is likely to see significant consolidation in the next 2 decades. Anyone entering now is far more likely to be the next Color than the new Instagram. Venture capitalists considering putting money into self-driving startups that will probably part of the 80% with zero downloads are probably looking at a race to the bottom as that technology becomes commoditized. They should instead be focused on interesting new kinds of services that build on the data emanating from those vehicles.

 

Natural Gas Demand Response – Current Utility Programs: Part 3

— July 25, 2017

Coauthored by Paul Moran

As we discussed in our last blog, demand response (DR) in the natural gas sector has been less prevalent in the natural gas industry than in the electricity industry due to the lack of clear market signals that otherwise would enable market participants to put a price on deferred natural gas consumption. However, changing market factors are leading to increased interest in the practice. There are several utilities currently running innovative natural gas DR programs to discern the value of it alleviating system constraints.

Rebates for Home Heating

This year, Southern California Gas (SoCalGas) launched a natural gas DR program called the SoCalGas Advisory Thermostat Program, partially in response to supply concerns related to a leak at its Aliso Canyon natural gas storage facility. It offers program participants up to $50 in rebates while helping them reduce natural gas costs for home heating. To be eligible for the rebate, program participants agree to allow minor adjustments to their smart thermostat settings on days when a SoCalGas Advisory conservation event is called. SoCalGas manages the ecobee thermostats and makes adjustments remotely, using a software platform developed by EnergyHub. Participants are notified before any adjustments occur. This represents the first rebate program of this type offered by a natural gas utility for gas heating.

Interruptible Gas Has Its Perks

Xcel Energy has an interruptible gas program for large commercial and industrial customers that does not include physical control of the gas supply by the utility. It is used to allay pipeline or distribution constraints as well as economic concerns when gas prices increase or spike. Customers get a notice one hour prior to the need and then it is up to them to decide what to curtail or whether to go on a backup fuel supply. It can be isolated to certain geographic areas on the system rather than an all-or-nothing approach.

Pilot Programs in New England

The New England region is at the literal end of the gas pipeline infrastructure and is at risk of experiencing more supply shortages than other areas of the country. Even before the polar vortex, the Independent System Operator of New England instituted a winter fuel supply program, including winter DR. Some of the Massachusetts utilities have undertaken pilot programs with smart thermostat vendors like Nest to test the natural gas DR theory with residential customers by changing heating setpoints. The programs have not yet moved beyond the pilot stage.

Although the absence of a clear price signal is a significant impediment to the adoption of natural gas DR, these innovative programs demonstrate that utilities have a strong interest in exploring its promise to provide a less expensive means of alleviating pipeline constraints. In our final blog of this series, we will discuss how National Grid is exploring new applications for natural gas DR to reduce peak load and improve system efficiency across its service territory.

 

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