In March 2017, power generated from the sun and the wind reached a significant milestone in the US. For the first time ever, solar and wind energy accounted for 10 per cent of the country’s electricity generation (8 per cent wind and 2 per cent solar), according the US Energy Information Administration.
According to the Solar Energy Industry Association, installation of solar generation capacity has grown at an average annual rate of 54 percent since 2006, while solar costs have come down 70 per cent since 2010, making them increasingly cost competitive with other resources. That’s why nearly 60 per cent of installed solar capacity last year was utility-scale. It’s also why some industry projections have solar and wind generation surpassing coal and nuclear on a combined basis as early as 2030.
These numbers and trends should not come as a surprise to anyone. The more pressing topic is how utilities are going to evolve their planning, operations and business models to enable this profound change and turn it into a growth opportunity.
Of course, solar and wind energy come with three key challenges. First, they are intermittent, when the sun sets or goes behind a cloud, or the wind stops blowing, there’s no production, affecting up to 100 per cent of capacity for these resources. Second, these resources tend not to be co-incident with peak load. And lastly, significant resources are often located long distances from the loads they serve. While 10 per cent renewable penetration is proving entirely manageable, 30, 40, and even 50 per cent penetration (the goal of many state-level renewable portfolio standards) compounds the challenges. These challenges can be organized into three broad categories:
Forecasting:à‚ In an electricity market rich in renewables, it’s difficult to overstate the importance of an accurate and timely demand forecast. The technical stakes (grid stability and power quality) and the economic stakes (the costs of procuring and summoning alternative generation resources) are significant. Accurate forecasting, including the system-wide and localized impacts of distributed generation, on a daily, hourly and even on a near-real-time basis in some cases, becomes an operational and business imperative. Thanks to high-resolution data sets, better algorithms, and statistically adjusted end use modeling tools, it’s now possible to gather and apply this business intelligence at both bulk power and distribution system levels, significantly mitigating these risks.
Operations:à‚ To manage the challenges posed by intermittent and distributed energy resources, distribution utilities are going to need to extend visibility, intelligence and control to the edge of the grid. That means deploying connected, intelligent and secure devices — from distribution automation equipment, to grid sensors to smart meters ” ubiquitously throughout their networks. This includes enabling IoT capabilities such as distributed computing, artificial intelligence and machine learning to not only sense changing grid conditions and load volatility in real time, but to quickly take appropriate and coordinated corrective action in an autonomous manner. These capabilities will be critical to managing an increasingly distributed and intermittent resource portfolio.
Planning:à‚ After rising continually over the past two decades, investor-owned capital expenditures are projected to level off and even trend downward a bit in the next few years. That has big implications for grid planning. Depending on the location, you can either create problems or solve problems by deploying DERs. Utilities are going to have to migrate from a static to a dynamic grid planning approach that accurately reflects the impact and business value of renewable energy based on location. This will require utilities to adopt new planning tools and high-performance computing capable of modeling grid behavior and DER impacts on a system-wide and localized basis, along with business case models that capture the true value of renewables across a full spectrum of metrics. This will enable utilities to transition from mitigating renewable impacts to actually leveraging these assets to improve grid resiliency and reliability.
The evolving role of the CIO
In meeting with our utility customers, I often discuss how the role of the chief information officer is evolving closer to that of a Chief Digital Officer or “CDO,” and how their organizations will benefit if they embrace the role. Computing resources and traditional IT functions are increasingly becoming commoditized, and as a byproduct so is the traditional role of the CIO, whereas technology investments are increasingly being applied to the front office or at the point of customer experience where it’s literally helping the business transform to service new markets and products.
The management of horizontal and commodity IT services is increasingly an exercise in strategic supply chain management. With the advent of cloud computing (aka “utility computing”) there are a plethora of technology options that will drive down costs, increase uptime and enable CIOs to use the savings to self-fund new technologies that drive new business initiatives. Embracing these mediums to save money and spend it more wisely in new ways will impact the business materially.
And there’s some irony in the fact that utilities are slow to embrace a business model (commoditizing of traditional IT and computing services) that their contemporaries in other markets have mastered over the course of decades to create headroom for new technology investment that increases business agility and enables more high-value, service-oriented offerings. Renewable energy represents an opportunity for utilities to re-invent themselves, redefine their growth strategy, and create new value for their customers and their shareholders.
Utilities can learn from digital transformation efforts in other industries
There’s a playbook for this digital transformation. Many other sectors, their business models disrupted by new technology, innovation, and latent customer needs, have re-imagined their businesses and applied technology and data to drive new growth. We’ve seen it in banking, telecom, retail, and investing. I’m seeing more and more utilities charter cross functional working groups focused on developing new revenue streams, bringing new products and services to market, and turning the threats posed by customers generating their own power into growth opportunities by leveraging their brand as trusted energy advisors.
The characteristics of renewable energy require change: putting in place the technology, operational procedures, planning processes, and regulatory and policy reform to assure that the costs and benefits are allocated appropriately across the stakeholder community. Digital transformation of the utility represents the most important and fundamental step of harnessing the value these clean energy resources offer. Let’s begin the journey.à‚ à‚
Don’t miss Digitalizing the Grid at DistribuTECH conference and exhibition in New Orleans next month.
This article first appeared in our sister title Powergrid International.