Shaping a New Era in Smart Energy - A Smart Strategy for a Smart Grid


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Planning a smart grid requires a mix of technologies and a smart strategy to deliver the cost effectiveness, smart energy and customer satisfaction for utilities.

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Shaping a New Era in Smart Energy - A Smart Strategy for a Smart Grid

  1. 1. CHAPTER 1 ENHANCED STrATEGIES A Smart Strategy for a Smart Grid Planning a smart grid requires a mix of technologies to deliver the greatest operational savings, benefits and customer satisfaction for the utility. E very year, utilities are faced with In the last several years, the ubiquitous Unlike planning for other capital the critical decision of where to coverage of the smart grid has sparked projects, planning for smart grid is not invest capital. These decisions are the interests of many utilities looking to simply about filing a regulatory busi- guided by several factors, such as regula- modernize their infrastructures and find ness case; it is planning a business case tory requirements, market conditions and new ways to interact with their custom- for transformation. It is about imple- business strategies. Given their magni- ers. Most recently, the excitement around menting the right mix of smart grid tude, decisions are not made hastily. Care- smart grid initiatives has accelerated technologies that delivers the greatest ful consideration is given to the financial as a result of its inclusion in the U.S. direct (operational savings) and indirect and operational prudence of large capital government’s economic stimulus package. (customer benefits, customer satisfac- projects, such as power plants and new However, utilities must remain cautious as tion, reliability) benefits for the utility. infrastructure. they evaluate these new technologies. Additionally, proper planning and strat- The utility also makes sure that it has The current “rush” can result in a lack egy identifies risks and considerations the resources to support the implemen- of structure around strategy and planning that facilitate implementation of new PlANNING For SMArT GrID IS NoT simply about fil- ing a regulatory business case; it is planning a business case for transformation. tation and on-going operation of large for smart grid improvements. As utilities technologies. Finally, a structured projects. This discipline is necessary to do embrace smart grid technologies, many approach considers the organization’s what is best for the utility, and ultimately, are tempted to develop a vision and strat- capacity to complete the project. Just the customer. This same discipline is egies in a hurried, reactionary fashion as you wouldn’t approve the construc- essential in assessing the use of smart grid rather than taking a rigorous, structured tion of a power plant without ensuring technologies, such as advanced metering approach to determine what technologies that you have the resources to complete infrastructure (AMI), distribution automa- will deliver the most value to the utility it, you shouldn’t begin the smart grid tion (DA) and home area networks (HAN). and its customer base. journey without a clear sense of where you are going and how you are going to WRITTEN BY get there. A methodical approach to defining a Mark Welch, Bryan Lieber — IBM smart grid vision can be accomplished through leadership workshops that define Mark Welch is a Senior Managing Consultant in the Energy and Utilities Strategy and Change practice a portfolio of strategic options and estab- of IBM Global Business Services. Welch has more than 25 years of experience in the utilities and energy lish the criteria to analyze the portfolio’s industry, and has worked with major corporations in engineering and work management, corporate strat- value (both quantitative and qualitative). egy, GIUNC/AMI efforts and organization re-creation. These sessions assess the various smart grid technologies to determine what Bryan Lieber is a Consultant in the Energy and Utilities Strategy and Change practice of IBM Global unique mix (technologies and geogra- Business Services. Lieber has worked on several large smart grid projects in the areas of deployment plan- phies) is the best fit to meet the utility’s ning, business process design and smart grid strategy. objectives. Shaping a New Era in Energy
  2. 2. WhIte PaPer The key steps to defining a smart grid and subject matter experts (SMEs) from fully execute the project (e.g., timeline, vision are: all functional groups (e.g., transmission skill set required, availability of resources, • Define a decision framework; and distribution, meter services, billing, competing projects, technological obso- • Develop strategic options; call center, human resources, finance and lescence/maturity). • Analyze value; and information technology) within the organi- • Ratify strategy. zation. This ensures that the initiative has DeveLoP strategIc oPtIons executive buy-in and input from all groups Smart grid is not a “one size fits all” Ultimately, this approach results in a affected by a smart grid implementation. initiative. rather than view smart grid as richer smart grid strategy and decision A good decision framework incorpo- an “all or nothing” proposition, each utility making process that is consistent with rates company strategic priorities and should define its own customized solution. other large capital projects. consists of both qualitative and quan- The specific strategy and technologies titative measures. Qualitative factors of a smart grid program is driven by the DefIne a DecIsIon fraMeWork include customer satisfaction, technology needs of the utility. For instance, utilities The first step toward defining a smart maturity and obsolescence, implementa- focused on improving grid reliability will grid vision is to develop a decision mak- tion risks and alignment with business emphasize DA technologies, while others ing process to establish the emphasis priorities. Quantitative factors examine more interested in reducing operational and focus of the smart grid program. Are product and resource costs, and product costs will emphasize an AMI approach. upfront capital costs the main concern, benefits and savings. once a decision framework has been or is selecting mature and proven tech- It is also important to understand and created, the utility should begin to assess nologies more crucial? Some utilities compare functionality available to func- the advantages and disadvantages of may seek technologies that can be imple- tionality needed. For example, a utility smart grid technologies using a summary mented quickly, while others may be more might be interested in implementing HAN scorecard (Figure 1). focused on a multiyear rollout of smart capabilities, but may ultimately realize These scorecards provide a compre- grid initiatives. that DA will generate greater value. In hensive view of the technology and iden- Identifying these crucial drivers and the end, the decision framework lays the tify risks, dependencies, resource effort, understanding their importance is foundation for the evaluation of a utility’s key benefits and costs associated with the achieved by creating a baseline decision smart grid portfolio. technology. once complete, scorecards framework to evaluate smart grid technol- Finally, a decision framework should can be used to identify different mixtures, ogies. The framework should be shaped consider and evaluate the program risks or portfolios, of smart grid technology by project management, sponsorship and the organization’s ability to success- options. Description This section is an overview of the initiative and its key activities. The ScoreCard includes sections that list key areas to focus on for planning, design, and deployment of Smart Grid. Objectives This section summarizes critical success factors for the initiatives, such as Program Success, Customer Experience, and Operations Efficiency. Benefits Startup Effort Ongoing Support Effort This section is a brief list of ideas related to potential benefits This section will identify a couple of This section lists ongoing of the initiative. items required to begin the initiative support required for the project, and may include the skill sets required, e.g., resources, governance, etc. planning requirements, or confirmation of executive support. Workstream Touchpoints Sphere of Responsibility This section lists the other Smart Grid Responsible organizations initiatives requiring interface consideration. Regulatory Considerations Jurisdiction/operating company differences Risks and Mitigation Project Planning Considerations These sections provide examples of potential risks and what might be This section provides a jump-start done to negate or mitigate the identified risks. review of key planning activities to Proposed Owner manage the project. Process owners fIgure 1 Technology Scorecard
  3. 3. CHAPTER 1 ENHANCED STrATEGIES Summarize results Graphs for presentations Summary Reports & Graphs Aggregate Models Jurisdictional Models Calculation Engines Aggregate results by State Financial metrics, depreciation and Company Sensitivity – costs & benefits Aggregate Jurisdictional All identical models Models Models Distribution Automation •Reliability Metric Improvements Calculated Costs •Automated T&D Fault Location Jurisdictional Parameters •Circuit Reconfiguration Volumes & Parameters Calculated Asset Condition Monitoring Calculated Other Deployment & Growth Benefits CBM Assessments for Costs Inputs Devices & Installation Costs Model •Reductions in Aging Fleet Failure Comms & Install Costs •Routine Maintenance Reductions IT Costs AMI Sensitivity range %s Meter Reading Demand Response Benefits Remote Turn-off/Turn-on fIgure 2 Financial Modeling Example The advantage of assembling technolo- interim solution helps the utility to recog- Incorporating interim solutions gives gies into a portfolio is that it enables an nize smart grid benefits in a “manumatic” utilities additional flexibility in what tech- enterprise-wide perspective of the pro- environment, combining manual business nologies can be included in its smart grid gram. The value for each stakeholder processes and a degree of process and portfolio. once a closer analysis is given organization can be identified and evalu- system automation, with the goal to tran- to the technology portfolio, utilities can ated. The integration of smart grid tech- sition to more integration and automation. determine if and where interim solutions nologies is made more apparent. Examples of interim solutions include: should be considered. When selecting a portfolio, there are • Advanced Metering Infrastructure (AMI) a few key points to keep in mind. First, a – If there is no regulatory structure for anaLyze vaLue smart grid portfolio doesn’t have to incor- the use of interval data, a utility could Would a utility build a 2 GigaWatt power porate all available technologies, only the initially use the technology for remote plant to satisfy a 100 MegaWatt demand? ones that coincide with the business strat- monthly register reads and remote con- It’s safe to say most wouldn’t. The addi- egy. Next, smart grid technologies don’t nect/disconnect with idea to transition tional capacity of the plant does not jus- have to be implemented uniformly across to interval-based rates as they become tify the cost. Although this is an obvious the entire service territory. For instance, required. example, it demonstrates that utilities a utility could elect to utilize substation • Meter Data Management System have an existing decision process around automation only at critical or less reli- (MDMS) – If interval data is not yet large capital investments. In order to suc- able substations, or choose to install AMI needed, the utility may be able to defer cessfully define a smart grid strategy, util- meters in jurisdictions/areas where meter investment in an MDMS. At a later date, ities must find a way to transition this type reading cost is high. a new CIS system/CIS modifications of analysis to smart grid technologies. A Finally, timing of the smart grid rollout could provide MDMS functionality. qualitative and quantitative value analysis is critical. A utility doesn’t have to provide • Wide Area Network (WAN) Communica- of smart grid portfolios will provide justifi- all of the functionality on day 1. Subse- tions Backhaul – A utility may start with cation of which smart grid technologies to quent capability releases can be planned a cellular backhaul and move to another implement. many years in the future. technology (e.g., WiMax) as it evolves. Qualitative review involves scoring the one of the major obstacles to imple- • Direct Load Control – Initially, a utility chosen technology portfolio(s) against the menting a smart grid program is the could use a technology independent decision framework. This provides a sense lack of maturity in emerging smart grid of AMI (e.g., paging network) and then of how the technologies match the utility’s technologies. Utilities can counter this transition to load control through the risk profile, resource constraints and over- through the use of interim solutions. An AMI meter. all strategy. For instance, a utility may see Shaping a New Era in Energy
  4. 4. WhIte PaPer that some technologies are cost-effective, to understand how the project will be exe- For a variety of reasons, a utility may but too risky to implement in the short- cuted. Utilities should begin implementa- decide not to immediately begin its smart term. These factors are not captured in tion planning by asking the following key grid implementation once the vision and financial modeling and provide key infor- questions: strategy have been defined. All is not lost mation to aid in the transition from strate- • What is the project scope? as this analysis helps to identify the key gic planning to implementation. • What are the key success factors? drivers, benefits, risks and obstacles asso- Quantitative analysis assures cost • What is the timeline to complete the ciated with the smart grid program. This effectiveness for smart grid technology project? can be used as a baseline for future analy- portfolio(s) and is achieved through the • Which technologies do we implement sis or planning once the utility is ready to use of a business case or financial model. first (priority/critical path)? continue its smart grid journey. This analysis factors in the various costs • What resources are going to do the and benefits of the smart grid portfolio. work? What can be done with internal concLusIon For instance, a technology portfolio with employees vs. consultants and contrac- Implementing a smart grid strategy AMI and DA would indicate significant tors? and plan is an enterprise-transforming costs for the purchase and deployment of • What are the risks? How will we manage endeavor. It may be one of the most new devices, but would calculate benefits them? pervasive programs a utility has ever on improved grid reliability and remote • What are the key integration points? attempted. It will impact most every meter reading. • What are the competing priorities/proj- energy delivery organization/function; Figure 2 depicts an overview of a finan- ects? from operations to customer service and cial model that could be used for smart • Are there regulatory constraints? from procurement to human resources. grid value analysis. As the cost-effective- The information technology/operations ness of a particular technology portfolio A final question leadership may want to technology boundary will be crossed many is determined, the utility may find that the ask is “What is the largest non-core proj- times. Appropriate evaluation of the QUANTITATIvE ANAlySIS ASSUrES cost effectiveness for smart grid technology portfolio(s) and is achieved through the use of a business case or financial model. portfolio needs to be modified in order to ect the company has ever undertaken?” options and alignment with the company’s achieve increased savings. For example, and “Why was this project successful/ strategic goals and challenges is perhaps an advanced communications infrastruc- unsuccessful?” Considering this will allow the most critical step in the smart grid ture to implement AMI alone may not be the utility to consider lessons learned journey. Strategic decisions should be cost effective. However, if the same infra- and better understand their capacity for based on rigorous analysis of internal structure was also used to enable DA and change. and external aspects, and not an industry mobile dispatch it would become much once these questions have been trend. n more cost effective. The combination answered, the utility is ready to begin a of financial data and qualitative options smart grid deployment roadmap. The pur- analysis will help the utility to determine pose of this roadmap is to lay out the key the optimal mix of smart grid technologies initiatives over the project timeline, not- to implement. ing the key dependencies and integration points. At this point, it is crucial to tran- ratIfy strategy sition the organization from a strategy The selection of a smart grid portfo- focus to an implementation focus. Cur- WeBLInk >>>>> lio and the associated value analysis is rent project leadership/sponsorship and only the starting point on the journey to functional SMEs should not be released More information and additional a smart grid; it simply puts the building from the project, but rather retained to blocks in place for the utility to transition assist with implementation planning and material can be found online at: into implementation planning. The final execution in new roles within the utility’s step in developing a smart grid strategy is smart grid organization. EUL03005-USEN-00