Smart grid spurs creativity in transforming the utility business model

Published: Fri 02 May 2014
A blog entry by Smart Grid Watch

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The pace and nature of change affecting the electric utility industry keeps accelerating. For forward-looking utilities, this represents a potentially huge opportunity, not merely a challenge.

The Smart Grid Software Leadership Conference (May 5-7, Orlando, Fla.), will feature this breakout session: Business Transformation Drives Smart Grid Success, led by John Cooper, Business Development Manager for Siemens' newly launched Business Transformation Services division.

Here, Cooper offers a preview of what his session will cover:

"Creative" is a term not commonly used to describe the utility industry. What kind of creativity is needed for utilities to succeed in the 21st century?

Cooper: Actually, I've found that utility professionals are quite creative. They're incredible problem solvers; they just don't get a lot of credit for it. It's taken immense creativity just to make power grid work for the last 100 years. They've been so successful at providing reliable, affordable power that most people take their ingenuity for granted.

But today, utilities need to innovate on new fronts: product/service development, marketing and customer engagement. They need to be thinking in terms of adding value, and viewing ratepayers as customers.

The smart grid is a beginning, not a goal. Grid optimization inevitably leads to business transformation, step by step. Supply and demand -- the core of any business strategy -- are now fungible.

What's been missing from the industry conversation about the smart grid?

Cooper: When utilities consider the impact of the smart grid, new business models often get short shrift. Most smart grid discussions are all about the grid -- but in fact one of the biggest challenges to utilities are technologies that operate independently of the grid, such as solar photovoltaics, plug-in electric vehicles, and energy efficiency strategies.

As consumers take greater advantage of these options, utilities face a flattening growth curve. They need new types of revenue, and even to become a new type of business.

So far, most industry attention to the smart grid has focused on technology integration. However, emerging product, service and pricing options can enable utilities to be proactive and creative about adapting their business model.

How can utilities view the smart grid most constructively from a business perspective?

Cooper: Smart grid technology works both ways. It leads both to greater access to data, and greater control of the grid. Yes, it also can open the door for third parties to offer new services -- but that's a constructive nudge.

The smart grid challenges utilities to restructure themselves as products and services companies, similar to the evolution that swept the telecommunications industry over the last 15 years.

A connected smart grid integrates three important technologies that enable business model change:

  • SCADA, for remote control of operations.
  • AMI, where smart meters provide detailed information on the current state of the network.
  • Demand response, which enables customers to become active grid participants.

When those three enabling technologies operate together, a utility has a virtual power plant -- one of the most valuable business resources you could ask for. A VPP is a functional substitute for a peaking power plant, but it costs much less to operate and can be deployed far more flexibly.

What competitive advantages do utilities have?

Cooper: Lately third party providers (of distributed generation, energy services and new products such as the Nest smart thermostat) have been a bit more innovative and nimble than most utilities. They've been encroaching on the traditional utility business model.

The notion that the utility is only provider of electricity has gone out the door. But utilities are still the only provider of grid-connected power -- even though in most major markets they're no longer the only supplier of power. Utilities that bundle existing grid power with new products and services will have an advantage over competitors.

Owning and operating key infrastructure (a smart power distribution network and smart meters) gives utilities the unique advantage of vision. Utilities can monitor and track changes at great breadth and depth, especially leading-edge trends in their market. With that vision, utilities can respond dynamically -- both in daily operations (managing generation resources and demand response) and in long-term business strategy.

How can utilities stay focused through all this change?

Cooper: The key is to lead, rather than follow. Play to your strengths as a utility. For instance, you might offer to bundle new products like Nest thermostats or solar PV at a new time-varying rate. Third parties can't offer that.

Remember that business transformation is about people as well as technology. Utilities will need new or retrained engineers, marketers, customer service reps and managers. They'll be using data analytics, software, web-based tools and apps to connect with customers and to deliver services as well as electricity. Their business processes will need to be adapted and updated. But this is all doable.

Sometimes utilities think that their hands are tied, they're victims of fate. But I think this is the most exciting time in a century for this industry. There's no reason why utilities can't reinvent their business model. They have everything they need to do it well.


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