Utilities are quickly becoming service providers with much to offer, such as solutions around electric vehicles (EVs), distributed energy resources (DERs), and microgrids.
While the integration of new technologies into the energy industry has brought a plethora of opportunities, it also means utilities have many more projects and assets to contend with. "It is exciting, but it is becoming fundamentally more difficult to operate," says Nathaniel Williams, Managing Director of Smart Grid Services at Accenture.
"We're seeing an industry where, for example, EV take-up is going from 2m in 2016 to 530m cars worldwide in 2040, and where storage capacity is going from 3GW to 930GW in the same period. It's a very complex landscape to manage. At the same time, we have assets that are ageing, and 30% to 40% of the workforce that is retiring in the next five to ten years. Equally, regulators are putting increasing pressure on utilities."
In this scenario, it is essential for utilities to learn how to optimise investments into their assets and effectively manage the associated projects. "The average utility will have over £100m relying on the quality of decision making and investment spend, and those decisions are now going to need to take into account many more factors, variables, constraints and outputs," comments Williams.
In an Engerati webinar, 'PPM for utilities: How enterprise portfolio management optimises investment', Copperleaf demonstrates how project portfolio management (PPM) is key to improve decision making and to optimise investments and strategic processes.
Keys to success
Stefan Sadnicki, Managing Director, Europe at Copperleaf, outlines five keys for successful asset management and investment planning for asset-heavy organisations: developing a value framework, modelling asset lifecycles, developing portfolio constraints, optimising instead of prioritising, and keeping the plan up to date.
"If you're looking at transforming your PPM processes, you should make sure that the processes you're looking to put in place can get you to the efficient frontier," explains Sadnicki.
"The first of these keys to success is to develop a value framework. If we want to embed a consistent process for project evaluation, we need a common definition of value across the organisation. Value can be tangible or intangible, financial or non-financial, but it should be determined by the organisation itself and stakeholders in accordance with organisational objectives.”
Sadnicki recommends establishing decision-making processes that reflect stakeholder needs when defining that value.
"For example, you can have a project to replace an ageing transformer that will generate value because of an asset risk that you're mitigating. You may have a smart grid initiative supporting DERs that may mitigate capacity risks, and at the same time bring environmental benefits and even public perception benefits. There may be an IT project that will mitigate cybersecurity risks or improve workforce productivity. It's not going to be a single set of measures that is applicable to all of these projects, but you need a set of measures within your framework that provides coverage across all of the strategic objectives of your organisation."
Once the value framework has been set out to reflect and achieve the strategic objectives of the organisation, it is then essential to understand asset lifecycles and understand the impact of time in asset decisions. "We typically see that the baseline risk increases over time because assets degrade and the probability of failure increases," says Sadnicki.
"We can consider intervention in these assets, whether with replacement or interruption of activities. That should mitigate some of these risks."
Williams adds that it is also key to incorporate portfolio constraints into investment planning. "Being well aware of those constraints upfront and making sure that a collective plan is deliverable is one of the hardest pieces, but one of the greatest keys to success," he explains.
"There are many other factors beyond budgetary constraints that we are seeing now, whether financial, safety, risk, etc. The key is to consider that upfront and make sure that you iterate your plan in cognisance of that to come up with a deliverable plan."
Optimisation is the next key to success, says Williams. "There are three optimisation strategies that we see ourselves adopting: financial optimisation, or how to use the budget to deliver the most value without breaking the bank; resource-based optimisation, which determines the optimal solution that doesn't require any more resources than are available; and service level optimisation, or how to achieve the most with the least amount of money."
The final key to success, continues Sadnicki, is keeping the plan up to date. "The best way to have plan stability is to make sure that you're turning it into a continuous process."
The reason why that's important is because in the real world things change. “The optimal decisions you may have made in the beginning of the budget cycle might not necessarily be the best as you progress. It is important to have a view of the plan at all points in time and to ensure that you continuously steer your investment towards the best place possible. That means having the ability to re-optimise your plan and making changes."
How and when to adopt PPM capabilities
The next important thing to know, according to Sadnicki and Williams, is how and when asset-intensive organisations should seek out new Enterprise Portfolio Management capabilities.
To Williams, "when there is a timeframe necessary to make these changes, the business case for ramping up capabilities intensifies.” Those can be, for example, when there is a regulator review, a new regulatory period coming up or the need to model a number of scenarios and impacts.
Organisations also seek out these solutions when driven by shareholder expectations. "With any acquisition comes expectations about the financial performance of the organisation. With these factors combined, optimisation comes forward. The traditional asset management plan is no longer going to be enough to deliver the profitability," Williams continues. The need to optimise workforce capacity and innovating a retiring workforce are also significant factors in this timeframe.
Additionally, according to Sadnicki, there are multiple ways for organisations to begin increasing capability, and defining a value framework is a good starting point. "One of the things that is central to decision-making is the value framework. Some organisations might have a very good idea of what that value network looks like for them, but others may want some support in trialling a value-based approach to decision-making.”
One example was a European distribution utility with which Copperleaf has worked. The process consisted of several stages. They first identified different value measures that capture benefits from projects across the portfolio, then aligned the metrics to a financial scale so they could compare different projects between these diverse value measures.
The next step was taking a sample portfolio to represent different portfolios to demonstrate how these capabilities could support the evaluation of different projects. “Once we assessed these projects, we were able to showcase what the optimisation could support in terms of the improved decision making,” says Sadnicki.
"The outcome of this engagement was that the organisation could identify how enhanced capability could help them make improved decisions, how it could enhance their processes and ultimately that feeds into the business case for making that change."
As such, this outcome demonstrates a clear business case for employing PPM solutions. According to Williams, "it's about getting more from less, which is what our customers and regulators are starting to expect from us as an industry."