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Energy, Utilities and Chemicals the way we see it Smart Grid: Leveraging Technology to Transform T&D Operating Models Point of View by Doug Houseman and Meir Shargal Contents Introduction 3 The State of the Market 4 Regulation and Legislation Global Climate Change Customer Expectations Aging Infrastructure Power Quality and non-technical losses 4 4 5 5 5 The Opportunity 6 The Vision 7 The Roadmap 10 The Business Case 11 Starting the Transformation Journey 12 Glossary 14 ©2007 Capgemini. No part of this document may be modified, deleted or expanded by any process or means without prior written permission from Capgemini. Energy, Utilities and Chemicals the way we see it Introduction What will the future hold? This is a question we would all like answered with some assurance. As we all know, it is nearly impossible to predict the future but it is possible to look at trends and activities taking place in our lives and get a good indication of the direction we are traveling. The same is true in the electric utility industry and the future of the electric distribution grid. It is clear that dramatic change is coming in the future for the electric utility industry and the way energy is generated, delivered and consumed substantially changing the whole business model. This change is coming to a piece of the industry that hasn’t been known for radical change over its 120 plus year history. Electric distribution has been basically the same industry since the time of Edison and Tesla, both would easily recognize what is installed today. The utility industry is often accused of being slow to adopt and resistant to change, a new study by Platts and Capgemini suggests just the opposite. According to the study, in which more than 120 senior executives at U.S. and Canadian utilities participated, a majority of the surveyed executives reported that they are embracing new technology as a means of improving overall grid performance. Smart Grid: Leveraging Technology to Transform T&D Operating Models Another key indicator of future direction is actions being taken by legislators and regulators. This year we have seen the United States House of Representatives pass the Smart Grid Facilitation Act of 2007. This legislation provides a nationwide focus on the development of an Electric Smart Grid. In Europe similar efforts are underway, in parts of Asia the situation is even more advanced, Tokyo has completed the implementation of a smart grid. The only sure thing is that doing nothing is not an option since an increasing electricity demand is pushing the aging electric grids to the breaking points; the current state of the electrical infrastructure is not sustainable. To change its course, utility companies must embrace a fresh approach to managing the grid, peak demand and system security - one that will drive market efficiency while supporting economic, environmental and social priorities. 3 The State of the Market The reality is that the compliancebased industry in which utilities operate doesn’t offer enough incentive for consumers, regulators or utilities to take the difficult steps necessary to make electrical energy markets operate efficiently. Consumers want lower prices, higher quality service and absolutely expect the power to flow 24x7. Some regulators impose long-term rate caps in an attempt to please consumers. Regulated rates are not tied to wholesale markets where utilities purchase all or a portion of the power they sell. Incentives for consumers to conserve are not significant enough to change their behavior. Regulators impose conservation program requirements on utilities, and as a result, utilities suffer from decreased revenues which are directly tied to consumption. Networks are constrained enough that true pricing is not possible – the Enron games in California show what happens when the incentives are high enough for market participants. Construction difficulties linked to complex local regulations. Public resistance to the addition of new transmission lines, while they want the power, they do not want to see the lines. ■ ■ ■ ■ ■ ■ ■ ■ Incentives for grid operators will depend on the ownership model, in Nordics where grid operator is a monopoly there are very few incentives to commit to lower prices for the consumer, their primary interest is efficiency, quality, control and low operating cost. In situations like this the grid operators are only indirectly tied to the consumptions – and they are not benefiting from those new 4 technologies – the market/retail side is the primary beneficiary. Despite these current realities, a number of internal and external factors are converging that will enable and provide the right types of incentives for utilities, regulators and consumers to adopt innovative approaches to demand management and market efficiency. Those factors will drive the electric power infrastructure to radically change. Regulation and Legislation Governments around the world are making energy conservation, energy independence and global warming top-of-mind issues. A wide range of taxes, legislation and other policies designed to reduce the combustion of fossil fuels are being considered across the globe. The Smart Grid Facilitation Act of 2007 establishes a Federal Grid Modernization Commission, requires (unlike EPACT 2005) utilities to consider ways to encourage Smart Grids, energy efficiency and demand response; it provides a nationwide focus on the development of a Smart Grid. In California the California Public Utility Commission (CPUC) – Energy Action plan I and II required all utilities to submit a business case, the goal is completion of a 20 million smart meter deployment prior to the end of 2012. This deployment is mandated not for utility billing, but for demand response in a power constrained market. In Ontario, Canada the Energy Conservation Responsibility Act from the Parliament issued a directive imposing conversion of meters. The schedule is to convert all meters (residential and business) to smart meters by 2010. Again Ontario is a power constrained market with strong resistance to any new power plant construction. In a number of states in the US, the regulators have implemented incentive based rates to force utilities to improve reliability to their customers. In Quebec and Manitoba in Canada, the regulators are pushing forward distribution automation and smart grid initiatives to allow for the placement of distributed generation and to improve reliability of the grid. Global Climate Change As a society, we increasingly recognize how burning carbon-based fossil fuels adversely affects the environment. Momentum is building on many fronts to limit carbon emissions. Government, major corporations, citizen groups and utilities alike are promoting environmentally-friendly, green solutions. Utilities are looking for alternative generation that will force the grid to become much more distributed. Many are insisting that behavior must change and adoption of a conservation culture is critical. Current generation stations are located close to where the demand for power is, in many cases it is close to major cities and major transportation routes that makes it easy to move fuel to the central stations. On the contrary, green power exists where nature put it, in many cases long distances from major demand locations, meaning that the power from wind farms will have to travel long distances to the customers. This transportation may be on major high voltage routes, or it may be on the distribution network. The best place in the world to make solar power is in the deserts near the equator, hot, dry locations that have few electric Energy, Utilities and Chemicals consumers. That means either moving the people or moving the power to the location. In many household cable television and internet access cost much more than electricity. The ability to build conventional fossil fuel based power generation will decline over the next decade, already more than 50% of the coal fired power plants that have been announced to be built in the US over the last 5 years have been cancelled. It is not that the use of coal is being reduced – rather – the rate that the use of coal will go up is slowing down. With Green house gases being a high priority topic, the ability of utilities around the world to build as much fossil fuel generation as they like will be constrained by environmental concerns. By 2030, it may be very difficult to build new fossil generation in most of the developed world. Aging Infrastructure Much of the transmission and distribution infrastructure is more than 50 years old and was designed to provide power in a different era. For many years, utilities typically underinvested in the grid infrastructure or neglected to make the significant, ongoing investments required to sustain the infrastructure over the next decade. As a result, most utilities are now at a crossroads, facing a decision that will be crucial to their futures. Customer Expectations As household electricity consumption increases year over year, peak loads are increasing and changes in consumption patterns are causing load factors to decrease. At the same time, consumers expect higher quality power to operate the increasing number of digital devices that we amass each year. Finally, consumers are demanding this improved quality at the low, stable price levels of the past while, at the same time, wanting a voice in how the power they consume is generated. The fastest growing sector for power consumption is residential. Commercial and Industrial customers have the financial incentives needed to reduce power consumption. Residential customers to a large extent still see power as a low cost necessity. Aging Workforce A significant percentage of the current utility workforce is nearing the age of retirement. In some companies more than 70% of the workforce will retire between 2001 and 2010. With the loss of these resources comes the loss of a huge pool of operating and network knowledge. Much of this knowledge has not been adequately captured in corporate records. It will be necessary to capture this information and be able to communicate it to a whole new workforce. This is also compounded by the fact that the current generation has been raised on a different communication media. Today’s paper maps and network diagrams mean nothing to them. They are use to computer access and graphic user interfaces. A means will have to be created to quickly and cost-effectively train these new resources. This change is driving up the need to provide data to the field workforce at a rapid rate. Smart Grid: Leveraging Technology to Transform T&D Operating Models the way we see it Power Quality and non-technical losses It used to be that residential customers mostly used power in lighting, heating, refrigeration, and analog entertainment. Today there is increasing use for digital entertainment. Harmonics and other power quality issues were confined, to a large extent to the industrial segment of power delivery and so could be handled with a small number of industrial sized solutions. Today with Plasma televisions, and other electronic devices creating harmonics, the problem has moved from manageable to unmanageable. Additionally, the non-technical losses are climbing and many utilities are just starting to understand the real extent of the non-technical losses. In the today world the extent of both problems is mostly reported by urban myth and small samples, but there is a growing body of evidence that in this case the smoke hides a growing fire. 5 The Opportunity Nobody can tell you today exactly what technologies the future Smart Grid will incorporate but we have been able to compile a list of key characteristics. We expect each utility to have its own version of the Smart Grid but it is clear it will have the following characteristics: Autonomous restoration, Resist attacks – both physical and cyber, Supports distributed resources – (generation, storage, demand reduction), Supports renewable energy sources, Provides for power quality, Provides for security of supply, Supports lower operations costs, Minimizes technical losses, Minimizes manual maintenance and intervention. ■ ■ ■ ■ ■ The regulatory environment and the convergence in the marketplace have created a great opportunity for the electric utility industry to recreate itself and transform the “Electro-mechanical Grid” into “Digital Smart Grid.” If we are going to embrace the Smart Grid we first need to understand exactly what is it. Many industry groups (more than 40 at last count!) have been formed to help define a vision of the future Smart Grid. Most of these efforts have been focused around the technology. While the Smart Grid will utilize the latest technology to achieve its goals, it is not just about technology. Implementation of the Smart Grid will require a complete rethinking of the utility business model and business processes. 6 ■ ■ ■ ■ To deliver on those characteristics, a grid with more intelligence has to be designed. The challenge is very clear; the old electro-mechanical network cannot meet the needs of the new digital economy. The future grid should be able to produce faster fault location and power restoration, hence lesser outage time for the customer and manage many small power generation sources. The system network architecture will need to change to incorporate multiway power flows, and will be much more intelligent than a series of radial lines that just open and close. The future data volumes will require large data communications bandwidth and communication network technologies will be a key. The technologies for tomorrows Smart Grid are evolving and being created today. But, based on a report by EPRI more than 7,000 pilots are underway today and more than 1,000 of them are more than a decade old. There is only one utility that has truly created a smart grid, that one is Tokyo Electric Power, and their implementation is specific to the needs of Tokyo. Technology will continue to advance, and utilities will continue to invest. This is not a revolution, but an evolution. Any deployment of a new smart grid technology will probably be measured in years or decades, rather than months. Since utilities must invest today the key is to build a vision and architecture that allows them to leverage today’s investment while maintaining flexibility to evolve the Grid as technology advances. To wait for the “perfect answer” is not acceptable, since the perfect answer will never appear. Energy, Utilities and Chemicals the way we see it The Vision In order to make meaningful progress toward addressing the current grid challenges and delivering on the future grid characteristics, Utilities should focus on four main activities: 1. Gather Data: Data will be collected from many sources on the grid (Sensors, Meters, Voltage Detection, etc.), in-home sensors for high consuming appliances, and external information like weather. 2. Analysis / Forecasting: The data that is gathered from all those sources will be analyzed – for operational and business purposes. For operational purpose analysis will have to be done in real-time or near real time and for business analysis purpose analysis can be done on non real-time data. 3. Monitor / manage / act: In the operational world data that comes from the grid hardware will trigger a predefined process that will inform, log or take action. Those are SCADA applications that sits at the operation center and use for monitoring the Transmission and Distribution Grid. In the business analysis world the data is analyzed for usage and rate purpose. 4. Rebuilding the grid to support bi-directional power flow and transfer of power from substation to substation: The first three steps will have little impact to the end customers, if the information that is collected and analyzed can not be acted on. This will be the most expensive part of the smart grid deployment and will in most cases take 20 years or more to complete across a whole service territory. These activities fall into both real-time and non real-time categories. Real-time utilities, but the effort to transform an electric power grid into an intelligent power grid involves much more than just hardware and software. Figure 1 “Smart Grid Conceptual Architecture” provides a conceptual view of all the components that will be needed to deliver on the Smart Grid vision. functions include operational and monitoring activities like load balancing, detection of energized downed lines, and high impedance faults and faults in underground cables. Non real-time functions include the integration of existing and new utility databases so operational data can be fused with financial and other data to support asset utilization maximization and life cycle management, strategic planning, maximization of customer satisfaction, and regulatory reporting. Grid Hardware: Sensors on existing hardware on the grid, from meters at the home to reclosers and sectionalizers, transformers and substations will need to be deployed in a prioritized fashion. The easiest way to do this is to change the purchasing standards for new and replacement equipment to include the sensors, so that they are automatically deployed with each device. Then you can fill in with additional sensors as required as a retrofit. They key is to understand what sensor readings can bring operational value to your smart grid effort, there is no reason to bring back data that you can not act on, either billing a customer, changing settings in the grid, or planning maintenance. Electric utilities already have many of the data sources needed to support analytics for these functions, but these data sources are usually siloed and, therefore, very difficult to combine. Worse, the operational data is usually sequestered in the Supervisory Control and Data Acquisition (SCADA) system and not readily available to support analytics or business intelligence tools. Some elements of an intelligent power grid already exist in most electric Figure 1: Smart Grid Conceptual Architecture .QRZOHGJH &RQWLQXXP 2SHUDWLRQDO $QDO\WLFDO )URQW 2IILFH %DFN 2IILFH 5RXWLQJ ,QWHJUDWLRQ (YHQWV 'DWD 0DQDJHPHQW 6WRUDJH 'DWD 6WDQGDUGV &RPPRQ ,QIRUPDWLRQ 0RGHO &,0 IRU 8WLOLWLHV 0XOWL 6SHDN &RPPXQLFDWLRQ %DFNERQH 1HWZRUNV 7UDQVSRUW :LUHG 7UDQVSRUW :LUHOHVV /RDG 0DQDJHPHQW &RQWURO $ODUP 1RWLILFDWLRQ 'LVWULEXWHG 5HVFRUHV 5HYHQXH 0HWHULQJ 3URWHFWLRQ *ULG +DUGZDUH Smart Grid: Leveraging Technology to Transform T&D Operating Models 7 Communication Backbone: To support all those data sources on the grid a communication infrastructure must be in place. A wide range of wired and wireless communications technologies are available to transport data. There are more than 20 communication technologies that an electric utility might consider including MPLS, WiMax, BPL, optical fiber, mesh, WiFi and multi-point spread spectrum. There is no perfect communications method. The one best choice for how to communicate with the electric grid does not exist, and with the exception of satellite, there is no single system today that covers the whole service area of a utility’s grid, including adequate coverage to handle every meter and other device that might be deployed. The future data volumes will require large data communications bandwidth and communication network technologies will be the key. Any smart grid initiative will have to pick 2 or 3 communications methods and mix and match as required to get to the level of coverage required, some may be owned and operated by the utility (e.g. fiber to the substations) and some may be commercial networks (e.g. cellular phones). Data Standards: These data sources do not always communicate via common standards. The two dominate standards are the common information model (CIM) standard and Multi Speak. Both define a standard data interface that supports batch and real time data exchange. Multi Speak originate with the National Rural Electric Cooperative Association and CIM is an open-source standard through the IEC. Those data standards will need to define a standard data structure for each data source on the grid to communicate. 8 Data Management: Smart Grid will be the largest increase in data any utility has ever seen; the preliminary estimate at one utility is that the smart grid will generate 22 gigabytes of data each day from their 2 million customers. Just collecting the data is useless – knowing tomorrow what happened yesterday on the grid does not help operations. Data management has to start at the initial reception of the data, reviewing it for events that should trigger alarms into outage management systems and other real-time systems, then and only then, should normal data processing start. Storing over 11 Gigabytes a day per million customers is not typically useful, so a data storage and roll off plan is going to be critical to managing the flood of data. Most utilities are not ready to handle this volume of data. For a utility with 5 million customers, they will have more data from their distribution grid, than Wal-Mart gets from all of their stores and Wal-Mart manages the world’s largest data warehouse. Knowledge Continuum: Data coming from the field has different values to different parts of the company to different users on different timing. Outage data is best served to the outage management system as rapidly as possible. Load information might be best served on a 15 or 30 minute basis. Engineering analysis may not find they have useful data until they have a full year of data available to analyze. This continuum can be simply characterized into three major categories: 1. Operational/Analytical: Those are all the real-time/near real-time operational type of applications. Those are the application that monitor / manage and act base on events that comes from the smart grid hardware. Most of the applications in this category are SCADA applications that sit at the operation center and used for monitoring the Transmission and Distribution Grid. 2. Front Office: Those functions that help the business operate beyond management of the grid in real time – load data to feed to forecasting models that support generation planning and spot market power purchases or demand management programs. These uses of data are typically same day, same hour applications, but there is time to scrub the data and even try again to get information from the field. 3. Back Office: Those are all the non real-time applications that provide rate analysis and/or decision support, based on the processing of intelligent Smart Grid data. The analytics functions transform data into actionable information. This is where the accountants, engineers, planners and standards engineers will go for the data they need to do their jobs. Most of the Smart Grid applications at the knowledge continuum layer are in their infancy and innovation is highly desired. The applications listed below are some of the applications that might comprise the smart grid capabilities. Distribution Monitoring and Control System (DMCS): This is the master system that takes feeds from all the other systems in the grid, to provide a single view of what is going on in the grid. Normally the distribution operations manager would be sitting at a console with this as his primary view on the status of the grid. Distribution Substation Monitoring System (DSMS): This system would bring back and manage all of the data from the substations and feed the ■ ■ Energy, Utilities and Chemicals ■ ■ ■ ■ DMCS. It would also relay the orders to the controls in the substation. With many utilities there are multiple vendors of substation equipment already installed. Consequently, there might be two or more copies of the DSMS in operation to allow the legacy equipment in the substations to continue to perform. Automated Feeder Switch System (AFSS): This system would monitor, operate and control the automated feeder switches. Typically it would be autonomous in its control and operation, feeding changes to the DMCS. Unlike many implementations today, it would not only balance substation and system load but have the ability to balance circuit loadings between phases, a functionality that wise future grid designers will leverage. Distributed Generation Monitoring System (DGMS): This system would monitor the status of the various distributed generation sources on the grid. It would feed status to the DMCS and to the Distribution Forecasting System. Automated Meter Operations System (AMOS): This system is the real-time monitoring system for meters and other devices deployed beyond the meters in the field. Its job is to manage the meter operations, conduct outage determinations, manage demand management events and communicate to end user devices. It feeds the Outage Management System (OMS) and the DMCS. Meter Data Management System (MDMS): This system would be responsible for management of the data collected from the automated meters deployed in the field. The primary purpose of this system is to support billing operations. MDMS systems are expected to be one-way ■ ■ ■ systems – data flows in from the meters and is managed within the system. MDMS were designed to collect information from metering systems that were designed purely for billing. With the change to the requirements that the utilities are placing on metering systems – demanding operational abilities in addition to billing support – MDMS systems are finding that they have significant gaps in the ability to support the new requirements. Realtime and full two way round trips to the meters in near-real time are beyond what the current generation of MDMS systems were designed to support. This rapid change in requirements is forcing rapid reengineering by MDMS vendors. Distribution Forecasting System (DFS): This system would take information from the DGMS and the MDMS to support load and supply forecasting on the grid. It is expected to be a bottom-up system that would use the actual data from the points on the grid to supply forecasts for demand and for supply. Smart Grid Work Management System (SGWMS): This system is used to manage work orders for parts of the Smart Grid sensor network (meters, controls, communications network, etc) that are in need of maintenance or repair. It would normally feed the overall distribution work management system. Communications Network Monitoring System (CNMS): This system talks to the various communications vendors systems to determine communications outages and manages the information on communications outages. It feeds the DMCS information on communications blackout areas, the AMOS to allow for the removal of communications related meter Smart Grid: Leveraging Technology to Transform T&D Operating Models ■ ■ ■ the way we see it failures, and the DSMS for the same purpose. Minor Equipment Monitoring System (MEMS): This system monitors capacitor banks, transformers, voltage regulators, re-closers, sectionalizers, and other minor equipment that are outside the substation fence. The system supports the DMCS with fault reports and in the cases where the minor equipment has controls, allows for operation of those controls. Smart Grid Planning System (SGPS): This system records long-term trends and fault patterns so that they can be reviewed by planning and engineering as a baseline for construction, maintenance and other activities. Smart Grid Operational Data Store (SGODS): This system houses the historical data from all the systems that are used to manage the Smart Grid. This allows data mining, engineering studies, regulatory reporting (e.g. IEEE SAIDI, CAIDI, etc.) and other activities where large amounts of historical data are useful for analysis. The Smart Grid will be built as a series of related projects, with each project bringing a large amount of value to the utility, ultimately transforming from focusing on energy value to focus on information value while touching and changing many of the utility processes as you know them today. The key first step is to collect the timing and data requirements and determine what the communications backbone will need to look like, otherwise, every project will be burdened with that aspect and the business cases for each will be much harder. 9 The Roadmap As utilities face the growing pressures of electricity distribution in the 21st century, difficult issues are sure to arise like regulatory barriers and financial constraints. The technical challenge is very clear; the old electro-mechanical distribution network cannot meet the needs of the digital economy. The business challenge for the electric distribution utility executives and regulators is the timing when to seize the opportunity before it becomes a problem. The confusing patchwork of overlapping federal, regional, state and municipal agencies and on top of this the industry is neither fully regulated nor completely deregulated cause investors and entrepreneurs to often hold back investments in Smart Grid. In the past regulators reward investorowned utilities for building new power plants but not for energy efficiency or grid automation, this environment is changing very rapidly in the last several years. From a financial point of view the grid is capital intensive and faces problems imposed by utilities’ constrained balance sheets and difficulty to finance large projects like the Smart Grid. Without regulatory push and ability to recover some of the investments IOU’s will not be able to take on large Smart Grid projects. Utilities that have regulatory approval for AMI will be able to leverage their infrastructure investments in communication backbone and data management framework to get incremental benefits from grid operations by implementing Smart Grid solutions like substation and feeder automation, grid operations and intelligent application. In North America Capgemini is exploring alternative financial models like revenue generating concepts – use the electric grid to offer and alternative 10 means of providing high speed Internet, Voice over IP (VoIP), Video on Demand (VOD) and other broadband services to home and business - to augment the Smart Grid business case. Many utilities today are starting down the road of Smart Metering (AMI). Smart metering comes in many flavors with very different capabilities. The traditional systems installed by several utilities in the last 5 years will not advance smart grid very much, since they are designed to report daily or less frequently. It is very hard to do real time operations and short-term forecasting based on data that is days old. It is also very hard to do real demand management on the grid or management of small distributed generation sources, with data that is days old. For AMI to be effective, the whole system needs to be able to report at each interval. This means that the AMI system has to be designed, including the backbone communications, to support regular reporting based on the operating intervals of the utility. In France that is half-hourly, in Ontario the wholesale market operates on a 15 minute cycle, and in most of the rest of the world hourly is the typical operating cycle. Even receiving outage information an hour late is not as helpful as it can be for operations support. Utilities should start by designing a secure, robust, scaleable and extendable integration infrastructure based upon reusable industry standard services, data and message structures. At the rate that technology is changing Capgemini believes that this approach is the best solution for critical integration infrastructures. If you start with AMI, the integration infrastructure that you build for AMI/DRI will form the foundation for future Smart Grid initiatives. If you start with other smart grid building blocks (e.g. automated feeder switches, distribution automation, etc) then they should take into account the other blocks you might put in place, like AMI. This approach has a lower total cost of ownership when compared to more traditional integration alternatives. Utilities will experience significant cost savings and benefits utilizing this integration infrastructure as complex legacy applications like CIS and billing systems are replaced or unbundled and new applications like grid monitoring, analysis and control are implemented. While each utility will have some variations, the business case framework is one that is well understood by the captains of the industry: utility executives, regulators, and government/owners. In today’s multi-stakeholder, balanced scorecard world, business cases are no longer pure numbers games. Planners and analysts constantly struggle attempting to put dollar values on non-economic political, societal, environmental costs and benefits. Energy, Utilities and Chemicals the way we see it The Business Case Getting a handle on the smart grid business case is tricky; there is no consensus on what kind of benefits to expect. Early business cases at several utilities show a range of partial and full deployment concepts using different standards and – most interestingly – anticipating different results. That makes comparing these business cases difficult. It is very obvious that there is no one-size-fits-all recipe for utilities to develop a business case and a roadmap, each utility must take stock of its current efforts, strategy, infrastructure, and regulatory circumstances while tailoring a smartgrid technology road map and business case to meet particular circumstances. However, recent study by The Energy Policy Initiative Center in San Diego from October 2006 outlines a scenario of smart grid implementation on the San Diego electric grid. This study shows that an initial $490M investment would generate $1.4B in utility system benefits and nearly $1.4B in societal benefits over 20 years. System benefits are those benefits that can be achieved through the operations of the grid system like reduction of congestion cost, reduction of restoration time and reduction of operations and maintenance due to predictive analytics and self healing attribute of the grid, reduction of peak demand, increase integration of distributed generation resources and higher capacity utilization and increased asset utilization. Societal benefits are those benefits that accrue to non-utility stakeholders (i.e. the region at large) and represent such things as fewer outages resulting in avoidance of lost revenue to local businesses, job growth, and an increase in high-tech businesses that require and value high power reliability (e.g., biotech, pharmaceutical and research and development) and the resultant economic development attributes. There are other areas that will benefit from smart grid concepts – one example is asset management that is an important component of the holistic smart grid approach. initial technology investments will require a ROI but utilities must remember that these initial investments build the smart grid infrastructure that will position them for larger future ROI for smaller incremental investments. Current projects that can be positioned for regulatory rate relief (i.e. smart metering) should be considered in light of the long term advantage as well as the immediate return. The question for any investments today should be: does it leverage the utilities position in the future? Sequencing and running the smart grid program as deployment programs over a long, steady period of time represents the lowest risk. However, programs longer than 3 years have a tendency to become sluggish and are open to many changes in scope, which can greatly reduce the effectiveness of the overall program. It is obvious that smart grid investments will pay – in the long run – dividends to utilities, shareholders, customers and society at large. The smart grid serves an important role in facilitating energy efficiency programs and distributed/renewable energy integration: both key trends that will help ensure improved environmental outcomes in the future. However the capital costs and operations and maintenance costs are substantial and this level of effort is very challenging to a utility especially considering other significant projects in progress. Each Smart Grid: Leveraging Technology to Transform T&D Operating Models 11 Starting the Transformation Journey A strategic focus should be applied when developing the Smart Grid transformation roadmap. Recent workshops run by Capgemini for a number of utilities around the world, have shown that smart grid is strategic in nature and requires involvement from a broad cross section of the company. AEP and EdF are both taking this approach to the smart grid, with the initiatives being driven by senior executives in the company. A comprehensive approach to the development, support and validation can yield a blueprint/roadmap for the development of the Smart Grid. Capgemini Smart Grid roadmap has three stages (1) planning – includes developing the Smart Grid strategy and blueprint, (2) common infrastructure – includes experimenting and piloting with different technologies, establishing the benefits realization framework, and change management planning, and (3) execution – includes building the foundation and Smart Grid applications. Planning: Pursuing incremental steps without the benefit of the bigger picture can lead to suboptimal solutions. Implementation can be incremental and spread over time, as long as each step is a part of the larger strategy. The key to developing your Smart Grid strategy is to focus on how it will enable your Transmission and Distribution (T&D) strategy then determine the required capabilities. At this point the utility can establish strategic goals, along with process or investment strategies. As part of the planning stage the utility will start with the “as-is” and “to-be” states with respect to process, application, data, organization, standards, and 12 governance. The gaps between the “asis” and “to-be” determine the highlevel timeline based on requirements, resource availability, constraints, and desired benefit timing. Common Infrastructure: Pilot projects are used to validate and mitigate business process, technical, adoption, cost and project risks associated with the Smart Grid. They can reach from a limited small-scale deployment to a large end-to-end deployment. It is very important that very early on during the pilot the utility will establish a formal benefits realization framework and governance structure so they have a way to evaluate the success or failure. It is imperative to address the change management aspects of the program as early as you can and selectively transform the processes and organization to align with and take the maximum advantage of the availability of the Smart Grid. Do not underestimate the planning and efforts required to manage such change in the organization, employees should be made part of the design. Execution: Execution is a series of projects that are planned, sequenced and coordinated based on the roadmap that was defined in the planning stage. The Smart Grid foundation and application will be built as a series of related projects, with each project delivering some value, this is evolution not revolution. Careful roadmap development and project management is essential. Energy, Utilities and Chemicals Most utilities have successfully completed some Smart Grid projects. However, the process is not a straightforward, standalone, installsome-technology project – it is a Business Transformation of the electric distribution utility - the ultimate target is reinvention of the electric utility. The transformation will reach an audience as wide as it is deep – from the board to the field worker and from the utility to the customer, regulator, elected official, supplier, educator, and society at large. The Smart Grid will enable new applications we cannot yet predict. Underneath all mission setting, strategic planning, organizing, controlling, and coordinating lie the business, people, and technical paradigms – how a firm’s executives, managers, and workers perceive the utility world now and into the future. This transformation is certainly a tall order, but Capgemini believes utilities can meet all of their priorities and likely realize a host of other benefits. One example of a technology is smart metering. Let’s look at how it can impact your company from a smart grid perspective. Reduce capital expenses: Lower peak demand by using smart meters and improvement in load management. Improve asset utilization by replacing components that are approaching the end of their annual life spans. Support distributed generation with remote asset monitoring and control. Reduce operating expenses: Automated meter management will lower operation and maintenance costs, reduce theft and improve revenue collection. Remote asset monitoring will help avoid emergency maintenance and replacement of assets. Higher grid reliability: Accurate demand forecasting will improve realtime configuration of the network, allowing components to operate within their actual capabilities. Detailed, realtime information from the sensors on the grid will prevent blackouts whenever possible, and to keep them as short as possible when they occur. Productive People: Excellent information and good displays help people do their job, better and faster with fewer safety issues. Smart grid is not just about technology, there is lots of technology available, it is also about people, people who can do their job in a more professional fashion with less guessing and less concern about who can respond to a specific situation. Today much of the success of the distribution grid relies on people who have decades of experience, and are closing in on retirement. Replacing this experience in today’s world is impossible; it will take most companies years to recover from the loss of this knowledge. Technology is never a substitution for motivated and involved people, but good information can help them do their jobs better. Smart Grid: Leveraging Technology to Transform T&D Operating Models the way we see it In most IOU’s capital spending has failed to keep pace with straightforward annualized renewal. The annual network renewal investment of a typical IOU is about one percent of its asset base, this amount to a renewal cycle of about 100 years – well beyond the design life span of network assets. As your firm faces the growing pressures of electricity distribution in the 21st century – business as usual is no longer an option – you probably are asking your self: How to respond to the growth of distributed generation? How do I meet today and future peak demand? What do I need to do to prepare to the smart grid transformation? At the rate that smart grid technology is changing, what is the best scalable and interoperable solution? Who needs to be involved in the smart grid planning? How do I involve the regulator? How do I make the training and process changes that are needed? ■ ■ ■ ■ ■ ■ ■ 13 Glossary American Electric Power (AEP): IOU in Columbus, Ohio - provides electricity to customers in Arkansas, Indiana, Kentucky, Louisiana, Michigan, Ohio, Oklahoma, Tennessee, Texas, Virginia, and West Virginia. Advanced Metering Infrastructure (AMI): Means the infrastructure associated with the installation and operation of electricity metering and communications including interval meters designed to transmit data to and receive data from a remote locality. Alternative Generation: Generation of electricity from nature (green generation) that does not emit large amount of CO2 in the atmosphere, example are solar, wind, hydro etc. Average System Availability Index (ASAI): Reliability measure - ASAI is the percentage of time the power system is available. These indices are electric utility industry standards. CAIDI and ASAI are reported on a rolling 23-month average. Balance Scorecard: A concept for measuring whether the activities of a company are meeting its objectives in terms of vision and strategy. By focusing not only on financial outcomes but also on the human issues, the balanced scorecard helps to provide a more comprehensive view of a business which in turn helps organizations to act in their best longterm interests. 14 Broadband over Power Line (BPL): Also known as power-line internet or Power-band, is the use of Power Line Communication (PLC) technology to provide broadband Internet access through ordinary power lines Customer Average Interruption Duration Index (CAIDI): Reliability measure - CAIDI is the average number of hours per interruption. These indices are electric utility industry standards. CAIDI and ASAI are reported on a rolling 23-month average. California Public Utility Commission (CPUC): The PUC regulates privately owned telecommunications, electric, natural gas, water, railroad, rail transit, and passenger transportation companies, in addition to authorizing video franchises. The CPUC serves the public interest by protecting consumers and ensuring the provision of safe, reliable utility service. Customer Information systems (CIS): Software application that address the customer interaction call canter, billing, etc for gas, electric and water utility companies. Common Information Model (CIM): a standard developed by the electric power industry that has been officially adopted by the International Electrotechnical Commission (IEC), aims to allow application software to exchange information about the configuration and status of an electrical network. Demand Management: Energy demand management, also known as demand side management (DSM) or Demand Response Infrastructure (DRI), entails actions that influence the quantity or patterns of use of energy consumed by end users, such as actions targeting reduction of peak demand during periods when energysupply systems are constrained. Peak demand management does not necessarily decrease total energy consumption but could be expected to reduce the need for investments in networks and/or power plants. Electricity de France (EdF): The main electricity generation and distribution company in France. Energy Conservation Responsibility Act: The Energy Conservation Responsibility Act received Royal Assent in March, 2006. Under the Act, ministries, agencies and broader public sector organizations will be required to prepare energy conservation plans on a regular basis, and report on energy consumption, proposed conservation measures, and progress. The proposed Legislation also provides the framework for the government's commitment to install 800,000 smart meters in Ontario homes and businesses by 2007 and to have them installed in all homes and businesses by 2010. Energy, Utilities and Chemicals Energy Policy Act of 2005 (EPACT) 2005: A statute that was passed by the United States Congress on July 29, 2005 and signed into law by President George W. Bush on August 8, 2005 at Sandia National Laboratories in Albuquerque, New Mexico. The Act, described by proponents as an attempt to combat growing energy problems, provides tax incentives and loan guarantees for energy production of various types Electric Power Research Institute (EPRI): EPRI was established in 1973 as an independent, nonprofit center for public interest energy and environmental research. EPRI brings together members, participants, the Institute's scientists and engineers, and other leading experts to work collaboratively on solutions to the challenges of electric power. Green House Gases: Greenhouse gases are components of the atmosphere that contribute to the greenhouse effect. Greenhouse gases include in the order of relative abundance water vapor, carbon dioxide, methane, nitrous oxide, and ozone. The majority of greenhouse gases come mostly from natural sources but is also contributed to by human activity. Institute of Electrical and Electronics Engineers (IEEE): The world's leading professional association for the advancement of technology. the way we see it Investor Owned Utility (IOU): A utility owned by private investors, as opposed to one owned by a public trust or agency; a commercial, forprofit utility as opposed to a co-op or municipal utility. IOU is rarely used in the energy industry to refer to a promissory note, and utility by itself typically refers to a public utility. Return on Investment (ROI): A performance measure used to evaluate the efficiency of an investment or to compare the efficiency of a number of different investments. To calculate ROI, the benefit (return) of an investment is divided by the cost of the investment; the result is expressed as a percentage or a ratio. Mesh Network: Mesh networking is a way to route data, voice and instructions between nodes. It allows for continuous connections and reconfiguration around broken or blocked paths by “hopping” from node to node until the destination is reached. Customer Average Interruption Duration Index (SAIDI): Reliability measure - CAIDI gives the average outage duration that any given customer would experience. CAIDI can also be viewed as the average restoration time. Multi Protocol Label Switching (MPLS): is a data-carrying mechanism that belongs to the family of packetswitched networks. MPLS operates at an OSI Model layer that is generally considered to lie between traditional definitions of Layer 2 (data link layer) and Layer 3 (network layer), and thus is often referred to as a "Layer 2.5" protocol. MultiSpeak: MultiSpeak is a software specification designed to help electric utilities, automate their business processes and exchange data among software applications. The MultiSpeak specification helps vendors and utilities develop interfaces so that software products from different vendors can interoperate without requiring the development of extensive custom interfaces. Smart Grid: Leveraging Technology to Transform T&D Operating Models Smart Grid Facilitation Act of 2007: H.R 3237: A bill in the US Congress: To facilitate the transition to a smart electricity grid. Supervisory Control and Data Acquisition (SCADA) Systems: SCADA systems are typically used to perform data collection and control at the supervisory level and placed on top of real-time controls. WiFi: a wireless technology intended to improve the interoperability of wireless local area network products based on the IEEE 802.11 standards. Worldwide Interoperability for Microwave Access (WiMax): A telecommunications technology aimed at providing wireless data over long distances in a variety of ways, from point-to-point links to full mobile cellular type access. It is based on the IEEE 802.16 standard. 15 www.capgemini.com/energy About Capgemini and the Collaborative Business Experience Capgemini, one of the world’s foremost providers of Consulting, Technology and Outsourcing services, has a unique way of working with its clients, called the Collaborative Business Experience. Backed by over three decades of industry and service experience, the Collaborative Business Experience is designed to help our clients achieve better, faster, more sustainable results through seamless access to our network of world-leading technology partners and collaborationfocused methods and tools. Through commitment to mutual success and the achievement of tangible value, we help businesses implement growth strategies, leverage technology, and thrive through the power of collaboration. Capgemini employs approximately 80,000 people worldwide and reported 2006 global revenues of 7.7 billion euros. With 1 billion euros revenue in 2006 and 8,000+ dedicated consultants engaged in Energy, Utilities andChemicals projects across Europe,North America and Asia Pacific,Capgemini's Energy, Utilities & Chemicals Global Sector serves the business consulting and information technology needs of many of the world’s largest players of this industry. More information about our services, offices and research is available at www.capgemini.com/energy If you like to discuss ideas you can use to start your smart grid transformation please contact us at [email protected] EUC20070918 This Point of View is based on the vast experience and knowledge of the global network of Capgemini. The authors wish to especially thank Tom Anderson and Joe DeCrow for their helpful input based on their experience through conversations and suggestions on the topic.