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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.
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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.
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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
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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
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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
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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
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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
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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?
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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.