Few analysts have ever accused the utility industry of being an early adopter of cutting edge technology. Unlike other industries where fierce competition demands constant technological innovation, the utility’s main concern is reliability. Utilities are laser focused on making sure things work, so they are somewhat less focused on making them work more efficiently or inexpensively. However, the grid is undergoing a rapid transformation. Changing demographics and workforce distribution, along with the explosion of Distributed Energy Resources (DER) and the new business models DERs will create mean that reliability will require a lot more than good maintenance and workforce management. Utilities will need new software technologies that can make sense of all additional grid assets required to support the new model – a complex system of systems. Who will lead this technological change? Will it be the large utility with the big budget allocated for projects several years in advance, or will it be the smaller municipality or coop that is forced to do more with less internal resources?
Based on my observations working with utilities across the globe, innovation flows in both directions. Most innovation is driven by big utilities, but sometimes smaller utilities are the innovation leaders. When new technologies are introduced to the utility sector, particularly operational technology (OT) systems, typically there is a substantial “wait and see” period until the publication of successful use cases at early adopters. During this introductory period, when the new technologies are not understood or widely deployed, they are generally viewed as unimportant.
OT Cloud Computing Innovation Driven by Smaller Utilities
Traditionally, adoption of new technology by Tier 1 utilities pushes smaller utilities to reexamine their own technology best practices. As this cycle occurs, the perceived importance of the new technology begins to rise, and the industry as a whole begins to adopt the next generation of technology. Interestingly with the adoption cloud-based OT system, this trend seems to be going the other way. Cloud Computing solutions for SCADA and OMS systems are gaining traction in the Operational Technology strategies of smaller utilities, while the larger utilities remain resistant to using cloud-based OT systems until concerns related to latency and security have been overcome.
Zpryme recently surveyed 70 municipal utilities (Munis) attending a smart grid conference, most of which served fewer than 100,000 consumers and fewer than 25,000 C&I customers. Findings revealed that 43 percent of the Munis polled already use or expect to use cloud-based solutions. 41 percent of respondents are considering cloud-based OMS solutions and 26 percent are considering cloud-based SCADA solutions. The penetration rate is much lower for core OT cloud solutions at large IOUs. Smaller utilities typically have a smaller staff and a smaller operating budget. Cloud-based solutions appeal to smaller utilities due to their lower up-front cost and quicker deployment. As with many emerging technologies, smaller deployments are easier to manage, which may explain some of the reluctance among larger utilities to explore cloud-based solutions. Additionally, security is a major concern for OT cloud solutions at the big utilities. In smaller organizations, OT cloud solutions can often provide better cyber security than on-premise solutions managed by highly leveraged IT groups.
If I Don’t Fully Understand It, It Can’t Be that Important
The Zpryme survey also produced some other stats I found interesting. At smaller utilities, there appears to be a correlation between the perceived maturity of technologies and the importance of those technologies to their operations. For example, AMI is seen as very mature and very important. On the other hand, emerging technologies like IoT, microgrids and Distributed Energy Resource Management Systems (DERMS) are seen as immature and unimportant. AMI is a great example of a technology that is largely paid for by rate-payers and benefits both the energy supplier and consumer. Any economist will tell you that perceptions of importance or maturity will be influenced by such an easy sell.
The survey also showed a correlation between the survey group’s admitted understanding of a technology and the value they placed on it—including respondents that claimed a low understanding of IoT, microgrids and DERMS—while also identifying these technologies as noncritical components of success. Munis, for the most part, have other fish to fry, but DERs are going to impact utilities of every size over the near term.
It is only a matter of time before all utilities will be forced to integrate DERs. Opportunities exist to leverage these technologies within utilities of any size, but will smaller utilities work to increase their understanding of these technologies so that they may be properly deployed?
The exception to this trend seems to be Distribution Automation (DA). While the survey group claimed this technology was minimally understood and relatively immature, DA has been field proven over many years. Despite perceived immaturity, the majority of respondents viewed DA as important to future success. Munis are in a race to roll out DA programs. Fifty-six percent of the survey group plans to deploy Distribution Automation in the next three years. DA is projected to be the top spending area for 41 percent of responding utilities, behind spending on AMI meters, only.
While the participation of experienced IT/OT engineers is needed to drive the proliferation of DA throughout the smart grid, the reality is that this is an easily understood technology. Operators who have been dealing with the distribution grid for their entire career can easily put their finger on the benefits and requirements of Distribution Automation. While the business case is easy to present, implementation again relies on deep IT/OT talent at the utility, unless the utility brings in a third party to manage DA initiatives or they deploy cloud solutions to reduce the requirements for on-site architectural expertise.
Does Innovation Require More IT-Savvy Engineers?
Based on survey responses, the smaller utilities seem to be very focused on updating legacy technologies such as SCADA, GIS, and OMS before they explore what’s new. Sixty-one percent of these utilities plan to spend on SCADA in the coming years. Fifty-three percent of the respondents do not have an OMS, but 55 percent plan to spend a substantial amount of money on that technology. It is interesting to note that when survey respondents were asked to self-identify their respective areas of expertise, unsurprisingly, Operations, Engineering, and Maintenance were the most well-represented areas of proficiency. Only 13 percent of respondents identified as having Information Technology expertise. This could account for the proclivity towards more established operational technology and the marginalization of newer, more IT intensive technologies. Smaller utilities have smaller IT departments, which can make adoption of new technology more daunting, and hosted, cloud-based applications more appealing.
Our industry will increasingly be ruled by IT capabilities. While it’s not entirely necessary for the decision makers surveyed to have direct IT experience, it would certainly accelerate organizational understanding of these IT-heavy technologies. As smart grid technologies proliferate, the capacity to interface devices and make smart architecture choices is a necessity. Understanding the inner workings of OT and IT systems or applications allows for the type of active management and engagement that tames the complexity of the smart grid and pushes the adoption of new technologies. Adopting cloud technologies will lessen the burden to understand the granular architectural details, so I expect we will continue to see accelerating adoption rates of cloud OT technologies at Munis.
DER Management Innovation Offers High ROI but at a High Upfront Cost
Two examples of technologies that are undeniably going to impact the entire utility industry, but suffer from the innovation stalemate at smaller Munis, are DERMS and IoT. Only 25 percent of the Zpryme survey respondents claim to have a strong understanding of DERMS. The speed at which utilities integrate DERMS will be based on two things: the utility’s exposure to distributed generation projects, and how deep the utility’s IT and OT capabilities go. The penetration of distributed energy into Munis will increase over time and make it even more difficult for Munis to maintain their grids, and surely DERMS (likely cloud-based) will rise on their radar in coming years.
IoT, on the other hand, will take longer for Munis to benefit from - the link between IoT and the priorities of municipal utilities is tangential at this time. IoT remains in the exploratory phase as utilities determine how and why to leverage such resources. Of those responding to Zpryme’s study, the perceived maturity of IoT was very low at 15 percent, and only 15 percent felt they had a strong understanding of IoT within the context of the smart grid. The one place we are seeing early interest in IoT from Munis is for behind the meter services. Munis are just starting to deal with reduced revenue from lower consumption and thinking about how to offer more home services. IoT is part of these home services.
Innovation is Adopting New Technologies and Making Existing Technologies Better
Large utilities have sizable IT departments. Unsurprisingly, they have the strongest interest in IT-driven grid edge technologies, in spite of the fact that these technologies require large up-front investments. Larger utilities are looking to IoT solutions to fill the data gaps beyond smart meters, while shouldering the majority of the financial burden associated with introducing IoT technology to the grid. Smaller utilities often have a smaller staff, consisting of varied backgrounds. These are the utilities ultimately driving the adoption of OT cloud computing solutions at this time, as larger utilities maintain focus on proving business cases for big data initiatives.
Today, 43 percent of the Munis have or expect to use cloud-based solutions. The penetration rate is much lower for cloud solutions at large IOUs. Even while security conscious industries such as Financial Services are moving to cloud-based solutions, the big IOUs continue to cling to much of their on-premise IT infrastructure. That means that utility industry software technology innovation will continue to be a “trickle down, trickle up” transfer process. IOUs will build successful use cases on Big Data, IoT and DERMS that smaller utilities can evaluate, while smaller utilities introduce the larger IOUs to the early OT wins of cloud-based OMS and SCADA solutions.
About the Author
Brad Harkavy is the general manager of LiveData Utilities, Inc., a provider of smart grid integration solutions for the utilities industry. He is responsible for business development, strategy, and overall management. With more than 20 years’ executive-level experience growing public and private industrial and high-tech businesses, Harkavy joined LiveData Utilities in 2014 from Sagewell, Inc., an early stage energy efficiency company, where he was chief operating officer.
Through his executive positions, advisory, and board work, he has successfully accelerated ideas and technology into innovative products and services for over 20 companies, including BPG, CoolChip, GrabCAD, GSI, Purchased, Sagewell, SMTP, Teradyne, and Vert. Harkavy received a BSEE from Carnegie Mellon University and holds three patents.
