Five in 5: Distributed energy resource management has been saved
Perspectives
Five in 5: Distributed energy resource management
What it means for the state of utility operations
Explore the impact of distributed energy resource management systems (DERMS) on utilities companies and their operations. In this Five in 5, we’ll explore the unique opportunities, challenges, and key considerations on how utilities can use the management system and adapt to, respond to, and meet customer demands—today and in the future.
Explore content
- DERs impact on utility business model
- Detecting, visualizing, operating, and optimizing
- Potential blind spots
- Data being the biggest challenge for utilities
- How can utilities prepare
1. How are distributed energy resources (DERs) impacting the utility business model?
Christian Grant: The challenge here is that utilities—not historically known for responsiveness compared to other sectors—must find a way to be more responsive with their energy resource management systems to continually meet growing demand so customers don’t seek alternate solutions. If utilities can’t meet electrification demand, customers will find a solution on their side of the meter, which means potential lost revenue for the utility. And when you multiply that lost revenue across the service territory, it has the potential to deteriorate earnings in a significant way. When we think about how DERs impact the business model, it affects how the utility makes money to deliver earnings for shareholders. Utilities can prepare for this shift through legislative and regulatory engagement to gain certainty sooner than later regarding changes to the business model. For example, expanding the utility franchise for a regulated utility to provide services and operations beyond the meter—which today, they aren’t able to do—may be necessary to sustain a successful business model. This is to offset the increasing competition to utility-provided electricity and the higher probability of earnings erosion. The bottom line is that DERs will likely cause some degree of change to the legacy utility business model.
Craig Rizzo: A utility’s first charge is providing reliable electric service to their customers; it’s what their business model is formed around. The reality of distributed energy, though, impacts how they provide reliable service, so distributed energy by its very nature can impact reliability. But it can also be an opportunity for utilities to improve reliability. Today, utilities are focused on making sure DERs don’t negatively impact reliability. Once utilities get their arms around that, there’s an opportunity to evolve business models. As market competition emerges, utilities will have to do more than just provide reliable services and operations—they’ll need to figure out how to provide different services, solutions, and products.
2. Why is managing (detecting, visualizing, operating, and optimizing) distributed energy resource management systems so critical to utility operations?
Craig Rizzo: A utility’s ability to manage (detect and visualize) DERs and new electric vehicles, for example, and operate with DERs as assets, and then optimize is impacting its ability to provide reliable service. There’s also the issue of scalability. Right now, there’s a real limit to the amount of DERs and electric vehicles that power grids can accommodate. It may vary from utility to utility and by state or region, but there are real physical limits. Without these advanced systems to manage, visualize, and operate the technologies, utilities won’t be able to move the needle on that limit. So, putting systems, processes, and organizational transformations in place and training people will allow utilities to move that limit. This is what will allow them to meet and respond to both growing customer demands and regulatory mandates to accommodate more management systems.
Christian Grant: The other thing to keep in mind when talking about distributed energy resource management systems is that the collection of apps that comprise them are highly conceptual at present. While there is software that does work and devices out in the field and grid that work with the software, we’re really on the front edge of it all versus being at a steady state. It’s also important to recognize that what got us here as an industry in terms of product and service development isn’t going to get us to where we need to go. The pace of innovation required is now faster and seemingly accelerating compared to the legacy pace the industry is accustomed to. In addition, the amount of innovation that utilities must drive and participate in will also need to increase. Employing approaches such as rapid piloting and embracing a fail-fast mindset (all parts of modern innovation capability) is different than what exists in most utilities today and what they’re comfortable with. This is especially needed to determine how, where, and what embedded computing power will be needed out in the grid to provide the detection, visualization, and controls to decentralize grid operations. This leads us to technologies such as artificial intelligence (AI) and machine learning (ML) simply because of the vast number of devices that will be embedded in the grid—working and operating to achieve the level of reliability customers expect.
3. What are the biggest potential blind spots with regards to DER? Why can’t utilities just select and employ a DERMS to minimize the risks from these blind spots?
Craig Rizzo: I think one of the biggest potential blind spots is how utilities currently deliver their services and transform products and solutions to be more streamlined, perhaps more product-centric. Ultimately, utilities will need to be more agile and move away from old ways of operating, planning, and investing. They’ll need to think differently about the services they provide, partnering in the marketplace and engaging their customers. There’s no single technology solution, whether it’s an advanced distribution management system (ADMS) or a DERMS, or any other single platform, that might for a short period of time rise to the surface. There’s always the need to step back and think more broadly about this as a transformation. Utilities have to recognize that a DERMS is an operating platform while transformation impacts the end-to-end utility value chain. A DERMS won’t be effective without the transformation of billing systems into customer systems and a strong, sustainable, and scalable data architecture, along with an evolution to their business processes and the training of their people. While a DERMS is internal to the utility, there are also changes outside the utility domain evolving at the grid edge. Transformation includes embedding intelligence at the grid edge and leveraging technology in a way that transforms the customer experience—making utility smarter and more efficient.
Christian Grant: It’s important to recognize that distributed energy is going to affect the entire utility enterprise—from the back office to the front office, from customer operations to asset planning, from interacting with wholesale markets down to field operations, and everything in between. Utilities should not think about this as “an operating challenge” or as “a customer challenge” because legacy silos will be ineffective going forward. Therefore, mid- to senior-level leaders will need to be able to pull threads across parts of the business they may not have needed to or may not have been as effective in doing before.
4. We’ve talked for years about data being the biggest challenge for utilities. How do DERs impact this?
Christian Grant: Regarding data, I think what we’ve seen up until now is just a fraction of what we’re going to see. The expectation of what we need to do with that amount of data is probably underestimated as well. Additionally, it’s not just the volume of information—it’s also the increase in the number of data sources both inside and outside the utility. These are two components of one element in the challenge. The other element is the expectation of what we need to do with that data; how fast we need to make operational decisions about pricing, switching, safety, etc.; and how fast decisions will need to be made. These two elements give us an understanding of the data challenges and opportunities before us. They also make me think that, as an industry, we need to get comfortable with cloud, AI, and ML, to name a few technologies that will become part of the utility landscape and core operations. Achieving this comfort means we need to figure out how to utilize these technologies in a secure and safe way—without compromising the base operational concerns, parameters, and requirements that have to remain in place. I think the data challenge ahead of us is much bigger than anything we’ve seen before.
Craig Rizzo: I think it’s true that there’s going to be so much data. But that alone wouldn’t create a significant challenge. We can manage large volumes of data, but the nature of this is that most of the data will not be utility data. Utilities won’t own it because they won’t own most of the distributed energy. There’s a need for them to interact with third parties in a way they’ve never managed before—interacting with electric vehicle charging network owners and operators, distributed energy resource aggregators, and even individual owners of larger DER systems. They have to do that securely without impacting reliability, in a way that supports their business model evolution. Utilities will need to manage the security and reliability of their service—brokering interactions to gain access to data they don’t own. It’s very new to utilities. They don’t have to get it perfect out of the gate, but they need to be understanding the impact of the data across the enterprise and all their different systems, being able to manage and scale as the volume of data increases.
5. How can utilities prepare for what’s to come?
Craig Rizzo: Have a vision and capability road map with flexibility built in. There are still too many unknowns for a utility to set a strategic vision that’s static. Utilities will need to understand the trends and direction of regulatory bodies and establish a vision—flexible and ready to perhaps revisit them more frequently than they have in the past. They need a strong approach that provides structure on how and when they innovate. That includes ensuring that lessons are learned when they innovate and execute technology pilots and other innovation projects—that the lessons are incorporated back into their planning and investment prioritization. It’s really putting discipline in place around how they innovate to ensure everyone is aligned and allowed to innovate. Lastly, as a utility’s business model evolves, they can’t forget to simultaneously evolve their operating model—the organization’s processes, data systems, technology, and people training.
Christian Grant: One of the concerns lurking in the background is that many utilities rely on their “experienced talent”—people who know the physical electric, control, and operating systems inside out. But who’s coming behind these tenured utility employees to provide as much, if not more, to operate and maintain the system today? Utilities need to identify who can pick up the mantle and lead utilities into the era we’re moving into because it will require both technical and core operating skills. Solving challenges such as decarbonization requires well-organized, world-class talent and leadership at all levels. Another point to keep in mind is that, historically, those who regulated this industry have been extremely risk averse (with good reason). While risk tolerance doesn’t necessarily need to increase, the mechanisms with which utilities are allowed to venture into and learn and bring that knowledge back as part of that innovation capability will need to improve. Otherwise, the extreme concern regulators may face is: What if there’s nothing left to regulate because it’s been figured out on the other side of the meter? For me, these two challenges reinforce the point earlier that distributed management of energy resources and the shift to a decentralized operating model are an enterprisewide change. Therefore, preparations are and will be needed across the whole business as well.
Get in touch
Recommendations
Enabling the clean energy transition with next-gen advanced metering infrastructure
AMI 2.0 promotes decarbonization and grid resiliency
2024 power and utilities industry outlook
The industry will likely seek to harness new policies, technologies, and market innovations as they navigate an evolving landscape of opportunities, complexity, and challenges.
