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THE PROMISE OF OCEAN POWER

PEOPLE // ISSUES // STRATEGY // TECHNOLOGY

VOLUME 11 // ISSUE 4JULY 14 // AUGUST 14energybizmag.com

AN ENERGY CENTRAL PUBLICATION

Europe’s Lessons

º REINVENTING THE DUTCH UTILITY

PREPOSITIONING RESOURCESSOLAR GAINS MOMENTUM THE NECKER ISLAND STORY

FRESH INSIGHTS FROM VERMONTCHAT WITH MARY POWELL MOBILITY’S

PROMISEMOBILE UTILITY WEEK

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BUILDING A NEW GENERATION OF NUCLEAR ENERGYWestinghouse AP1000® plant under construction in Sanmen, China

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2 ENERGYBIZ July/August 2014

46

34 4212

Vol. 11, No. 4. Copyright 2014 by Energy Central. All rights reserved. Permission to reprint or quote excerpts granted by written request only. EnergyBiz (ISSN 1554-0073 ) is published bimonthly by Energy Central, 2821 S. Parker Road, Suite 1105, Aurora, CO 80014. Periodical postage paid at Aurora, Colorado, and additional mailing offices. Subscriptions are available by request. POSTMASTER: Send address changes to EnergyBiz, 2821 S. Parker Road, Suite 1105, Aurora, CO 80014. Customer service: (303) 782-5510. For change of address include old address as well as new address with both ZIP codes. Allow four to six weeks for change of address to become effective. Please include current mailing label when writing about your subscription.

Features

EUROPE’S LESSONS 13 Overcapacity, Grid Woes

Utilities have to rethink their businesses as a result of surging electric generation from renewables and other disruptions. The problems – and solutions – being worked on across the Atlantic may soon be of growing relevance to American utilities.

14 Smart Grid, Europe Style

16 By The Numbers

17 Game Change 22 Reinventing the Dutch Utility 26 Smart City Amsterdam 28 Reshaping the Power System 29 Forging a Transatlantic Cyberalliance

PREPOSITIONING RESOURCES 30 The Urgency of Spare Inventory

Grid security experts say we need to have vital equipment strategically positioned around the country, available in the event of physical attacks or extreme weather that damages energy infrastructure.

32 Recovery Transformer Project

SOLAR GAINS MOMENTUM 34 The Necker Island Story

Sir Richard Branson sees solar power as key to a microgrid he is planting on his private island. Arizona Public Service is rolling out solar in its service territory. Across the United States, utilities are increasingly embracing a variety of solar strategies.

36 Tapping Arizona Sunshine 37 Delivering Options to the Solar Customer

Departments

OUR TAKE

4 A Changing World

BUSINESS EDGE

6 Shaking Up the Franchise

8 Mobility’s Promise

9 Extending the Enterprise

TECHNOLOGY FRONTIER

40 The Long-Term Promise

of Ocean Power

42 Tapping Alaska’s Waves

44 Brought to You by Entrepreneurs

INTRODUCING

46 Fresh Insights from Vermont

LEGAL ARENA

49 Getting Local

50 Microgrids – A Regulatory Perspective

52 Spend Wisely

FINAL TAKE

54 Pioneering Efficiency

JULY/AUGUST 2014

E n g i n e e r i n g , A r c h i t e c t u r e , C o n s t r u c t i o n , E n v i r o n m e n t a l a n d C o n s u l t i n g S o l u t i o n s

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A Changing WorldFROM EUROPE TO THE CARIBBEAN

CHANGE ABOUNDS in the utility world.Europe has moved aggressively to put a price on carbon and plow

mountains of government subsidies to nurture the fast and widespread rollout of renewable energy. Germany put its renewable sector on steroids.

As a result, conventional power generation assets have tumbled in value in Europe. Proud, longstanding electric utilities have lost a large share of their market capitalization. Today, they are scrambling to redefine their mission and come up with new business plans. That is the theme of our cover story, “Europe’s Lessons.”

Change, of course, can be good.Michael Schack, who is steering an EDF subsidiary, in his guest opinion

piece on p. 17 explores what his company is doing to get closer to customers.Peter Molengraaf, the CEO of the Dutch utility Alliander, told me that his

company aligned itself with other institutions working to transform Amsterdam into one of the globe’s leading smart cities.

Meanwhile, in the Caribbean there is an effort to bring solar energy and new energy technology to Necker Island. That story is on p. 34. The Carib-bean generally lacks energy resources and has had to rely on burning diesel power for its energy, an expensive activity that contributes to climate change. Interestingly, that project is going forward not because of a top-down govern-ment mandate a la Europe — but because a couple of smart companies are convinced it makes business sense.

Call it bottom-up energy policy.The kind that sticks.

Two other articles in this issue underscore the importance of staying close-to-ground in times of disruptive change.

Sue Kelly, the new president of the American Public Power As-sociation, on p. 49 writes that public power organizations are well positioned to forge close ties with millennials who “are drawn to all things locally grown and locally owned.”

I caught up with Mary Powell, the chief executive of Green Mountain Power, at an industry event in New England. She told me that she is convinced that small utilities are the labora-

tories for change in the industry because they are close to their customers.

In our interview with Powell, which starts on p. 46, she flatly predicts that many utilities will

fail because they cannot embrace change. That goes for Europe — and it goes

for America.Have an enjoyable summer.

» OUR TAKE

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» OUR TAKE

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» BUSINESS EDGE

WE MAY NOT ALL KNOW IT YET, but life on the grid has changed forever. It may seem to resem-

ble the network we’ve always known, partly because it does, with its wires and substations and big power plants. But a subtle, yet tectonic, shift has occurred.

We are rapidly moving toward a future where the highly centralized and heavily engineered network of the past is devolving toward collective rather than centralized intelligence and resources. This new incarnation will exchange scale in generation — the 1,000-megawatt cathedrals of the past — for scale in manufacturing tied to the solar, storage, and yet-to-be-determined gigafactories of the future. A little further out, we can see IT-enabled markets supplemented by algorithmic controls that turn a passive network of modest intelligence into a vibrant marketplace where demand and supply are both optimized on the fly without sacrificing reliability.

With the right injection of innova-tion and know-how, this grid of the coming future should be at least and potentially even more cost-effective than the continued investment that simply maintains today’s grid, while better meeting the social and envi-ronmental preferences of customers. Rocky Mountain Institute’s recent “Economics of Grid Defection” report detailed the prospects for solar-plus-storage systems to unseat the status quo, but the attacks on the castle are far more numerous and systemic. Democratization of energy choice is afoot.

Sure, there are naysayers and incrementalists. But as visionary Roy Amara wisely observed, “We tend to overestimate the effect of technology in the short run and underestimate the effect in the long run.”

As we look at this future electricity system — the one we need to be building today — we see four criti-cal differences from the present system. Redesign-ing our regulatory and market models should reflect these emergent needs.

For one thing, the future electricity system will be highly transactive. Increasingly, the grid will become a market for making many-to-many connections between suppliers and consumers, including customers whose load profiles and behind-the-meter distributed energy resources for the first time make them both suppli-ers and consumers. The balance of those roles will dynamically change hour by hour and day by day as self-balancing systems decide whether to take from or supply to the grid at any given time.

As a second, corresponding matter, asset and service value will be differentiated by location and timing of avail-ability, and perhaps even by carbon intensity or other socially demanded attributes. In a system that requires instantaneous load-matching at the distribution level and where virtual and real storage are distributed through-out the system, resource coordination will require transparent markets that provide the ability to balance

autonomously using value signals. A system historically governed by averages will instead migrate to specific, dynami-cally varying values. The rules governing this system must therefore be adaptive to these dynamics.

Third, innovative energy solutions will proliferate. As a consequence of market forces already unlocked, we are sure to see a regular stream of distributed resource innovations that better meet

customer needs at costs comparable to existing utility retail prices. These could be market-based aggregation plays such as the use of distributed electric vehicles to stabilize the grid or personal technologies such as a home power plant with solar plus storage or a gas microturbine.

And fourth, the customer will be increasingly em-powered. The services of the grid must de-commoditize to deliver against exact customer needs for reliability, “green-ness” and other attributes. Failure to do so will result in customers finding higher-value alternatives or alternatives that simply better match their values.

Shaking Up the FranchisePLANNING FOR A HIGHLY DISTRIBUTED GRID // BY JON CREYTS

energybiz.com ENERGYBIZ 7

» BUSINESS EDGE

To be clear, this future still prominently features a robust wires network and some central generation; defection from the grid with stand-alone distributed energy resources would be suboptimal. But to avoid customers opting out of the grid, we need to reform our markets today. This will require dramatic changes in the engagement cycles for regulatory reform, which are mismatched to the emerging pace of technologi-cal disruption in the industry. Two important examples illustrate the challenge and our options ahead.

Hawaii’s historical dependence upon diesel as a generating fuel has created the highest-priced elec-tricity market in the country, with customers currently paying roughly 40 cents per kilowatt-hour. With rooftop solar able to be installed at roughly half that cost, it has experienced a boom in customer adoption, saturating some feeders and forcing the islands’ utilities to stop additional interconnection. To deal in part with this load loss, rate increases in Hawaii have been among the highest in the country. The utility-proposed integrated resource plans for the islands were recently scrapped by the commission because they inadequately ad-dressed this dynamic, leaving the utilities, customers, solar advocates and regulators at an impasse. With on-going cost reductions in distributed technologies and

escalating electricity prices in the continental United States, this is a postcard from the future of things yet to come for the rest of us. How Hawaii solves this di-lemma will serve as the touchstone for either how to or how not to address the conflict represented by a hybrid centralized-distributed grid structure.

Meanwhile, where Hawaii is dealing with the issue out of necessity, the state of New York is instead acting out of anticipation. To be sure, the vivid memories of Hurricane Sandy have fueled a rethink, so the commission there is leading its Reform-ing Energy Vision process with an eye toward creating market-based structures that incentivize deployment of distributed resources as grid assets. In the process, the coordinated development of these resources should provide more value to customers while improving the integrity of the network. Its move is valiant, and it defies a century of cost-recovery-based distribu-tion system regulation. If successful, it should offer a practical means to resolve the conflict between legacy and opportunity.

These two examples are far from conclusive, but they both represent real attempts to grapple with the collision of technology, culture and regulatory precedent in today’s electricity markets. We must at-tack these issues now with an eye toward capturing the emerging and real value-creation opportunities distributed resources represent. Their future place in the grid is more certain than we may be ready to believe. Let’s start believing and make ready for a highly distributed future today.

Jon Creyts is managing director of the Rocky Mountain Institute.

PREPAID IN KANSAS

Westar is seeking regu-latory approval of a pilot plan to allow its Kansas customers to prepay for power, according to the Associated Press.

It hopes to start offering the option to 1,000 cus-tomers, including some who are delinquent on their bills.

Gatherings// Business Edge

Aug. 4–6 AESP’s Summer Conference San Francisco

Sept. 15–16

Mobile Utility Week Phoenix

For more information about these and other events, please visit www.energycentral.com/events.


» BUSINESS EDGE

A FOREMAN APPROACHES a capacitor bank in the field. He has been rerouted on his way back

from a construction site to look at a possible problem. Oscillographic data from a power quality meter indicates that there may be a problem with the B phase at the capacitor. As the foreman approaches, a green light in the upper right of the field of vision illuminates, indicating that he is in the right spot. He cocks his head to one side; something doesn’t look right with the connection to the fuse. “Infrared scan,” he says. An image is projected on his safety goggles that shows a glow at the connection, indicating it is heating up. “Create work order. My location. Capacitor bank. Corroded connector at fuse,” he says in quick succession. In the back office, a work order is created for a crew to come out and fix the problem. “Work order successfully created,” he hears in his earpiece.

Does this sound like science fiction? It may be closer than you think. Advances in smart field devices and wearable computers are being com-bined with standards and innovative applications. The Electric Power Research Institute is working on these and other game-changing technologies with vendors, universities and national laboratories. The conver-gence of these advances is creating an explosion of new technology choices for utilities. These advances promise to increase worker productivity, keep them safer in the field and allow them to access information in ways that might have been considered science fic-tion just five years ago.

Electronic dispatch of work to utility crews is not new. In an effort to eliminate the paper packet for a job and eliminate the need to return to the office for more information or schedule changes, utilities launched a revolution in mobile utility applications a decade ago. Jobs are dispatched to crews carrying ruggedized laptops via cellular, Wi-Fi or other carriers. Crews can report job status, create redlines on network maps and update timesheets. The promise of a paperless process has become reality for many utilities.

Advances in mobile technology with tablets, smart-phones and even wearable computers are making

8-pound ruggedized laptops that were so cutting-edge five years ago seem quaint. A new paradigm of almost universal computer presence has emerged. Everyone is carrying or using a smart device, and expectations for connectivity and functionality have soared. More pervasive in the younger employees is the expectation to be able to do any task from any platform at any time. Explaining to an employee who just bought a bass boat on a smartphone at lunch that you can’t enter your time unless you come back to the regional office is becoming more and more difficult. So, how will these new technologies affect the various aspects of utility operations?

One of the characteristics of the integrated grid is the explosion of available data. As the mobility revolu-tion progresses, more of this information will become accessible to those working in the field or plant. Raw data from devices and sensors will become accessible with direct communication when workers are close to the asset. Devices will be able to store data and an-

Mobility’s PromiseUNIVERSAL COMPUTER PRESENCE // BY JOHN J. SIMMINS

John J. Simmins monitors a relay at EPRI’s Charlotte, North Carolina, lab.Photo courtesy of EPRI


swer the question, “How are you?” when asked. Data that has been aggregated and analyzed in the back of-fice will also become accessible in graphical, tabular or summary form. Data doesn’t necessarily have to be in alphanumeric form, either. Visible light imagery, infrared imagery, LIDAR and GIS information will be accessible in ways that are informative while remaining unobtru-sive. Warnings and alerts will be automated, such as when the worker is near the right equipment for service or if they are in an arc-flash situation and the warnings might be visual, audible or haptic.

As mobile devices become ubiquitous, convergence will be the wave of the future. The walls between the back office and the field will be torn down. New, quicker, more efficient workflows will evolve, and tasks that were never thought possible outside the office will be commonplace. The entire enterprise will operate with a common, real-time data model allowing for more rapid decision-making and situational awareness.

Perhaps the greatest technology to be developed to revolutionize workforce mobility will be augmented reality. Augmented reality is a combination of computer-generated elements such as geospatial data, sensory input, video and other graphics overlaid on a direct or indirect view of the physical, real-world environment. The reality being displayed by a device has additional, context-aware information added or augmented to it. Augmenting reality is a way to enhance the user’s current perception of reality. One of the first uses of

augmented reality was the projection of the first-down and scrimmage lines onto the television image of American football to enhance the viewer’s perception of the game. On smartphones, augmented reality apps help the user with everything from finding restaurants to finding stars.

True augmented reality is when the view of the real world is modified and enhanced by a digital layer that is added to it. Augmented reality adds graphics, sounds, haptic feedback and smell to the real world of the user. An example is using an augmented reali-ty-enabled smart device to obtain information about a point of interest such as a restaurant or tourist attrac-tion. In yet a more compelling example, augmented reality job aids to repair products with a guided real-time overlay for a step-by-step guided process are becoming more available. Vehicle manufacturer Audi has created an augmented reality vehicle manual. Furniture manufacturer IKEA has a catalogue that allows the user to experience what the product may do in their home setting, providing an augmented re-ality view for form, fit and color choices for that new couch. When these capabilities are combined with the explosion of data that will be available and the technology advances of the hardware, it will funda-mentally alter how work is performed.

John J. Simmins is technical executive of the Electric Power Research Institute’s information and communications technol-ogy program.

Extending the EnterpriseAN EDGE THAT MOVES // BY CONNIE DURCSAK

TODAY’S UTILITIES ARE INVESTING heavily in communications-intensive IT applications that,

when married with the electric, water or gas delivery systems, produce significant benefits by improving safety and reliability, enabling demand response and reducing operating costs. This outfitting of 20th-century utilities with 21st-century telecommunications solutions has spawned a technology-centric transformation that is expanding at an unprecedented speed and scale.

One of the features of this transformation is the ability to extend the en-terprise to the edge. En-terprise mobility enables utility workers, irrespec-tive of location, to use mobile devices and cloud ser-vices to access information, such as viewing system-level maps and circuit diagrams, on demand. One utility has developed a single software platform to


» BUSINESS EDGE

Finding a secure solution to help manage all your grid data is crucial. Introducing a secure Smart Metering solution that helps you turn meter data into operational efficiency. Verizon works with Siemens to offer solution bundling that combines meter-data management services and outage notification into one efficient platform. This new cloud-based solution leverages our expertise in security and network reliability. Now there’s a solution that uses meter data to help streamline operations and respond more effectively to changing demand patterns.

verizonenterprise.com/smartmetering

{POWERFUL ANSWERS}

SMART METERS COLLECT MORE THAN

A BILLION DATA POINTS A DAY.GET A SOLUTION TO HELP MANAGE IT ALL.

Network details & coverage maps at vzw.com. © 2014 Verizon Wireless.

support customer service requests, scheduled work and restoration work so that these activities can be coordinated using a common gateway interface over the mobile data network. Another has optimized its system to allow crews to initiate work orders when they spot problems then submit notices of comple-tion of work from the field. Yet another is seeking an effective approach to connect guest equipment during mutual aid events to enhance restoration and decrease the need to maintain reserve equipment.

Certainly, utilities that embrace enterprise mobility enjoy an uptick in productivity. When information and approv-als reach employees regardless of location, work gets done quickly and efficiently. That’s great for productiv-ity, but what about the challenges faced in deploying a mobile workforce?

Connecting and securing the expand-ing array of tools and devices, including the users’ own, and seeking to integrate

this new mobile element with the network became a central theme during a utility-only roundtable session at UTC’s TELECOM 2014. The struggle, as one large utility highlighted, is simply identifying the list of stakeholders required to contribute to the deploy-ment of a successful system. Requirements change rapidly as mobile applications proliferate. Indeed, many in the group began discussing the need to cre-ate a set of key performance and system assessment guidelines, not as a final checklist, but as a dynamic resource that evolves as mobile capabilities evolve.

Security, both physical risks and cyberrisks, was also a topic woven throughout the discus-sion. BYOD, whether employee-owned or devices brought in from a contractor, vendor or mutual aid relationship, posed unique issues. Bringing pri-vate devices into the corporate IT environment is

Connie Durcsak is president and chief executive officer of the Utilities Telecom Council.

BANGLADESH PROJECT

Bangladesh plans to start building a coal-fired plant in Rampal by 2015.

The Asian nation seeks to generate 39,000 megawatts of power by 2030, according to Global DataPoint.

fraught with security risks. For example, user-owned devices may not be current in terms of security up-dates and patches required by the host enterprise, thereby increasing the potential for malicious code or attack vectors if not properly managed.

As more utilities embrace enterprise mobility and BYOD practices, policies and procedures to address risks inherent in connecting to operational and cor-porate IT environments are beginning to emerge.

Typical policy guidelines for corporate-issued de-vices include a statement that the corporate network can refuse to connect the device based on complex parameters defined at the device layer or the network layer. The guidelines specify that IT maintains the ap-proved list of devices and can manage approvals to connect at any time. Password and authentication are controlled and applied by approved policy and internal procedures, and lost and stolen devices can be wiped and locked to restrict access. Typical policy guidelines make it clear that the user can be limited as to what data may be transferred or stored to the device from the corporate network.

For user-owned devices, typical policy guidelines state that registration of a device can be accom-plished manually at the initial network connection request, for each request, or via an automated tool. The guidelines say that applications may support the wiping of data, but also the device may remain accessible. Password protection can be required, but may not be enforceable, and devices can be architecturally separated from the network.

These policy guidelines will, no doubt, continue to evolve as technology advances and utility familiarity with mobile devices matures.

It is clear that utilities understand the need to deploy secure and reliable mobile solutions if they are to realize the full reliability and productivity gains modern net-works and systems promise. And to be sure, the trans-formed utility will find its edge in constant motion.

MOBILE UTILITY WEEK

This is a must-attend event for utility professionals who are responsible for creating and implementing their organizations’ mobile strategies. Walk away with the knowledge and resources required to implement effective mobile solutions within the areas of customer engagement and field service mobility.

> Sept. 15—16 Phoenix

> http://mobileutilityweek.energycentral.com


Finding a secure solution to help manage all your grid data is crucial. Introducing a secure Smart Metering solution that helps you turn meter data into operational efficiency. Verizon works with Siemens to offer solution bundling that combines meter-data management services and outage notification into one efficient platform. This new cloud-based solution leverages our expertise in security and network reliability. Now there’s a solution that uses meter data to help streamline operations and respond more effectively to changing demand patterns.

verizonenterprise.com/smartmetering

{P O WER F UL ANSWER S}

SMART METERS COLLECT MORE THAN

A BILLION DATA POINTS A DAY.GET A SOLUTION TO HELP MANAGE IT ALL.

Network details & coverage maps at vzw.com. © 2014 Verizon Wireless.

THOUGHT LEADERSHIP EDITORIAL • SPONSORED BY ACCENTURE12 ENERGYBIZ July/August 2014

EUROPE’SLESSONS

THOUGHT LEADERSHIP EDITORIAL • SPONSORED BY ACCENTURE energybiz.com ENERGYBIZ 13

EUROPEAN UTILITIES ARE facing profound challenges as a result of surging renewable deployments

and a grid that was never designed to seamlessly serve the continent. Utilities have seen their market capitalization plunge. Some observers think that Europe is now experiencing a business model collapse that will soon visit their American counterparts. That is not necessarily so, says Matias Alonso, Accenture managing director of global utilities, based in Madrid. EnergyBiz recently talked with Alonso at Accenture’s International Utilities and Energy Conference in Berlin. His comments, edited for style and length, follow.

ENERGYBIZ What’s happened to the business model of

European utilities in the last five years?

ALONSO The market in Europe is liberalized. The industry decided to increase significantly the share of renewables in the power mix by 2020 and also to increase energy efficiency. There have been a lot of subsidies to incentivize the growth of renewables, but the total cost of this isn’t transferring to the final price of energy for consumers.

ENERGYBIZ Are European utilities in a death spiral?

ALONSO We have a supply overcapacity in Europe. Many countries in Europe are looking for new revenues in order to reduce the public deficit. They are taxing generation. The market cap for utilities in Europe has decreased by 50 percent in the last six years. They are looking for places to invest in order to return to profitability, and they are looking outside of their backyards, because there is a lot of uncertainty with the competitive models at home. Companies are investing in Latin America, Turkey, Russia and in the Asia-Pacific region, rather than in Europe.

ENERGYBIZ Do you expect U.S. utilities will face the

problems confronting European utilities?

ALONSO Europe is unique — unfortunately, for Europe. The goal is to have one Europe working together with one model, with interconnections and a market that will improve dramatically. We are working on this. It is essential. But what

are we going to do in terms of market mechanisms in order to have a more affordable energy system?

ENERGYBIZ How far is Europe from having a totally

integrated transmission grid?

ALONSO We are very far. The ambition was to have this ready in 2014. Now we are talking about 2020, maybe.

ENERGYBIZ What is the obstacle?

ALONSO It is essential to reach the critical mass to expand the market to help in the connections. When there is wind in Spain, there is overcapacity in Spain. In order to use this, we will have to export this to other countries.

ENERGYBIZ Why hasn’t it happened?

ALONSO Because Europe is not one country. Who is paying for this investment? Who is paying for the interconnections? That is what is being discussed. Member countries each have their own regulators and they are not always aligned. Although there is a consensus about the model, a lot of work is needed to align the agendas in the European Union and among different member states.

ENERGYBIZ Why isn’t Europe exploiting the potential of

shale gas more rigorously?

ALONSO The United States and Canada have vast, empty landscapes. Europe is very densely populated. Where are you going to look for shale gas? Under the Eiffel Tower?

Overcapacity, Grid WoesREINVENTING RETAIL // BY MARTIN ROSENBERG

EUROPE’S LESSONS

THOUGHT LEADERSHIP EDITORIAL • SPONSORED BY ACCENTURE14 ENERGYBIZ July/August 2014

ENERGYBIZ Where is renewable penetration headed

in Europe?

ALONSO The target is 20 percent in 2020. We are on track. Europe has a vision for 2050 to continue growing renewables.

ENERGYBIZ To what extent are utilities in Europe

dying? Is it irreversible?

ALONSO Hopefully not. I don’t know. The market cap decrease is also caused by the current, unstable economic situation in Europe. It has endured a terrible crisis the last five years. Now the situation is slightly better. But we are growing at around 1 percent. Europe’s GDP growth is coming back to 3 percent. Hopefully, the situation will get much better. We have an emissions trading system in Europe. It is a market model. But since the carbon price has collapsed to around five euros, the industry has little incentive to invest in renewables without massive subsidies, which then distort the market. When the price is 20, 25 euros per ton of carbon dioxide, it gives the right signals to invest in renewables.

ENERGYBIZ That’s where it started?

ALONSO Yes. It is not working. We need to fix it.

ENERGYBIZ The fix is simple. Limit the number of

permits that are issued.

ALONSO This is a political issue. There is a massive push toward renewables, but renewables are intermittent and need backup facilities, so who is going to pay for this? For example, the United Kingdom has adopted reforms and it is offering capacity payments to utilities to, effectively, incentivize the backup power generation. But we need to work more toward a European solution and not a country-by-country fix, if we hope to have a more efficient model.

ENERGYBIZ If the business model is sick for utilities,

what new players or market entrants could possibly be

coming out?

ALONSO The retail business is completely changing to become a much more digital business. There are more distributed generation and renewables, as well as new assets that need to be better managed and integrated into the grid. For example, how do we ensure that we obtain maximum value from smart metering? Is the utility going to be the main player in this, or not?

ENERGYBIZ Are any utilities aggressively moving to

install microgrids and renewables that they own on the

rooftop?

ALONSO Microgrids are more important in the United States.

ENERGYBIZ What about utility-owned renewables?

EUROPE’S LESSONS

EUROPEAN UTILITIES ARE RAPIDLY putting in place the smart tools that will enable them to better

serve customers and pursue new business opportunities. That is the view of Jack Azagury, Accenture managing director of smart grid services. Azagury was recently interviewed at Accenture’s International Utilities and Energy Conference in Berlin. His comments were edited for style and length.

ENERGYBIZ Is the smart grid in Europe as smart as it is

in the United States?

SMART GRID, EUROPE STYLEA Rush to Analytics

THOUGHT LEADERSHIP EDITORIAL • SPONSORED BY ACCENTURE energybiz.com ENERGYBIZ 15

EUROPE’S LESSONS

ALONSO The problem for renewables in Europe is that now we are living in disappointing times. A lot of people invested in renewables in the last 10 years. A lot of new companies are investing in renewables — not only in utilities. We have construction companies entering into the energy business and taking advantage of the renewables boom. They are losing a lot of money. Now we see these new entrants with serious problems that they didn’t anticipate. They are now divesting and selling assets to the utility companies.

ENERGYBIZ Were they banking on a certain level

of government subsidies and those subsidies are

falling now?

ALONSO Yes.

ENERGYBIZ Are Europeans concerned about

cybersecurity and physical security?

ALONSO This is a very important topic and some countries are not pushing sufficiently hard on the security agenda. It is a debate that we will have now.

ENERGYBIZ When you sit down with senior utility

executives across Europe, how anxious do they seem

to be? Are they self-confident, and do they have a

vision for the future?

ALONSO The utility executives across Europe are monitoring the industry very closely. They have a very clear agenda and are very positive about reforms. They are going to recover from this difficult situation.

ENERGYBIZ Would you rather be a utility executive in

the United States or in Europe?

ALONSO To live better, I would pick the United States. Life is a little easier in the United States. But the U.S. executives have to deal with an aging infrastructure, which isn’t so much a problem in Europe. There is a lot of work to do in terms of investments. But the United States, for example, is doing a good job, in comparison with Europe, in providing incentives for energy efficiency.

AZAGURY Let’s take three aspects of smart grid. Let’s look at smart metering, distribution automation and then analytics. From a distribution automation and actual grid operation, the grid is, in many places, smarter and more reliable in Europe than it is in North America. That’s a fact. Much more of the infrastructure is underground and a lot more investment has taken place over the years.

ENERGYBIZ And smart meters?

AZAGURY From a smart metering perspective, Europe is behind North America, which is at about 40 percent deployment. Europe is just starting out and learning the lessons from the United States. But Europe will get to 80 percent deployment faster than the United States will, because it needs to meet its mandate of 80 percent advanced meters across the EU by 2020. So, although Europe is starting behind, it will overtake the United States by 2020.

ENERGYBIZ What about analytics?

AZAGURY From an analytics perspective, I would say, North America is ahead in terms of discussion. We started the discussions in the United States a year before we started them in Europe, although the pace of analytic discussions in Europe seems to be more rapid now than the pace in North America. Part of this trend is a result of the deregulated environment and on the retail side especially, where you are not tied to regulatory requirements, customer analytics is embraced. We are also seeing take-up of theft analytics. Outage analytics, however, is not going to be a key factor in Europe. Overall, we are seeing rapid acceleration in the level of interest in analytics in Europe. It’s actually surprised me how quickly things have moved from the initial discussion to “Let’s deploy the full technology.”

Some countries are not pushing sufficiently hard on the security agenda. It is a debate that we will have now.


EUROPE’S LESSONS

BY THE NUMBERSTHE ENERGY WORLD OF ARTHUR HANNA

Editor’s Note: At Accenture’s International Utilities and Energy Conference in Berlin this spring, a video provided a snapshot of global energy trends. At our request, Arthur Hanna, Accenture senior managing director of energy, provided a transcript of the stats used. Below is an edited version of his presentation.

The energy system is changing, evolving, developing, incorporating, adapting, substituting, fluctuating and transitioning faster than you think.

How resilient is your business model? Does your policy framework allow for major transition in the energy system?

September

2007 November

2007 October

2011 October

2012 December

2012

2013 January

2013 November

2013 November

2013 January

2014

The Economist hails nuclear power’s New Age, but in March 2011, the Fukushima Daiichi disaster occurs.

Two months later, Germany declares it will close its nuclear plants by 2022.

World population hits 7 billion. In 2043, it will be 9 billion.

Hurricane Sandy causes $50 billion worth of damage.

The “Saudi America” phrase is coined, and in July 2013, North Dakota oil production hits a record high of 875,000 barrels per day.

The United States overtakes Russia to become the world’s largest oil and gas producer.

Beijing experiences its worst smog on record with particu-late matter of up to 900 micrograms per square meter.

The UK hits an all-time record with over 6 gigawatts of wind power generation, power-ing 13.5 percent of the country.

Also in November 2013, Nigerians learn they are to experience week-long electricity rationing that will put the country into darkness.

Minnesota breaks recent temperature records in the lower 48 states at –34.6 degrees Fahrenheit.

2013China surpasses the United States as the world’s largest net oil importer.

Events impacting the energy system:

What will the energy system look like in 2035?

Global primary energy demand will increase by one-third between 2011 and 2035, reach-ing 17,400 million tons of oil equivalent.

The share of renewables in electricity generation will grow to more than 30 percent by 2035.

The smart grid market is forecast to exceed $400 billion by 2030, growing at over 8 percent per year (GTM Research).


IN A WORLD MARKED BY STATUTORY constraints in constant evolution, and customers more and

more attentive to their consumption, utilities are confronted with multiple challenges. Utilities in Europe, in particular, are facing a historical game change and need to reinvent themselves.

GDF Suez intends to play a leading role in the coming energy transition in Europe with three priorities: energy efficiency, renewable energy production, and smart and digital. GDF Suez is already the first player in Europe with regard to energy efficiency, with subsidiaries that include Cofely,

Savelys, and Fabricom. We have well-established positions with renewables in France, where we are No. 1 in onshore wind, but smart and digital is a more recent strategic priority.

The business Ecometering was set up at the beginning of 2013 by merging different existing activities to help GDF Suez move from being a supplier of a pure commodity to being an operator of high-value-

added smart energy efficiency services. We are designing and testing solutions with our customers

using our open innovation web platform www.LabEnergie-gdfsuez.com. GDF Suez is marketing Dolce Confort, a gas-heating program, and Vertuoz Habitat, a consumption-based billing offer for collective housing, in France, and Energy Coach by Electrabel in Belgium. Ecometering SAS, another subsidiary of GDF Suez, has also developed demand-side management solutions that can be proposed to our European business customers.

Dolce Confort offers natural gas with a fixed price for two or three years and a smart thermostat that allows you to pilot your heating installation in real time from

any mobile device. This allows consumers to set budgets and benchmarks and allows them to reduce their overall heating bills by as much as 20 percent, depending on their personal involvement.

In the future, supplying energy itself will represent a diminishing proportion of these programs in an age where we aim to reduce consumption more and more. One possible evolution of this trend at least in some market segments is electrical self-consumption, where the consumer will need access to the grid only for backup purposes, or for economic optimization of the electricity the consumer produces locally.

Faced with this paradigm shift, smart lines of business will play a key role because of the intelligence they inject into the home, service-sector buildings and industrial sites. This intelligence will measure energy consumption in real time and remotely control all the components, and will also probably lead to many other functionalities including machine-to-machine protocols.

GDF Suez is preparing itself to accompany this revolution and the emergence of the “prosumer.”

Michael Schack is director general of Ecometering, a subsidiary of GDF Suez.

Game Change Utilities’ Multiple ChallengesBY MICHAEL SCHACK

EUROPE’S LESSONS

THOUGHT LEADERSHIP • SPONSORED BY ACCENTURE

that younger consumers are more interested in convenience via a seamless digital experience. Forty percent of 18- to 34-year-olds are even open to using social media creden-tials to log into an energy provider’s portal. Providers must look to a holistic customer view that aligns business units, talent and priorities in order to achieve a uniform channel ex-perience. As well as embracing social and mobile channels, omnipresence empowers consumers as marketers and co-creators. That, in turn, accelerates education, ideation – and ultimately leads to higher engagement. In order to compli-ment heightened engagement, especially as balancing sup-ply and demand becomes less predictable, energy providers must also implement data-driven insights. With that deeper understanding, utilities can craft optimal propositions that

create value for both consumer and provider. Once these competencies are in place, energy providers are well suited to successfully offer new products and services.

Digital might be disruptive, but here’s what hasn’t changed: virtual interaction, consumer insight, and con-sumer engagement remain the building blocks of extending the value proposition. Developing these competencies will not be fast or easy. Many providers will require significant organizational transformation. This will be critical to surviving amid constant change, seizing new opportunities and thriving in the new energy marketplace.

Greg Guthridge is a managing director in Accenture’s global utilities industry group and leads Accenture’s annual New Energy Consumer research program

THE UTILITIES INDUSTRY GLOBALLY is facing unprecedented change driven by multiple factors that

are threatening its existing business model. The scope is extensive, from changing customer expectations and new entrants into the industry, through to advances in distributed energy resources, to technology innovation, climate change and progress in energy efficiency.

Utilities realize that the game is changing. Our research shows that 85 percent of utilities executives globally expect competition from new entrants to increase over the next five years in the areas such as distributed generation, data-relat-ed products and services and “beyond-the-meter” solutions, such as energy efficiency. In fact, we’ve already seen this with Google’s acquisition of Nest, SolarCity’s advances in solar power and provision of solar and storage bundles, to name just a few.

Of particular concern to utilities is the triple threat of distributed generation, energy storage, and energy efficiency advances, which all increase the likelihood of customers using the grid only as a backup resource or for peak supply, or even migrating off the grid entirely.

While there is significant uncertainty as to the magnitude and timeline for these threats, we believe that utilities have a

window of about seven to 10 years to adapt their business model or face significant risk to their core business similar to that experienced by other pervasive and quasi monopoly services, such as land line telecommunica-tions or the post office.

Utilities can tackle this change in one of three ways. First, they can “hunker down” and take the perceived lower risk approach of simply protecting their existing revenues, meeting regulatory de-mands and avoiding investments in new technology solutions to minimize business disruption. This approach either assumes that the threat will not materialize or that the regulatory framework will protect utilities. Judg-ing by technological developments in other industries, it is unlikely that this approach would actually lower risk, as it would be unsustainable in the long term.

A second approach is to focus on optimizing the current

Optimize utility 1.0 by embracing the digital present before taking on utility 2.0BY JACK AZAGURY & GREG BOLINO, ACCENTURE


ENERGY TODAY IS BECOMING a platform for innovative value propositions and new products and

services — from electric vehicles and solar generation to the connected home. Meanwhile, digital disruption has reached a tipping point, causing markets to converge, industry lines to blur and barriers to entry to all but disappear.

In short, “business as usual” is giving way to “business unusual” for energy providers in every market. In the face of such fundamental change, every energy provider faces critical questions: What is the “right” business model? And what claim will it stake in the new, digitally driven energy ecosystem?

Our latest research confirms that both opportunities and challenges surrounding the new energy consumer con-tinue to be dynamic and complex. The findings point to the importance of understanding how and why the new energy consumer requires far more than a traditional utility service model can provide. It also underscores the ineffectiveness of compartmentalized strategies for virtual interaction, new products and services, and in-home technologies. Indeed, digital is no longer just an interaction channel. Now central to all facets of the business, digital is an enterprise impera-tive — one that requires a different mindset for bringing new capabilities and competencies to market.

A WAVE OF NEW MARKET OPPORTUNITIESAccenture’s survey indicates four viable business

models for providing new products and services — with consumer sentiment spread evenly across the models. Just 21 percent of consumers are interested in a “traditional” utility experience, while most are interested in beyond-the-meter offerings. In fact, about one-third (31 percent) are looking for a provider offering electricity, gas and/or water along with a full range of products and services.

Further, we found that while new energy consumers’ top choice for solar panel providers may be specialized provid-ers (74 percent), energy providers are a very close second at 71 percent. And despite their aggressive entrance into

IMPERATIVES TO ADDRESS THE NEW ENERGY CONSUMER BY GREG GUTHRIDGE

Digital disruption and business ‘unusual’

the home energy market, home improvement service provid-ers, and phone and cable companies rank much lower.

To extend the value proposition, energy providers need to build a mindset of innovation and agility around new prod-ucts and services, such as solar, home energy management and electric vehicles. The first strategic action: planning for a shift from traditional, one-way consumer relationships to a view of consumers as business partners.

FUTURE PROOFING – ARCHITECTING FOR THE NEW ENERGY CONSUMER

Entering new territory and markets always introduces risks, and occasional failures are inevitable. For energy providers, the key is to think like a startup. Providers must sustain the innovation engine without losing sight of their foundational capabilities. To begin, energy providers must seek to include digital technologies for optimizing consumer interaction, utilizing consumer insights, and creating lasting consumer engagement.

In 2014, we found that 67 percent of consumers who are digital channel users are satisfied with their energy pro-vider—compared to 58 percent of those who use non-digital channels. Unfortunately, utilities are often challenged by a fractured channel landscape and “siloed” analytics that are neither automated nor immediately actionable.

Accenture believes that providers need an integrated channel platform to drive an entirely new interaction model – one built upon virtual self-service. To support this model, providers must modernize customer support capabilities, streamline processes and simplify policies and procedures. By doing so, providers can reduce controllable-customer support costs by up to 30 percent. Shifting the operational mindset does more than reduce costs — it can also enable operations that are more nimble, more flex-ible and better suited to the new energy marketplace.

To bring interaction channels together, providers must deliver an “omni-experience”—a consistent, easy to use, end-to-end customer experience. For example, we found



that younger consumers are more interested in convenience via a seamless digital experience. Forty percent of 18- to 34-year-olds are even open to using social media creden-tials to log into an energy provider’s portal. Providers must look to a holistic customer view that aligns business units, talent and priorities in order to achieve a uniform channel ex-perience. As well as embracing social and mobile channels, omnipresence empowers consumers as marketers and co-creators. That, in turn, accelerates education, ideation – and ultimately leads to higher engagement. In order to compli-ment heightened engagement, especially as balancing sup-ply and demand becomes less predictable, energy providers must also implement data-driven insights. With that deeper understanding, utilities can craft optimal propositions that

create value for both consumer and provider. Once these competencies are in place, energy providers are well suited to successfully offer new products and services.

Digital might be disruptive, but here’s what hasn’t changed: virtual interaction, consumer insight, and con-sumer engagement remain the building blocks of extending the value proposition. Developing these competencies will not be fast or easy. Many providers will require significant organizational transformation. This will be critical to surviving amid constant change, seizing new opportunities and thriving in the new energy marketplace.

Greg Guthridge is a managing director in Accenture’s global utilities industry group and leads Accenture’s annual New Energy Consumer research program

THE UTILITIES INDUSTRY GLOBALLY is facing unprecedented change driven by multiple factors that

are threatening its existing business model. The scope is extensive, from changing customer expectations and new entrants into the industry, through to advances in distributed energy resources, to technology innovation, climate change and progress in energy efficiency.

Utilities realize that the game is changing. Our research shows that 85 percent of utilities executives globally expect competition from new entrants to increase over the next five years in the areas such as distributed generation, data-relat-ed products and services and “beyond-the-meter” solutions, such as energy efficiency. In fact, we’ve already seen this with Google’s acquisition of Nest, SolarCity’s advances in solar power and provision of solar and storage bundles, to name just a few.

Of particular concern to utilities is the triple threat of distributed generation, energy storage, and energy efficiency advances, which all increase the likelihood of customers using the grid only as a backup resource or for peak supply, or even migrating off the grid entirely.

While there is significant uncertainty as to the magnitude and timeline for these threats, we believe that utilities have a

window of about seven to 10 years to adapt their business model or face significant risk to their core business similar to that experienced by other pervasive and quasi monopoly services, such as land line telecommunica-tions or the post office.

Utilities can tackle this change in one of three ways. First, they can “hunker down” and take the perceived lower risk approach of simply protecting their existing revenues, meeting regulatory de-mands and avoiding investments in new technology solutions to minimize business disruption. This approach either assumes that the threat will not materialize or that the regulatory framework will protect utilities. Judg-ing by technological developments in other industries, it is unlikely that this approach would actually lower risk, as it would be unsustainable in the long term.

A second approach is to focus on optimizing the current

Optimize utility 1.0 by embracing the digital present before taking on utility 2.0BY JACK AZAGURY & GREG BOLINO, ACCENTURE


ENERGY TODAY IS BECOMING a platform for innovative value propositions and new products and

services — from electric vehicles and solar generation to the connected home. Meanwhile, digital disruption has reached a tipping point, causing markets to converge, industry lines to blur and barriers to entry to all but disappear.

In short, “business as usual” is giving way to “business unusual” for energy providers in every market. In the face of such fundamental change, every energy provider faces critical questions: What is the “right” business model? And what claim will it stake in the new, digitally driven energy ecosystem?

Our latest research confirms that both opportunities and challenges surrounding the new energy consumer con-tinue to be dynamic and complex. The findings point to the importance of understanding how and why the new energy consumer requires far more than a traditional utility service model can provide. It also underscores the ineffectiveness of compartmentalized strategies for virtual interaction, new products and services, and in-home technologies. Indeed, digital is no longer just an interaction channel. Now central to all facets of the business, digital is an enterprise impera-tive — one that requires a different mindset for bringing new capabilities and competencies to market.

A WAVE OF NEW MARKET OPPORTUNITIESAccenture’s survey indicates four viable business

models for providing new products and services — with consumer sentiment spread evenly across the models. Just 21 percent of consumers are interested in a “traditional” utility experience, while most are interested in beyond-the-meter offerings. In fact, about one-third (31 percent) are looking for a provider offering electricity, gas and/or water along with a full range of products and services.

Further, we found that while new energy consumers’ top choice for solar panel providers may be specialized provid-ers (74 percent), energy providers are a very close second at 71 percent. And despite their aggressive entrance into

IMPERATIVES TO ADDRESS THE NEW ENERGY CONSUMER BY GREG GUTHRIDGE

Digital disruption and business ‘unusual’

the home energy market, home improvement service provid-ers, and phone and cable companies rank much lower.

To extend the value proposition, energy providers need to build a mindset of innovation and agility around new prod-ucts and services, such as solar, home energy management and electric vehicles. The first strategic action: planning for a shift from traditional, one-way consumer relationships to a view of consumers as business partners.

FUTURE PROOFING – ARCHITECTING FOR THE NEW ENERGY CONSUMER

Entering new territory and markets always introduces risks, and occasional failures are inevitable. For energy providers, the key is to think like a startup. Providers must sustain the innovation engine without losing sight of their foundational capabilities. To begin, energy providers must seek to include digital technologies for optimizing consumer interaction, utilizing consumer insights, and creating lasting consumer engagement.

In 2014, we found that 67 percent of consumers who are digital channel users are satisfied with their energy pro-vider—compared to 58 percent of those who use non-digital channels. Unfortunately, utilities are often challenged by a fractured channel landscape and “siloed” analytics that are neither automated nor immediately actionable.

Accenture believes that providers need an integrated channel platform to drive an entirely new interaction model – one built upon virtual self-service. To support this model, providers must modernize customer support capabilities, streamline processes and simplify policies and procedures. By doing so, providers can reduce controllable-customer support costs by up to 30 percent. Shifting the operational mindset does more than reduce costs — it can also enable operations that are more nimble, more flex-ible and better suited to the new energy marketplace.

To bring interaction channels together, providers must deliver an “omni-experience”—a consistent, easy to use, end-to-end customer experience. For example, we found


THOUGHT LEADERSHIP • SPONSORED BY ACCENTURE THOUGHT LEADERSHIP • SPONSORED BY ACCENTURE

business model by reducing costs, dramatically improv-ing customer service, better managing the operations and maintenance of assets and the deployment of capital, and by becoming an altogether more efficient and effective business.

The third approach involves a higher level of risk as utilities explore new products and services alone or, more likely through partnerships, to directly address the threat of revenue reductions.

Regardless of the path chosen, a 10-year time horizon is not a very long one for asset intensive businesses, and utilities need to start planning for this today. Many utilities have already launched “utility of the future” or “utility 2.0” strategy efforts in order to determine which course to follow. Some utilities in deregulated markets like Australia and certain European countries have moved beyond the strategy phase and have launched complementary businesses, such as solar installation, electric vehicle charging stations and in-home solutions.

The complication with this process is that this path to transformation isn’t an easy one. Change is likely to hap-pen gradually over the next 10 years or more and the end game will differ by utility. It will take time for new business solutions to have a material impact on earnings and, in the meantime, the majority of the earnings will need to be generated through traditional services. On top of this, the regulatory regime in many regions is not conducive to driv-ing change, taking risks or entering new business streams.

The challenge utilities face is how to gradually migrate to the utility 2.0 model while operating in a utility 1.0 regulatory environment. The answer lies in a carefully crafted 10-year roadmap that focuses firstly on optimizing utility 1.0 while planning to aggressively embark on a utility 2.0 model through the provision of new products and services.

Optimizing utility 1.0 involves a step change in cost structure, customer relationships and asset management through the use of digital technologies, such as cloud, ana-lytics, social media and mobility. These technologies have transformed almost every industry and will drive a step change for utilities as well. This transformation must be paired with a proactive drive to shift the regulatory regime. We have already seen progressive regulatory compacts emerge, such as the RIIO (Revenue = Incentives + Innova-tion + Outputs) framework in the United Kingdom, which rewards innovation and efficiency.

OPTIMIZING UTILITY 1.0 BY EMBRACING THE DIGITAL PRESENT

The explosion of data from an increasing amount of sen-sors, smart meters and other intelligent devices connected

to the grid, as well as customer interactions through mobile and digital channels, is ripe for utilities to exploit in order to make better decisions based on real-time information. This includes reducing costs of asset management by moving from time-based to predictive maintenance, improving the ability to isolate faults more quickly, and aid in the restoration of the network by optimizing the deployment of field forces, as well as better managing supply and demand by analyzing data from grid devices and smart meters.

Analytics and big data is an area of enormous potential. Our analysis suggests that a utility could realize as much as $40 to $70 of value per electric meter per year (excluding societal benefits), through applied analytics, with significant added benefits in improving asset management.

Real-time grid analytics could allow utilities to improve margin on energy delivered through techniques like con-servation voltage reduction, optimizing power factors, and reducing line loss.

Our research shows that while utilities view analytics as their highest priority smart gird investment, a significant majority don’t believe that they have the necessary capa-bilities, and moreover, only a quarter feel that they are well positioned to compete for analytics skills in the market.

Using digital technologies to reduce the overall cost of maintaining and upgrading the grid will become increasingly important as utilities’ profits continue to be squeezed, while they are put under pressure to provide their services at lower costs given the competition from distributed genera-tion. If customers are only connecting to the grid as insur-ance against the intermittency of renewables, utilities need to ensure that the insurance is affordable.

And this brings us to customer engagement. Most utilities still compare their service delivery to that of other utilities, but that is no longer the way to look at it. Consum-ers’ expectations for service are now being set by retail and automotive sectors, telecommunications and cable compa-nies, and internet service providers. The gap in customer satisfaction and service, compared to leading companies in other industries, is in some cases significant. Utilities need to truly understand who the energy consumer is — in most cases the person paying the bill is not the same as the one that consumes most the energy.

Our annual global survey of energy consumers reveals that while consumer trust remains low, most consumers would still sign-up for or purchase additional products and services from their energy provider. Our research also found that energy consumers, who interact through digital channels like web, mobile or social media are more satisfied


than those who interact via traditional channels, such as in person or over the phone. So not only do consumers prefer direct, convenient access, which drives lower operating costs, they are also more satisfied by it: helping energy providers realize a ‘digital dividend.’ For example, during Super Storm Sandy, smartphone traffic to utilities’ websites increased by 16,000 percent.

The investment in digital technologies should be complemented by an investment in smart grid operations technology such as smart meters, distribution automation and sensors, and advanced distribution management sys-tems, all of which complement the use of digital technol-ogy to deliver a step change in performance. According to our research, more than two thirds of utilities executives globally believe that the benefits of these investments will exceed their original business case.

TAKING A PROACTIVE STANCE TOWARD REGULATIONS

The basic regulatory structure of public utilities will change in ways that ultimately encourage distributed generation and energy efficiency. Rather than fighting the inevitable, utilities should be working with regulators to develop a framework that encourages innovation and sensible risk-taking.

More than half of utilities executives globally have told us that they believe regulatory changes are necessary in order to help them manage the grid effectively.

One of the more progressive models is the RIIO framework in the United Kingdom, which is based on performance-based incentives. Germany was one of the first movers with its Energiewende model, and most experts argue now that it tried to do too much, too fast. Whilst it has been very successful in developing the growth of the renew-ables sector, this has come at a cost to German consumers and the competitiveness of German utilities, not to mention the unintended consequence of higher carbon emissions, due to the need to keep old coal plants running to support system load, after switching off nuclear.

SHIFTING TO UTILITY 2.0 BY DEVELOPING NEW REV-ENUE SOURCES

While optimizing the current utility model through the use of digital technology is a necessary first step, utilities will need to develop new products and services to address the decline in revenue from traditional energy provision.

These new revenue sources will likely be both regu-lated and unregulated. On the regulated front, utilities are seeking ways to provide microgrids as an alternative to a

new connection, storage as a way to support grid stability, fuel cells as a way to defer investment in substations, and electric vehicle charging stations as natural extensions to the grid. Utilities are also exploring unregulated ventures in areas such as residential and commercial solar installation and leasing, in-home energy management and competitive metering services in countries such as Australia.

In addition, our research reveals that 83 percent of utilities believe that they will be offering competitive data related services in the coming years. While privacy con-cerns will need to be addressed, there is ample precedent for telecommunications and cable companies to use energy consumption data to provide new services. Closer to the utility, companies such as Google and Nest are al-ready monetizing this data in ways that were unimaginable five to 10 years ago.

DEVELOPING PARTNERSHIPSWhile the foray into new energy products and services

will be necessary to compensate for reduced energy-related revenue, utilities will need to recognize the benefit of alli-ances and partnerships to successfully capture markets outside of their core business. This could include partner-ships with financing organizations, technology providers, home security companies, cable and internet providers, retailers, and others. A strategy that includes such partner-ships will significantly reduce the risk profile associated with the migration to a utility 2.0 model.

Reports of the “death spiral” of the integrated utility may be premature, but there is every reason for utility executives to be concerned about the future. The path to a utility 2.0 that includes the provision of new products and services, and a radically different operating model, must be preceded by a step change in how the current utility model is operated and delivered. This will be accomplished, as it has been in many other industries, by the pervasive adoption of digital technologies to transform every capabil-ity from asset management, to field force operations, to customer relationship management.

The path to utility 2.0 is one that must be carefully crafted and implemented over the next 10 years but the journey must begin today.

Jack Azagury is the global managing director of Accenture Smart Grid Services

Greg Bolino is a managing director in Accenture’s global utilities strategy practice



business model by reducing costs, dramatically improv-ing customer service, better managing the operations and maintenance of assets and the deployment of capital, and by becoming an altogether more efficient and effective business.

The third approach involves a higher level of risk as utilities explore new products and services alone or, more likely through partnerships, to directly address the threat of revenue reductions.

Regardless of the path chosen, a 10-year time horizon is not a very long one for asset intensive businesses, and utilities need to start planning for this today. Many utilities have already launched “utility of the future” or “utility 2.0” strategy efforts in order to determine which course to follow. Some utilities in deregulated markets like Australia and certain European countries have moved beyond the strategy phase and have launched complementary businesses, such as solar installation, electric vehicle charging stations and in-home solutions.

The complication with this process is that this path to transformation isn’t an easy one. Change is likely to hap-pen gradually over the next 10 years or more and the end game will differ by utility. It will take time for new business solutions to have a material impact on earnings and, in the meantime, the majority of the earnings will need to be generated through traditional services. On top of this, the regulatory regime in many regions is not conducive to driv-ing change, taking risks or entering new business streams.

The challenge utilities face is how to gradually migrate to the utility 2.0 model while operating in a utility 1.0 regulatory environment. The answer lies in a carefully crafted 10-year roadmap that focuses firstly on optimizing utility 1.0 while planning to aggressively embark on a utility 2.0 model through the provision of new products and services.

Optimizing utility 1.0 involves a step change in cost structure, customer relationships and asset management through the use of digital technologies, such as cloud, ana-lytics, social media and mobility. These technologies have transformed almost every industry and will drive a step change for utilities as well. This transformation must be paired with a proactive drive to shift the regulatory regime. We have already seen progressive regulatory compacts emerge, such as the RIIO (Revenue = Incentives + Innova-tion + Outputs) framework in the United Kingdom, which rewards innovation and efficiency.

OPTIMIZING UTILITY 1.0 BY EMBRACING THE DIGITAL PRESENT

The explosion of data from an increasing amount of sen-sors, smart meters and other intelligent devices connected

to the grid, as well as customer interactions through mobile and digital channels, is ripe for utilities to exploit in order to make better decisions based on real-time information. This includes reducing costs of asset management by moving from time-based to predictive maintenance, improving the ability to isolate faults more quickly, and aid in the restoration of the network by optimizing the deployment of field forces, as well as better managing supply and demand by analyzing data from grid devices and smart meters.

Analytics and big data is an area of enormous potential. Our analysis suggests that a utility could realize as much as $40 to $70 of value per electric meter per year (excluding societal benefits), through applied analytics, with significant added benefits in improving asset management.

Real-time grid analytics could allow utilities to improve margin on energy delivered through techniques like con-servation voltage reduction, optimizing power factors, and reducing line loss.

Our research shows that while utilities view analytics as their highest priority smart gird investment, a significant majority don’t believe that they have the necessary capa-bilities, and moreover, only a quarter feel that they are well positioned to compete for analytics skills in the market.

Using digital technologies to reduce the overall cost of maintaining and upgrading the grid will become increasingly important as utilities’ profits continue to be squeezed, while they are put under pressure to provide their services at lower costs given the competition from distributed genera-tion. If customers are only connecting to the grid as insur-ance against the intermittency of renewables, utilities need to ensure that the insurance is affordable.

And this brings us to customer engagement. Most utilities still compare their service delivery to that of other utilities, but that is no longer the way to look at it. Consum-ers’ expectations for service are now being set by retail and automotive sectors, telecommunications and cable compa-nies, and internet service providers. The gap in customer satisfaction and service, compared to leading companies in other industries, is in some cases significant. Utilities need to truly understand who the energy consumer is — in most cases the person paying the bill is not the same as the one that consumes most the energy.

Our annual global survey of energy consumers reveals that while consumer trust remains low, most consumers would still sign-up for or purchase additional products and services from their energy provider. Our research also found that energy consumers, who interact through digital channels like web, mobile or social media are more satisfied


than those who interact via traditional channels, such as in person or over the phone. So not only do consumers prefer direct, convenient access, which drives lower operating costs, they are also more satisfied by it: helping energy providers realize a ‘digital dividend.’ For example, during Super Storm Sandy, smartphone traffic to utilities’ websites increased by 16,000 percent.

The investment in digital technologies should be complemented by an investment in smart grid operations technology such as smart meters, distribution automation and sensors, and advanced distribution management sys-tems, all of which complement the use of digital technol-ogy to deliver a step change in performance. According to our research, more than two thirds of utilities executives globally believe that the benefits of these investments will exceed their original business case.

TAKING A PROACTIVE STANCE TOWARD REGULATIONS

The basic regulatory structure of public utilities will change in ways that ultimately encourage distributed generation and energy efficiency. Rather than fighting the inevitable, utilities should be working with regulators to develop a framework that encourages innovation and sensible risk-taking.

More than half of utilities executives globally have told us that they believe regulatory changes are necessary in order to help them manage the grid effectively.

One of the more progressive models is the RIIO framework in the United Kingdom, which is based on performance-based incentives. Germany was one of the first movers with its Energiewende model, and most experts argue now that it tried to do too much, too fast. Whilst it has been very successful in developing the growth of the renew-ables sector, this has come at a cost to German consumers and the competitiveness of German utilities, not to mention the unintended consequence of higher carbon emissions, due to the need to keep old coal plants running to support system load, after switching off nuclear.

SHIFTING TO UTILITY 2.0 BY DEVELOPING NEW REV-ENUE SOURCES

While optimizing the current utility model through the use of digital technology is a necessary first step, utilities will need to develop new products and services to address the decline in revenue from traditional energy provision.

These new revenue sources will likely be both regu-lated and unregulated. On the regulated front, utilities are seeking ways to provide microgrids as an alternative to a

new connection, storage as a way to support grid stability, fuel cells as a way to defer investment in substations, and electric vehicle charging stations as natural extensions to the grid. Utilities are also exploring unregulated ventures in areas such as residential and commercial solar installation and leasing, in-home energy management and competitive metering services in countries such as Australia.

In addition, our research reveals that 83 percent of utilities believe that they will be offering competitive data related services in the coming years. While privacy con-cerns will need to be addressed, there is ample precedent for telecommunications and cable companies to use energy consumption data to provide new services. Closer to the utility, companies such as Google and Nest are al-ready monetizing this data in ways that were unimaginable five to 10 years ago.

DEVELOPING PARTNERSHIPSWhile the foray into new energy products and services

will be necessary to compensate for reduced energy-related revenue, utilities will need to recognize the benefit of alli-ances and partnerships to successfully capture markets outside of their core business. This could include partner-ships with financing organizations, technology providers, home security companies, cable and internet providers, retailers, and others. A strategy that includes such partner-ships will significantly reduce the risk profile associated with the migration to a utility 2.0 model.

Reports of the “death spiral” of the integrated utility may be premature, but there is every reason for utility executives to be concerned about the future. The path to a utility 2.0 that includes the provision of new products and services, and a radically different operating model, must be preceded by a step change in how the current utility model is operated and delivered. This will be accomplished, as it has been in many other industries, by the pervasive adoption of digital technologies to transform every capabil-ity from asset management, to field force operations, to customer relationship management.

The path to utility 2.0 is one that must be carefully crafted and implemented over the next 10 years but the journey must begin today.

Jack Azagury is the global managing director of Accenture Smart Grid Services

Greg Bolino is a managing director in Accenture’s global utilities strategy practice



Tailoring Offerings for CustomersBY MARTIN ROSENBERG

ESSENT’S STRATEGY FOR PROFITING in the competitive Dutch energy markets is to focus closely

on customers and learning their wants and needs, according to Erwin van Laethem, the utility’s chief executive officer. EnergyBiz interviewed Van Laethem at Accenture’s International Utilities and Energy Conference in Berlin. His comments, edited for style and length, follow.

ENERGYBIZ Essent was acquired by RWE in 2010, so you

are a wholly owned subsidiary? How is it working out?

LAETHEM Correct. It’s working out fine. Essent is the largest energy company in the Netherlands. The Dutch market is the most competitive in Europe. It is therefore also the most innovative market. We are very successful in the Dutch markets. For three years the customer base has been growing. We received external recognition last year also for the way we are sensitive to the customer.

ENERGYBIZ The market capitalization of European

utilities has been cut in half recently. What is the impact

of that on your operations?

LAETHEM In the Netherlands, there is an overcapacity in the market. A lot of companies began building generation seven years ago. This construction is now coming online at the same time. After 2008, with the slowdown of the economy, there has been a reduction of demand. There is a big influx of renewable energy from Germany. Some weekends, Germany is self-sufficient, meeting its electricity needs only with renewables. In order to transport the electricity north or south on the German grid, there is a flux of electricity going through the Netherlands and through Austria. That means that in the Netherlands, sometimes there is a negative price for energy. In turn, that means that gas plants in the Netherlands actually are not running. So we have to mothball two major new gas plants

Reinventing theEUROPE’S LESSONS

that we constructed and we have had to take write-offs on our investments. In the last two years, Essent had to write-off 2.8 billion euros or $3.8 billion in value on its fleet in the Netherlands.

ENERGYBIZ What has been the investment in

renewables in the Netherlands?

LAETHEM The Netherlands currently has one of the lowest percentages of renewable generation in Europe. However, Essent is the largest producer of green energy in the Netherlands, with about 23 or 24 percent of production tied to green energy. It is generated by wind, a lot of biomass and a little bit of solar. The Netherlands, as a whole, is currently at 4 percent renewables. We need to reach the target of 14 percent by 2020 and 16 percent by 2023. If we want to reach these targets as a country we need to have a clear and stable investment climate. The government has to come up with clear rules we can work with to 2020 and beyond.

ENERGYBIZ Energy prices in the Netherlands are higher

than in Germany.

LAETHEM Yes. That creates a problem with the competitiveness for energy-intensive industry. In Europe, there are 186 subsidies rules in 28 countries. They often are contradictory. We are pleading for a much more stable European framework to guide Europe and help it reach its goal of a 40 percent reduction in CO2 emissions by 2030.

ENERGYBIZ How do you think your job as CEO of a Dutch

utility is different from a CEO of an American utility?

LAETHEM I don’t know.

ENERGYBIZ Are you more vulnerable to politics and

regulation?


LAETHEM As a sector, 50 to 80 percent of our bottom line is actually made or broken by regulation. Regulation is really important for us. What we have achieved in the Netherlands is that we have become the most competitive market. It is the most liberalized market as well. But we are terribly influenced by regulation, as I said. My job consists of a lot of really making sure, from a customer’s perspective, that we continue to innovate and that we help

Dutch UtilityEUROPE’S LESSONS

the customer to save energy. Essent is really successful at that. In the most competitive market, it’s important that customers stay with us.

ENERGYBIZ Does Essent compete in the retail market?

LAETHEM Yes. We are serving 2.5 million families in the Netherlands or 24 percent of the market for electricity and gas.


ENERGYBIZ They buy both from you at the same time?

LAETHEM Yes. It’s invoiced on one bill.

ENERGYBIZ Utilities in the United States strive to build

diversity of generation. What about European utilities?

If Europeans have to mothball good new gas plants

and cannot build new nuclear generation, how can you

achieve generation diversity?

LAETHEM There is only one nuclear plant in the Netherlands. Nuclear is not on the agenda at all due to social and political debates. Within Europe, and also in the Netherlands, it is felt that the timeframe for investing in nuclear is so long that it carries too high of a political, social, economic and regulatory risk.

ENERGYBIZ One answer may be small, modular

reactors. Does that have a future in Europe?

LAETHEM That is not at all on the agenda for the Netherlands. What’s on the agenda for the Netherlands is energy that is sustainable, affordable and available. If we make everything sustainable, it’s not affordable because it costs too much money. If you make everything affordable, then you would go for nuclear or coal. But that is not sustainable in the view of the public. We have to balance all three.

ENERGYBIZ U.S. utilities are very focused on

cybersecurity and physical threats to grid assets. Is that

a concern in Europe?

LAETHEM We should pay much more attention to that. It’s not high enough on the agenda. We support the decentralized production of energy. Our mindset is focused on reinventing ourselves because the old business model will not work anymore. We are reinventing ourselves in this new world where distributed generation goes hand-in-hand with centralized generation. Sustainable energy goes hand-in-hand with conventional production. There are still some rules that need to change. Part of the innovation should be in cybersecurity.

ENERGYBIZ What role does information analytics play

at your company right now?

LAETHEM Very high. One of the root causes of our commercial successes is that we have an excellent customer database. What we’ve been doing is lots of deep segmentation of customers and tailoring our offerings really to specific customer needs — from the customers’ perspective. In 2010, when a customer relocated, it took us 25 steps to start service. Now, with five to seven steps, new service is fully online. We’ve been very successful in this

competitive market in developing digital capabilities. We still respect customer privacy. We really need to continue to move in order to stay ahead.

ENERGYBIZ Do you have smart meters?

LAETHEM In the Netherlands, the smart meters are being rolled out by the grid companies. The customer is not actually waiting for a smart meter. For the customer who wants to save energy, the first step should be insulating the home and buying a new boiler. That would save 20 to 30 percent of energy used in a house that is not insulated and that has a boiler older than 10 years. Energy-saving measures can be paid back on the energy bill through a green loan program. For example, a customer buys a new boiler. That means he becomes much more energy efficient. He gets a lower bill with a small mark-up for paying back the boiler. The boiler is actually financed through the energy savings and through a competitive green loan. So what we do is make sure that the customer doesn’t need to care. We do it all for the customer. That’s new in the Dutch market. The customer determines and controls what he or she wants, and we execute. That’s our theme. That’s why we are so successful keeping our customers and also growing our customer base, with high customer satisfaction over the last three years.

ENERGYBIZ What corporate culture would you like to

build at Essent?

LAETHEM The corporate culture is really our customer focus. It begins and ends with the customer. We need to constantly innovate. But innovation without entrepreneurship would not accomplish much. Our culture is customer-centric, relying on innovation and entrepreneurship. In the Netherlands, we are very much on our way.

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EUROPE’S LESSONS

In 2010, when a customer relocated, it took us 25 steps to start service. Now, with five to seven steps, new service is fully online.


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November 3-4, 2014 | San Diego, CA

Learn how cooperation and innovation can bring

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THE UTILITY OF THE FUTURE will be immersed in assisting the cities and communities they serve with

getting smart about deploying the best technologies to improve their lives, according to Peter Molengraaf, the chief executive officer of Alliander, a utility that employs 7,000 and powers a large swath of the Netherlands. Molengraaf recently talked with EnergyBiz at Accenture’s International Utilities and Energy Conference in Berlin. His comments were edited for style and length.

ENERGYBIZ How is the concept of “smart” shaping the

future of your business?

MOLENGRAAF We see it as a tremendous opportunity to make sure we enable some of the things that are happening in the cities to help solve structural problems. We want to get opportunities for these cities to grow. For example, we are looking at how we can facilitate all the photovoltaic and microgeneration that is getting deployed. We look at electric mobility and how we can facilitate that to help load and reduce air pollution in the city centers. We try to cooperate with Internet and infrastructure companies. We can contribute to growth and economic prosperity and also to achieving the environmental targets of the city.

ENERGYBIZ How is all this affecting energy delivery and

consumption in Amsterdam?

MOLENGRAAF What we have seen in Amsterdam is that electric mobility has increased quite a bit, which tremendously helps in reducing air pollution and noise. It also reflects the new economy. It attracts startups dealing with services around electric mobility. It attracts companies that want to invest in car-sharing programs or want to introduce their technology into the market.

ENERGYBIZ So you see increased de-

ployment of electric cars and trucks?

MOLENGRAAF Absolutely. There are all sorts of other things going on. For example, in the harbor there is a program to make sure ships don’t use their diesel engines for power when they are in the harbor. They are connected to the grid while they stay in the harbor.

ENERGYBIZ Has that resulted in measureable gains for

Alliander?

MOLENGRAAF It is more our function to help the city achieve its environmental goals. We need to provide efficient

Utilities Gets Proactive BY MARTIN ROSENBERG

AMSTERDAMSmart City

EUROPE’S LESSONS

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and reliable grid connection. We extend that to the harbor and other areas where there is a lot of PV. We introduced a lot of smart grid technology to help stabilize the grid. We follow, we stimulate and we facilitate. In a way, that is the future normal in this business.

ENERGYBIZ How do you approach research and

development?

MOLENGRAAF The European Commission facilitates innovation partnerships. It’s part of its Horizon 2020 program that stimulates and facilitates cities, industries and entrepreneurial startup companies to work together to solve city issues or challenges using new technology. They want it done in a scalable, repeatable way.

ENERGYBIZ What should utility CEOs and senior

managers in the United States consider when it comes

to the growth of smart cities?

MOLENGRAAF Energy infrastructure will be increasingly important for cities. The linkage between telecomm, IT investment and energy is increasing. Reliability is becoming much more of an issue also from an economic point of view. Companies want to invest and move their offices where power supply is reliable. It is a core task for utilities.

ENERGYBIZ Do you see a new business model emerging

around smart cities for energy utilities?

MOLENGRAAF At Alliander we operate a distribution system for electricity and natural gas. For us, facilitating increased reliability, electric mobility and decentralized generation is very important and a core task. We need to connect much more to customers, to cities, to all the economic activity that is going on to understand what our role is in facilitating the development of the cities.

ENERGYBIZ It’s a new role for you and your company,

isn’t it?

MOLENGRAAF Yes. Traditionally, we have taken a much more reactive approach, waiting until we were asked to supply new connections. Now we try to engage much earlier. We indicate where possibilities are and where economic opportunities are. For example, Amsterdam is also one of the largest Internet exchanges in the world with a lot of data centers. These are economic activities that live on reliable grid connections. We have a role to do our utmost to make sure that these data centers and Internet exchanges have high-quality, reliable grid connections.

ENERGYBIZ What about urban lighting?

MOLENGRAAF There is an ongoing program to save energy on that. Much more is possible if you take a much broader look at the function of lighting to make the city more attractive and increase safety. It needs to be integrated into the development of your city. That is what we are experimenting with in Amsterdam.

ENERGYBIZ How do you describe your job today?

MOLENGRAAF We have some traditional work to do, providing connection and reliability as a distribution system operator. Increasingly, we have a task to enable cities to grow from new technology investments and deal with all the challenges that it brings.

EUROPE’S LESSONS


THE EUROPEAN ENERGY SYSTEM is changing. Driven to a large extent by the EU’s decarbonization

ambitions, electricity generation is greener and closer to home — but it is also more variable. This has profound im-plications. As an increasing amount of wind and solar instal-lations come online, they bring with them new challenges for the downstream side of the system for power distribution and retail companies. Distribution system operators (DSOs) need to connect and manage a growing share of small-scale, de-centralized energy producers that generate electricity intermittently, namely only when there is enough wind or sun. At the same time, they need to ensure continued quality of service and a reliable power sup-ply. Meanwhile, a new type of electricity customer is emerging: customers who not only consume, but who also produce their own electricity.

As power and information flows become bidirectional, they pose new challenges in terms of system management. Network infrastructure, for instance, will have to become smarter through the use of information technologies, including smart grids and smart metering. But the revolutionary changes that are happening also offer new opportunities for customers and retailers in terms of innovative products, new types of energy services and demand-response programs that can be offered. A real flexibility and efficiency potential exists in this new downstream side of the electricity system.

What, then, is needed to grasp this potential and pave the way for tomorrow’s smart energy system? On the distribution side, greater efficiency and flexibility can be gained through two main points: more intelligent infrastructure and more active system management by DSOs. A smarter regulatory framework that rewards rather than penalizes innovation in these two areas is crucial to achieving this. Work carried out by Eurelectric over the past few months shows that DSO regulation in many European countries is still hampering rather than facilitating such solutions. This is particularly worrying, given the large investment needs in distribution

networks: 400 billion euros by 2020 alone. If these investments do not materialize, DSOs will not be able to play their part as facilitators of the energy transition.

The need for new grid investments will also mean changes to the way electricity users are billed. Most direct network costs are largely independent of the actual energy delivered but are determined by peak demand. Increasingly, network tariffs will

need to reflect not just the amount of power consumed, but also peak demand or the capacity required. Such capacity-based tariffs reflect the real costs of using the system and ensure that those who place higher demands on the system contribute more to the maintenance of the system — an issue that has become more pressing as the share of distributed energy sources has increased. As well as being fairer for all grid users, a move to more capacity-oriented network tariffs will also be more cost-effective.

Meanwhile, on the retail side, customers must be empowered to take an active part in the system and ensure they benefit from the new opportunities it offers. Politicians, regulators, consumer groups and the energy industry each have a role to play in this process. First, the energy industry must work to enhance customers’ trust — in presale areas like marketing and contracting and in post-sale operations like customer care, billing and dispute resolution — and to design offers that respond to customers’ needs. Second, EU and national authorities are responsible for setting the right regulatory framework and effectively transposing existing legislation. Finally, EU member states, national regulatory authorities, businesses and consumer associations have a shared responsibility to inform and educate consumers in order to improve their understanding and engagement in retail energy markets.

As the energy landscape changes, Europe’s utilities, distribution companies and consumers will have to adapt. New, unfamiliar challenges await, but so do exciting new developments and opportunities for energy industry and consumers alike.

Reshaping the Power SystemGeneration’s Downstream Effects BY HANS TEN BERGE

Hans ten Berge is secretary general of Eurelectric.

EUROPE’S LESSONS


MANY EUROPEAN POLITICIANS are still very upset about the NSA activities on governments in Europe.

The German Chancellor Angela Merkel did address this very topic during her recent talks with President Barack

Obama. It will take effort and time to rebuild trust in transatlantic relations. But we do not have time to rebuild trust these days. We do not have time to analyze the past. The political climate forces us to shape the future.

I am not only talking about the return of the Cold War; no, the most imminent threat of our days is cybercrime and the cyberwar, which is revealing how poorly prepared European governments and

businesses are in this field. They do not have the faintest idea how to cope with a Pan-European blackout caused by cybercriminals or a cyberterrorist. Because of the so-called Energiewende or energy transformation, the electric grid in

Europe is as fragile as it could be — a perfect and easy target for a cyberterrorist.

In his bestselling novel Blackout, Marc Elsberg describes in a detailed and thrilling manner how Europe will drown in chaos and anarchy after only a few days of an electricity blackout. The first reason this happens is because the C-level executives in companies of critical national infrastructure are not ready to deal with massive cyberattacks. Quite different from the United States or United Kingdom, most political and business leaders still refuse to practice how to react in case of a cyberattack. Second, because there is rarely an information exchange among the important players. Cyberattacks are still treated as company secrets, and this prevents others from learning. And third, because there are no national or European master plans for a Cyber D-Day. After the fall of the Iron Curtain, all European countries scaled down their National Guard capacities to a minimum. There are no significant ambulance or mobile surgical facilities for the case of a Pan-European blackout. And the European states have so far failed in setting up effective cyber counterinsurgency capabilities.

In all areas — be it wargaming, National Guard infrastructure and cyber countermeasures — Europe needs advice and help from the United States. As we team up in NATO to bundle military knowledge and power, so should we team up for a transatlantic cyberalliance. Quite different from NATO, this cyberalliance should be a joint effort of the political, military and business worlds. Big players in business, especially critical national infrastructure enterprises, should buy in.

Forging a Transatlantic CyberallianceAddressing Threats BY KLAUS SCHWEINSBERG

Klaus Schweinsberg is chairman of the Centre for Strategy and Higher Leadership.

EUROPE’S LESSONS


THE ELECTRICITY INDUSTRY in North America has decades of experience providing reliable power to its

customers. In recent years, emphasis has shifted toward enhancing the resilience of the grid — the ability to withstand severe events, mitigate impacts and more quickly recover essential services. Although long-term outages remain extremely rare, the risk is real because of the possibility for natural disasters, and physical attacks and cyberattacks. The risk of long-term outages is being recognized and addressed through coordinated planning and incident response preparations, as was seen in the large-scale deployment of utility equipment and personnel from across North America in response to Superstorm Sandy.

The bulk power system is comprised of many elements working collectively to transport electricity from generation suppliers to distribution systems, where it is ultimately delivered to the customer. Increasingly, distributed resources and demand response are placing some resources closer to the loads. However, an integrated transmission grid remains essential to reliability for all electricity users. The operation of this integrated transmission system is made possible, in part, by extra-high-voltage transformers responsible for raising voltages for long-distance transfer and reducing voltages for distribution. Fortunately, transformers have proven to be highly reliable and, with proper maintenance, can operate normally for many decades. However, like all equipment, large transformers can be subject to random, infrequent failure or can be damaged by natural disaster or possibly even human activity, whether inadvertent or intentional. The normal design is that reliable electricity service will continue despite the loss of any one piece of equipment. However, extended outages of multiple large transformers could present operational challenges.

Making these large transformers requires substantial capital, and manufacturing replacements comes with long lead times. EHV transformers may weigh several hundred tons and require special railcars or trucks for transport. For these reasons, many transformer owners maintain a limited number of spare transformers that are available locally in the event a vital transformer fails. Because of their significant capital and maintenance costs, the number of spare transformers an entity retains is typically what’s required to sustain reliability accounting for normal failure rates and credible contingencies. In the aftermath of the Sept. 11, 2001, terrorist attacks, many organizations joined an industry collaborative to allow sharing spare equipment to reduce the risk to any one organization.

Also in response to 9/11, NERC developed a voluntary, industrywide spare equipment database, which is populated and managed by participating organizations bound by a mutual confidentiality agreement. NERC’s initial focus is on EHV transmission and generator step-up transformers, which are vital for operation of the integrated bulk power system.

Efforts have been undertaken to address the long lead times associated with manufacturing replacement equipment and transportation constraints, particularly for EHV transformers. In 2010, six large power transformer manufacturing facilities existed in the United States for transformers with a typical maximum capacity rating greater of 100 megavolt-amperes. According to a Department of Energy study, in 2010 these facilities provided about 15 percent of the U.S. demand for transformers. Since then, domestic production capacity has been improving with the addition or expansion of several

Reliability a PriorityBY GERRY CAULEY

The Urgency of Spare Inventory

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Lessons LearnedBY JOHN C. HOUSTON

Recovery Transformer Project

oil, were transported 900 miles to Houston, where workers unloaded, reassembled, tested and energized them with load within five days in the exercise that ended on Saturday evening, March 17.

Several key lessons were learned.

Safety must be intrinsic to the plan. Safety is important to any job, but when working faster, with more people for longer hours and with unfamiliar

new U.S.-based facilities. The Efacec transformer plant in Rincon, Georgia, came online in April 2010. The Hyundai Heavy Industries facility opened in Montgomery, Alabama, in November 2011. SPX unveiled its transformer plant expansion in Waukesha, Wisconsin, in April 2012. The Mitsubishi Electric transformer factory began operations in Memphis, Tennessee, in April 2013. Although global procurement remains a common practice for many utilities to obtain transformers, the potential effects of geopolitical events, global shipping interruptions and other risks are reduced as domestic production grows.

Work also has been done in researching and testing the deployment of rapid recovery transformers, also known as modular transformers. Because of its smaller size and weight, a modular transformer is built to enable faster transportation. Universal, standardized specifications allow simpler connections and faster installation times. A pilot deployment of a 345/138-kilovolt autotransformer, developed with funding from the Department of Homeland Security and industry through the Electric Power Research Institute and manufactured by ABB, was recently demonstrated at CenterPoint Energy. Conceptually, availability of modular transformers ready for a variety of operating voltages including 230 kilovolts and 345 kilovolts could help alleviate the risk associated with long-term outages caused by damage to EHV transformers. A limitation

of the modular spares is that they would provide only temporary solutions. They are not designed for the decades-long lifetime of full-scale transformers, similar to riding on the temporary spare tire on a vehicle. Another possibility for expanding the availability of spares is repurposing older transformers that are being retired to use them as spares.

The difficult decisions involve the types of emergencies that should be planned for, how many transformers are needed as spares, and what mix of customized full-scale units and modular units should serve the need. Ultimately, procuring and maintaining spare equipment requires significant capital expenditure and maintenance costs for something that rarely or never happens — in other words, it’s like paying insurance for something you hope never happens. Each company has to make its own choices, taking into consideration ratepayer value and consulting with local and state regulators.

NERC and industry have always made reliability a priority. Discussions such as this one bring the challenges we face as an industry to the forefront. Much work has been done, though there is more left to do. NERC and industry remain committed to ensuring the reliability of the North American bulk power system and will continue to work diligently in preparing for its response and recovery efforts.

Gerry Cauley is president and chief executive officer of the North American Electric Reliability Corp.

TO PROVE THE CONCEPT of the rapid recovery transformer system, a consortium made up of the

Electric Power Research Institute, the Department of Homeland Security, transformer manufacturer ABB and host electric utility company CenterPoint Energy developed an installation drill. Idaho National Laboratories oversaw the drill.

The drill began on Monday morning, March 12, 2012, in St. Louis, Missouri, where workers drained the stored prototype units of oil, disassembled them and loaded them onto over-the-road trailers. The three single-phase, 345/138-kilovolt, 200-megavolt-ampere autotransformers, along with ancillary equipment and

PREPOSIT ION ING RESOURCES


John C. Houston is CenterPoint Energy division senior vice president of high voltage delivery and compliance.

equipment, safety must be the priority and its importance must be emphasized regularly.

Substation security must not be compromised. A project of this nature will draw the attention of media as well as onlookers not familiar with substations. On-site security should be maintained during and after working hours to comply with access and egress requirements, to provide continuous escort of unqualified personnel and to maintain accurate records of people inside the substation at all times.

Critical Energy Infrastructure Information must be guarded. Photography and filming were restricted to personnel associated with the project. No photography was allowed inside the control room or in areas immediately adjacent to the actual work location. The specific address of the project was kept out of published documentation and presentations.

On-site manufacturer representatives helped answer

assembly and procedure questions, facilitated procedure-related communications with factory personnel and expedited parts acquisition. The team provided by ABB was indispensable.

Planning early and including those responsible for actual assembly provided project buy-in from the onset. Failing to ask for input and failing to use the expertise of those who actually received and unloaded the units, tested components prior to installation, assembled the units and commissioned the transformers could have resulted in logistics- and communications-related delays.

Modular, single-phase design worked perfectly to reduce the size and weight of the units. The design minimized transportation costs, footprint requirements and the time required for installation. The single-phase design allowed all three units to be assembled simultaneously, versus the workspace constraints that would have been encountered with a three-phase unit.

Availability of major spare parts must be maintained. Although ABB was instrumental in expediting acquisition of most of the spare parts, smaller parts, large spare bushings and lightning arrestors for these units were not readily available during the project. Major delays would have occurred if a bushing or lightning arrestor had been damaged in transit.

The MA-65 trailer was specifically designed for transporting the skid-mounted units and performed well for the drill. It would also perform well for positioning units in a right of way, parking lot, street or other large, open area. However, in a more crowded substation, using a crane to position the units could be more efficient.

CenterPoint Energy enthusiastically supported the recovery transformer concept, and this successful demonstration proves the viability of resilience through recovery for transformers critical to grid reliability. Recovery transformers can now be considered part of a credible plan for more rapid recovery from black sky events such as solar geomagnetic disturbances, electromagnetic pulses and coordinated physical attacks to the bulk electric system.

It now becomes possible to envision a strategy of combining the Spare Transformer Equipment Program (STEP) conventional spare transformers with the recovery transformer concept, enabling utilities across the country to significantly reduce grid downtime in the face of these catastrophic scenarios.

Such a strategic approach by the electric industry could achieve dramatic improvement in the recovery of essential electric service.

Photo courtesy of DHS Science and Technology Directorate

PREPOSIT ION ING RESOURCES


THERE ARE FEW PLACES on Earth with the abundance of renewable energy resources found in the

islands of the Caribbean. As any resident or visitor of these islands knows, the region enjoys plentiful year-round sunshine and warm, steady winds, making the Caribbean not only an attractive vacation destination but also a natural fit to harness the power of renewable energy solutions.

And yet, with few exceptions, these islands have almost no indigenous fossil fuel resources, meaning each island must rely on constant over-water shipments of oil, diesel and other fuels for nearly its entire energy consumption, from transportation to electricity generation. The shipment, storage, handling and eventual use of these fuels are an incalculable detriment to the pristine environment

that is critical to the tourism industry. What’s more, on nearly every Caribbean island, oil sets the incremental price of electricity, making retail electricity prices among the most expensive in the world and further hampering the region’s global competitiveness.

In short, using imported fossil fuels in small island nations is a crushing economic burden that can be avoided by tapping into the vast amount of renewable resources that are available locally.

When NRG Energy decided to participate in an RFP to develop a renewables-led microgrid for Necker Island, Sir Richard Branson’s private island, it raised a few eyebrows from onlookers and within NRG itself. Why would a project to provide an off-grid solution in the British Virgin Islands that generates a mere 500 kilowatts

interest a company like NRG, the largest U.S. competitive power company with more than 53,000 megawatts of generating capacity? Why compete against more than 700 other bidders for such a small prize?

There were a number of reasons why the successful deployment of a microgrid for Necker Island is a key strategic priority for both NRG and for the entire region. As Sir Richard explains in the announcement of NRG’s selection: “The potential for more renewable energy across the world is huge, especially in places like the Caribbean, where islands offer an excellent test bed to demonstrate and scale innovative, clean energy solutions.”

We envision the Necker Island microgrid to serve as an iconic, flagship representation of the power of innovation, the promise of microgrids and the central role of renewable energy in tackling the Caribbean Basin’s energy challenges.

The Necker Island StoryFlagship MicrogridBY EDOUARD MACGUFFIE

Necker Island. Photo courtesy of NRG

SOLAR GAINS MOMENTUM


A successful deployment on Necker Island has the potential to trigger an energy change that will affect not only the Caribbean, but also other island nations around the world.

With Necker Island, NRG also seeks to leverage and expand its leading solar and wind expertise, building on its innovative renewable energy installations at several professional football stadiums and its strong foundation as the third-largest renewables generator in the United States. NRG has also completed dozens of successful philanthropic solar installations in Haiti to help communities recover following the devastating 2010 earthquake. The direct impact of NRG’s investment in Haiti showed the world the kind of impact clean energy technology can have on people’s lives. With lower electricity costs, hospitals can buy more equipment and medicines, and schools can hire more teachers and buy much-needed supplies that facilitate better education.

Winning Necker Island was the first step to demonstrate NRG’s capabilities, not only as a charitable partner and a solar company, but as a 21st-century energy company prepared to enter into long-term power agreements in the region. Necker Island was the first challenge for NRG in developing the right solution for a unique customer, while at the same time demonstrating a way to reduce the impact of fossil fuel generation on the Caribbean Basin ecosystem.

The Caribbean also offers opportunities for NRG to compete in a new energy market using renewable generation technologies and work with island grid operators to develop technical solutions needed to deal with a high penetration of intermittent renewable energy. It helps NRG gain experience in how policy and regulatory issues are addressed as lower cost renewables enter the market. It allows NRG to work with bilateral and multilateral development banks in higher risk markets, developing competitive financing frameworks that can be replicated in larger markets where diesel or heavy fuel oil sets the price of electricity.

The energy business case in the Caribbean is as clear as the crystalline water of its beaches. Through properly designed and structured projects, renewable sources of energy are available today at a lower cost per kilowatt-hour than electricity generated using conventional fuel sources. A lower cost of energy at an islandwide or regional level has the potential to dramatically improve the economic

competitiveness of the Caribbean.Necker Island is allowing us to demonstrate that a

cutting-edge, solar-wind-battery microgrid can deliver up to 75 percent of the island’s energy needs at a competitive cost, dramatically reducing the use of diesel fuel. To achieve this goal, NRG collaborated with leaders across the microgrid value chain, from experts brought in from Virgin and the Carbon War Room, to various supply partners — each committed to the shared vision of freeing island nations from a necessary reliance on imported fossil fuels.

To date, there have been few opportunities to develop renewables-led microgrids that are cost-effective and reliable. This has led to a steep technical learning curve, which has proven an inspiring challenge for the NRG team. And, as beautiful as the Caribbean may be, it’s a tough environment for energy equipment because of corrosion, salt spray, lots of warm sunshine and, of course, the occasional big storm. This requires the use of regionally suitable equipment and robust designs that can withstand tropical weather over time. We continue to uncover new solutions to this challenging environment.

Widespread use of renewable energy in the Caribbean will require national and regional dialogues on policy and regulatory frameworks. Only by removing the roadblocks that hamper the rapid deployment of renewable power, such as long-term transmission planning, third-party ownership and the problem of stranded assets, will the region be able to fully unlock the potential of its bountiful clean energy resources.

Edouard MacGuffie is NRG vice president of solar business development in the Caribbean region.

The energy business case in the Caribbean is as clear as the crystalline water of its beaches.

SOL A R G A INS MOMENTUM

36 ENERGYBIZ July/August 201436 ENERGYBIZ July/August 2014

WITH ABUNDANT SUNSHINE and spacious land, the desert Southwest is an ideal location to build large-

scale solar power plants. In Arizona specifically, we enjoy more than 300 sun-filled days each year. Add to that a summer season of temperatures over 110 degrees, and you’ve successfully described what is torturously called the Valley of the Sun, or the Phoenix metropolitan area.

At Arizona Public Service, we are taking advantage of the light and the heat of the sun to produce clean solar energy for our 1.2 million customers. By 2025, we anticipate Arizona’s energy need will be 50 percent higher than it is today.

Our energy portfolio totals more than 755 megawatts of solar energy — enough to power more than 185,000 Arizona homes. It includes solar power generated from customer-installed rooftop installations, power purchase agreements with third-party developers, and APS-owned solar power plants.

In 2010, our regulators approved a program that enabled APS to build up to 200 megawatts of photovoltaic power plants in Arizona. Aptly called AZ Sun, these facilities have been built in carefully selected locations across the state.

Thus far, 170 megawatts are online or under development, including seven facilities up and running and two more

Tapping Arizona SunshineA Diverse Portfolio is Key BY TAMMY MCLEOD



Tammy McLeod is APS vice president of energy resource management.

underway. APS financed and owns the projects, which are built through a competitive bidding process by third-party solar developers.

This program and these facilities have done more than simply provide solar energy to our customers; they have created more than 1,000 construction jobs for Arizonans. Although these constructions jobs are temporary, we made it a priority to ensure that the majority of the workers were hired locally. These workers are walking away from each site with valuable skills they can use elsewhere in the solar industry.

The largest generator of solar power on our system is a concentrating solar power plant. It is not only our greatest source of solar-generated power, but one of the largest of its kind in the world. The 250-megawatt Solana Generating Station was built by Abengoa Solar just outside of Gila Bend. APS purchases 100 percent of the power generated there, which is enough to serve 70,000 Arizona homes.

The true value of Solana to our energy portfolio is its thermal storage capability. Using massive tanks of molten salt, Solana stores the heat from the sun and continues to produce at full capacity up to six hours after the sun goes down,

providing solar power at night during the peak and adding a great deal of flexibility for APS.

Operating uniquely for a solar plant, Solana uses steam turbines similar to a nuclear or coal-powered plant. The difference is the source of heat used to produce steam. Parabolic mirrors capture the sun’s heat onto a heat transfer fluid. Reaching temperatures of 735 degrees,

some of the hot fluid is used to convert recycled water into steam for the two turbines. The rest goes to heat molten salt. By storing some of the thermal energy, Solana removes the variability of traditional solar.

Picture this: On a summer evening in the Valley, the sun is setting and the temperature is still over 100 degrees. Phoenicians, getting home from work, turn down the temperature on their air conditioners and turn on appliances to cook dinner. APS’s peak load spikes in the evening, when solar generation is quickly depleting.

We work closely with Abengoa Solar throughout the day, so they know we want Solana’s full production when our customers need it most. Solar power is the most valuable

for our customers when it helps us to meet peak demand. Today, Solana is the only solar power on our system with the capabilities to do so.

Arizona has a goal of 15 percent renewable generation by 2025. APS is well on track to meet this goal. In fact, in some areas, we are far exceeding it. We have nearly 30,000 customers with rooftop solar installations, we are adding more such customers daily. We have met compliance for residential distributed generation through 2017 and for nonresidential distributed generation through 2020.

Rooftop solar customers across the state are hosting power plants on their homes and businesses. And for those customers who choose not to have rooftop solar, yet who appreciate a renewable source of power, we are bringing solar to their homes generated by large-scale solar plants, helping to create a sustainable energy future for this state. Our customers want us to produce power from Arizona’s most abundant resource — the sun — and we are happy to oblige.

Our No. 1 priority has been the same since we first started powering Arizona in the late 1800s, and that is to provide reliable electricity to our customers. To do so, we must continue to look to the future and build a diverse mix of energy resources.

It’s what’s best for our company, our customers and for Arizona’s energy future.


Our customers want us to produce power from Arizona’s most abundant resource — the sun — and we are happy to oblige.


SOLAR’S TIME HAS COME, as has defining the role of the utility in the solar value chain. The Solar Electric

Power Association believes there is no one-size-fits-all approach, and that no utility should select a single approach as its solar silver bullet. Just as a utility seeks to achieve a diversified overall energy portfolio, it would also be wise to seek a diversified solar portfolio.

For investor-owned energy companies, the first and often easiest way to take advantage of the growing solar market is through the unregulated side of the business. Companies like Dominion, Duke, Edison, Exelon, PSEG and Southern are all examples of companies that are active participants in

building, owning or operating large-scale solar power plants. Many of these same companies are also making unregulated investments in distributed solar companies or assets.

Finding the right role on the regulated side of the business is a bigger challenge, both internally from a strategy perspective and when it comes to getting the necessary regulatory approvals. But a variety of options are emerging that are quickly gaining traction.

Historically, utilities have procured solar electricity primarily to fulfill renewable portfolio standard requirements. Today, in some parts of the country, utilities are choosing solar resources because they have become the least-cost option.

Consumers are increasingly interested in having greater choice related to their electricity supply. Utilities are examining how to offer their customers solar options so those customers don’t have to seek an alternative provider. The key is developing programs and products that result in not only a win for the individual customer, but also for the utility and all customers.

There are many ways a utility can facilitate customer solar choice, but the most significant trend is community solar. Community solar offers the option for customers to share in

Julia Hamm is president and chief executive officer of the Solar Electric Power Association.

a larger system and receive individual direct benefits through their utility. This type of program opens up solar as an option to all customers, regardless of whether they are physically or financially able to put solar on their own properties. Utilities benefit by keeping the customer, improving customer satisfaction, and leveraging economies of scale. We have done extensive work with our utility members around community solar, and numerous SEPA resources are available on this topic.

While there is certainly interest by some utilities in pursuing owning rooftop solar assets, many other utilities have hesitations about entering into this space. We see growing interest in an alternative approach: utility ownership of specific components of solar electric systems, in particular, the inverter.

Utilities are arguably ideally situated to leverage the promised capabilities of the smart inverter. The single most compelling reason is system reliability. Establishing the utility’s role with inverters will place the utility at the leading edge of distributed generation grid integration. Utility ownership of smart inverters can be a part of the larger grid modernization, paving the way for a more resilient and smarter grid that will benefit all stakeholders.

The utility of the future probably won’t use only one new business model, it will use several that will vary from location to location depending upon individual market needs, policy structures and locally relevant energy resources. Solar will grow in significance across all markets and as it does, so will the role of the utility in ensuring that the full value of solar is delivered to all customers.

The utility of the future probably won’t use only one new business model.


Expanding Utility Options and RolesBY JULIA HAMM

Delivering Options to the Solar Customer


exceeds 50 gigawatts. The UK, Irish and Scottish gov-ernments are highly aware of this, which explains their funding for research, development and implementation

of wave energy. The achievable technical resource and the commercially practical re-source will, of course, be significantly less than this and will be dependent upon the identification of technology and constraints upon development.

We know that full-scale systems are only now demonstrating their capability at sea. Machines have to face massive forces in winter storms, which requires design for resilience. They must also

maximize generation in modest conditions, which demands design for system sensitivity. The difficul-ties of achieving these apparently contradictory aims have occupied the minds and bank balances of device developers for decades. Only now, however, is full-scale experience becoming available from work at the European Marine Energy Center in Orkney in the United Kingdom and other test sites. Providing that

FOR THOSE OF US WHO were involved in wave power research in the 1970s and 1980s, it has

been a very long time to see dreams of energy from the seas becoming a reality. Even the new generation of entrepreneurs and re-searchers must occasionally feel that the dream remains tantalisingly over the horizon. However, very real progress has been made in the last 10 years. We have seen prototype wave and tidal current energy devices tested at full scale and the findings from these tests being used to revise system designs. We now have a much better appreciation of the chal-lenges that must be overcome before costs can be reduced to compare with onshore wind.

The prizes for those working to develop commer-cial marine energy are considerable. The theoretical offshore wave resource in Europe and the rest of the world is massive. In principle, for example, the aver-age rate of wave energy incidence on the west-facing coastal contours of the United Kingdom and Ireland

» TECHNOLOGY FRONTIER

WHEN WILL IT BE COMMERCIAL? // BY IAN G. BRYDEN

The Long-Term Promise of Ocean Power



development funding remains available, it is likely that the next stage of device demonstration will be small arrays of machines redesigned as a result of experi-ence. Once credible commercial machines have been demonstrated as reliable, then the usual laws applying to the economics of early-stage commercial develop-ment will apply and costs will come down as installed capacity increases — but how quickly and how far are interesting questions.

The tidal current resource is always going to be a niche opportunity in comparison with wave and wind. The resource itself is much smaller at a world level and is less widely distributed. Those areas where the resource is credible, such as the Pentland Firth in Scot-land, the Bay of Fundy in Canada and interisland straits in Southeast Asia, do possess very significant energy densities. Estimates of the resource in the Pentland Firth, for example, vary widely but there is increasing consensus around 2 gigawatts as an achievable aver-age power output from suitably optimized exploitation scenarios. The predictability of the output from such a development would increase its attractiveness to energy utilities.

In many ways, the experience of commercial tidal system development has overtaken that for wave energy. This is probably because of less challenging ratios between loading under operational and peak conditions. Also, it is obvious to even the most casual observer of the sector that many tidal machines look rather similar. This is a result of convergence as design-ers respond to the challenges of the resource and the environment. There are more opportunities, therefore,

for standardization in support infrastructure, including installation and maintenance technology. Developer ex-perience is likely to facilitate the move to pre-commer-cial arrays in shorter timescales than for wave and tidal current technology and may already be moving into the early stages of cost reduction as deployments increase.

In the decade ahead, providing development funds remain available, we will soon see tidal arrays being de-ployed, with the smart money being on the Inner Sound of the Pentland Firth as part of what is known as the Mey-Gen project. True commercial development will depend upon prospective public and private investors being convinced that the technology has really moved into serious cost reduc-tions associated with increased deployment. There is no reason why this cannot happen but, of course, it is dependent upon the skill of engineers and the patience of investors.

Progress with wave devel-opment, which offers a vastly greater ultimate prize at an international level, will depend upon continual progress in solving the reliability and survivability of technology. There is no reason why this cannot be achieved; however, the timescales will be longer than for tidal. In many ways success in an embryonic tidal sector will be crucial to the develop-ment of wave energy. If tidal devices can be shown to offer commercial opportunities, then this will go some way toward alleviating concerns about wave technol-ogy. The greater potential for wave energy might then overcome temptations to stick with the more immedi-ately available tidal technology.

Ian G. Bryden is a professor and vice principal of research at the University of the Highlands and Islands in Scotland and non-executive director of the European Marine Energy Center.

INDY EV CARS

A French company said it plans to offer Indianapolis residents a chance to rent electric vehicles for short trips, according to the Associated Press.

Bollore Group said it plans to initially deploy 25 charging stations for its network of 125 cars.

The company has 2,000 EVs available for rent in Paris and its suburbs.

Gatherings// Technology Frontier

Aug. 1 Hydraulic Fracturing Basics Brisbane, Australia

Aug. 26–28

Advances in Wind Turbine Towers

Bremen, Germany



Tapping Alaska’s WavesTHE FIRST ON GRID? // BY BILL STABY

BECAUSE ALASKA’S RURAL communities are an exporter of energy primarily in the form of oil, it’s

paradoxical that they have been suffering from extremely high energy costs that have had a profoundly negative effect on their social and economic fabric. These rural communi-ties — about 280 of them, scattered across the state — are typically inacces-sible by road and, thus, they import goods and services either by boat or plane, including diesel fuel for generat-ing electricity.

Barges carry the fuel from its origin in the lower 48 states, usually Washington state, and by the time it arrives, it costs between $5 and $10 per gallon. That translates into 50 cents to $1 per kilowatt-hour of electricity. Compare this with the U.S. national

average cost of 12.2 cents per kilowatt-hour, and the magnitude of the problem becomes abundantly clear.

The small town of Yakutat, Alaska, decided to take an active role in finding a solution to its energy problems and, start-ing in mid-decade, it began researching a variety of renewable energy generation alternatives including biomass, wind and solar. It also began an aggressive energy efficiency campaign. In 2009, Yakutat contributed resources to Department of Energy-funded research conducted by the

Electric Power Research Institute to produce a study that estimates the total energy available from hydro-kinetic resources — waves, tides, currents and rivers — of the United States. Yakutat’s contribution to the study meant that the Electric Power Research Insti-tute team could focus on the hydrokinetic resources


Cannon Beach, Alaska, where wave energy converters will be deployed. Photos courtesy of Resolute Marine Energy


of the town. EPRI produced a detailed report that is publicly available.

A 2011 meeting with the general manager of Ya-kutat Power, Scott Newlun, at the 2011 Alaska Rural Energy Conference started a chain of events that led to Resolute Marine Energy taking steps leading toward harnessing hydrokinetic resources at Yukatat.

RME’s proposed Yakutat Alaska Wave Energy Project will be located underwater on state-owned submerged land within Yakutat near the shore of Cannon Beach. On Jan. 1, 2013, the Federal Energy Regulatory Commission issued a preliminary permit to RME to investigate a portion of near-shore waters along 8 miles of Cannon Beach and extending 3 miles seaward from the mean high-water mark. RME’s objective is to identify an area within the zone that achieves the best balance among several factors, including maximum exposure to wave energy and minimal environmental and social impact. The area the permit covers is suitable for wave energy converter deployment because of known water depths and its proximity to existing

onshore electrical infrastructure. The area is large enough to provide satisfactory flexibility in determining final siting for the project.

Several tasks lie ahead of RME as it prepares to submit a license appli-cation to FERC before the prelimi-nary permit expires on Jan. 1, 2016.

RME has to prepare detailed site characterization studies of the proposed project site. These include a year-long wave resource assess-ment study conducted with Univer-sity of Alaska Fairbanks and Alaska Energy Authority assistance, and a geotechnical analysis conducted

with assistance from Virginia Tech. Another char-acterization study involves a series of bathymetric surveys to identify seabed dynamics and potential hazards. This study is being conducted with assis-tance from Yakutat, the Alaska Division of Geological and Geophysical Surveys, and Benthic Geoscience. Based on study results, RME will determine the technical feasibility and economic viability of the proj-ect. The wave energy converter project is expected to add as much as 650 kilowatts of generating capacity, which in turn will enable the periodic shut-down of all four of Yakutat’s four Caterpillar diesel generators and put a serious dent in the community’s

$2.5 million annual fuel budget.Based on interactions with various state and

federal regulatory agencies, including the National Oceanic and Atmospheric Administration, the U.S. Fish and Wildlife Service, the U.S. Forest Service and the Alaska Department of Fish and Game, RME will assess the potential ecological, social and economic effects of the project. The principal study, already underway, involves deploying a series of passive acoustic listening devices to detect the presence of marine animals before and after the deployment of the wave energy converters.

RME has to communicate with project stakehold-ers, which include the local tribe, commercial and recreational fishers, surfers and others with an interest in the project and who may be affected by it. The com-pany has to continue testing and design evolution and certification activities pertaining to its wave energy converter technology. It has to develop the project’s final design and operating plan, obtain necessary third-party certifications, financing and insurance, and deploy, commission and monitor wave energy convert-ers to complete the project.

If all goes according to plan, RME will be prepared to start deploying its wave energy converters in the third quarter of 2015, which may earn the project the distinction of being the first grid-connected wave energy project in the United States.

Bill Staby is chief executive officer of Resolute Marine Energy.


The Resolute Marine Energy wave energy converter at a North Carolina test facility.

TECH LOANS

The Department of Energy wants to use loan guarantees to support $4 billion in new investment in renewables and efficiency, according to the Austin American-Statesman.

While these efforts have drawn criticism in the past, some government officials say they are meant to support risky efforts.


THERE IS A ROOFTOP REVOLUTION underway. The high growth numbers for solar over the

past few years remind us that the trajectory of the solar industry is the same as the placement of the sun at noon — up. In the decades to come, trillions will be invested and made in solar as we transition to an economy run on renewables. My mission — and the mission of Sfun-Cube, the company I founded with Sungevity founder, Danny Kennedy — is to help solar entrepreneurs suc-ceed and to position them as the leaders of this transition.

The “Sfun” in SfunCube is an acronym: Solar For Universal Need. There is a universal need for solar, and entrepreneurs can fulfill that need by innovating where the industry needs it most — in reducing the soft costs of solar. The price of solar hardware has crashed. The price of a panel has dropped 80 percent in the last five years. The cost of hardware is no longer the limiting factor in the world going solar. The limiting factor is how customers are acquired, how solar systems are designed and deployed, and how these steps are financed. That’s where the SfunCube saves the day.

SfunCube is the world’s only incubator and ac-celerator dedicated exclusively to supporting solar entrepreneurs that are making solar better, faster and cheaper. To date, there are a dozen startups in Sfun-Cube that are building software platforms, financing models, and using analytics to make solar the most abundant and affordable energy resource in the world. These dozen startups are employing over 50 people who work out of SfunCube on a daily basis along with another 100 who are spread out around the country and the world.

To name just three of the solar startups in SfunCube, BrightCurrent is the largest solar field marketing service provider in the United States. BrightCurrent combines proprietary technology with a highly scalable operations platform to acquire

residential customers well below market rates. WattUp is developing alternative financing vehicles for residential solar systems, geared towards those with subprime credit scores, with the belief that solar should be available to responsible customers who could benefit from energy savings the most.

Powerhive is a technology platform that enables the financing and monetization of distributed microgrids via prepaid electric-ity from their mobile phones, efficiently and effectively bringing electricity to power-short markets.

Located in Oakland, California, SfunCube is quickly becoming an epicen-ter of solar innovation in the heart of the Bay Area. SfunCube has 14,000 square feet of LEED-certified office space, a collaborative

network of some of the most well-known solar startups in the country, and a black book of mentors, investors and corporate partners that are eager to help solar entrepreneurs succeed. SfunCube is an invitation-only community for the best and brightest solar entrepre-neurs in the country. With our recent expansion into a new office in uptown Oakland, SfunCube is looking for new startups to join the rooftop revolution.

In our lifetime, solar will become the most abun-dant and affordable energy source in the world. Our job at SfunCube is to make sure the entrepreneurs who are developing innovative business models to achieve this goal have the financial, technical and personal backing they need to lead the way.

The entrepreneurs in SfunCube are changing the way we produce and consume energy, lighting the way for solar solutions to power the world with sun-shine, one innovative business model at a time.

If you know a solar entrepreneur seeking a stimu-lating, innovative and collaborative place to achieve audacious solar goals, send them our way. We have a rooftop revolution to win, and you’re invited to join the ranks.

Emily Kirsch is co-founder and CEO of SfunCube — Solar For Universal Need, based in Oakland, California.

Brought to You by EntrepreneursTHE SOLAR ROOFTOP REVOLUTION // BY EMILY KIRSCH


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» INTRODUCING

Fresh Insights from VermontGreen Mountain Power Scrambles to Stay Nimble

A CONVERSATION WITH MARY POWELL // BY MARTIN ROSENBERG

MARY POWELL BELIEVES small utilities such as Green Mountain Power are on the leading edge of change and are poised to transform the centu-

ry-old utility business world. And she believes her team has put in place the correct culture to change along with the utility’s customers.

Powell belongs to a small but growing cadre of female CEOs making their mark on the utility world – from New England to Southern California. She recently took time at an industry event in Boston to talk to EnergyBiz. Her comments, edited for style and length, follow.

ENERGYBIZ You started out working in the mutual

fund industry?

POWELL Yes. I started at The Reserve Fund in New York City. I fell into it after college because I had no idea what I wanted to do.

ENERGYBIZ Where did you go to college?

POWELL I went to Keene State College in New Hampshire. I grew up in a theatrical family and went to a specialized high school for the performing arts. I was an artist. After college, I was trying to decide what to

Photo courtesy of Green Mountain Power


» INTRODUCING

from a tad bit more sluggish, analytical culture to one that is very nimble. Our credo is “fast, fun and effec-tive” for customers.

ENERGYBIZ How do you do it?

POWELL It takes a long time. You are never there. It’s an important journey to get on.

ENERGYBIZ What disruptive changes are ahead?

POWELL It’s really about distributed generation. It’s going to be one of those changes that comes from the rural areas first and then moves into more urban areas.

ENERGYBIZ You think you are on the front line?

POWELL Yes, I do. You will see a lot more of this is in the more rural parts of the United States or in communities outside of densely populated areas where the infrastructure is a little bit more acces-sible. What you are seeing is customers engaging more deeply with their own generation. Solar is proving to be one of the leading disruptive forces. But I believe it’s just like any other major consumer shift we’ve seen in our society in the past. It starts with that. But that creates a flywheel of investment in other types of innovations around distributed generation. Customers and businesses are gener-ating their own power for their homes and enter-prises. We really see that happening. It presents a tremendous opportunity to engage more deeply with our customers.

ENERGYBIZ What is the status of solar power in Vermont?

POWELL It is still less than 4 percent of genera-tion. But in Vermont, we are passing a law that will allow that to go up to 15 percent. The rate of adop-tion that we are seeing and the projects we see in the pipeline indicate to us that the transformation is probably going to happen quicker than we might have anticipated. We’ve done utility-scale solar for some time. We were one of the first utilities in the country. Actually, we jumped ahead of policy. We got our regulators to approve it. Back in 2008, we came up with a solar rate to incent our custom-ers to go solar. So we have more rooftop solar, on a percentage basis, than a lot of other utilities. It helped with our summer peak load when, in the past, we were buying the most costly, dirtiest forms of energy.

ENERGYBIZ Power sales are off across the industry.

do and applied at this company. It ended up being a great transformative experience. They were the pio-neers of the money market industry. The Reserve Fund was America’s first money market fund. We grew from $200 million to $3.5 billion in the seven and a half years I was there. I started as a technical writer and ul-timately became the associate director of operations.

ENERGYBIZ Green Mountain Power is probably one of

the smaller investor-owned utilities.

POWELL Absolutely. I think we are the second-smallest. We used to laugh about our size because we just pulled off a significant merger in Vermont. In Vermont, we are seen as really large because we serve 75 percent of the state. But in terms of the national scene, we are the second to the smallest.

ENERGYBIZ How has your company evolved in

recent years?

POWELL We were publicly held for a number of years, which was inefficient because of our tiny size. We negotiated a deal in 2006 to be acquired by Gaz Metro in Montreal. It is a regulated gas distribution utility. Then we led the charge in acquiring Central Vermont Public Service and merging it with Green Mountain Power. Green Mountain went from serving about 96,000 households and businesses to about 260,000. For Vermont, that is really big. But I love our size. It increases the odds that we are going to be able to stay nimble and innovative and move in some really interesting directions that are just really hard when you are huge.

ENERGYBIZ Do you want to tell our readers about

Cow Power?

POWELL Cow Power is not that large. It has been around a long time. The challenge with Cow Power is if you don’t have certain number of cows it’s very hard to make it work. We are playing around with some newer technology that actually could process food waste and cow manure and could be scaled to a much smaller size.

ENERGYBIZ Do you own the digester?

POWELL No, the farmers do. We work with them. One of the innovations we are looking at is offering farmers the option where we own it for them.

ENERGYBIZ How do you view innovation?

POWELL We are fast implementers. Early on, we radically transformed our culture. We moved away


» INTRODUCING

POWELL We are mostly seeing what we would say is flat or very modest growth.

ENERGYBIZ How do you profit in that environment?

POWELL The reality is that we are not in the busi-ness of trying to convince you to purchase more electricity. That’s not our business model. That’s not our financial model. Our investors take a long view of the space that we are in. They largely earn a return off of capital investments that we make on behalf of our customers. The shift is how do you create meaningful investments that you can make for your customers in the future that are aligned with where they want to go? You figure out ways to provide them value, for which, of course, there needs to be some revenue stream back. That is the long-term recipe for success. Change is always uneven. It’s always sloppy. No one can ever pre-dict it. As sure as we are sitting here, we are not going to predict it right. There will be things that will catch an edge. The most important thing is to take time to more deeply understand the shifts that are happening in your geography, in your culture, in your customer base. Lean into where you see your customer base going.

ENERGYBIZ What about climate change?

POWELL During my tenure as CEO, we have spent more money and have had more horrific storms than in the previous 20 years combined. When you look at the grid, especially in rural parts of the country, it’s really twigs and string. It’s been that way for 100 years. It doesn’t matter how resilient you try to make the twigs and string. At the end of the day, it still is a model that is less resilient than one that is more community-based, closer to home. Customers want more independent control and interaction. That is how we get to a more resilient future.

ENERGYBIZ How are you innovating around that?

POWELL Recently, we worked with a family in a working-class neighborhood. We completely weather-ized their house, made their house efficient, moved to air source heat pump technology and also used smart device technology allowing them to control their home from their iPhone. They are taking out a loan through utility on-bill financing. What we think it’s go-ing to show is great reduction in all of their costs while reducing their carbon profile.

ENERGYBIZ Their power bills will go down?

POWELL Right.

ENERGYBIZ What else do you see happening to the

industry? Do you think many utilities are going to fail

in 10 years?

POWELL Yes, I do.

ENERGYBIZ Why?

POWELL They are resistant to change. They are fighting it instead of embracing it. You can’t be intellectually sloppy about embracing change, and our view is you must embrace it. I went from a mutual fund to banking when everyone was saying banks are dinosaurs. A lot of them died. There was seismic change. We’ve got to figure out where our customers want to go. Where are these disrupters going? How can we create meaningful partner-ships so that we add value to our customers 10 years from now? You will probably see more con-solidation. You will probably see some really interesting and innovative changes.

ENERGYBIZ Will Green Mountain Power survive?

POWELL My goal isn’t so much about us being one of a handful of surviving utilities. What will probably happen is our regulation will flex. Our business model will flex. You do that through really cool partnerships with the disrupters. We don’t want to force anything. We want to be one of the options customers consider so that two years from now you could call us up and we would, for example, help get your electric vehicle set up in your house and help you install your solar units. That brings revenue back into the regulated enterprise that helps offset reduced revenue from electricity sales.

ENERGYBIZ Whoever said companies shouldn’t change —

POWELL We are still a huge part of major infrastruc-ture. Those things don’t go away or change overnight. The intellectual fun of it is 10 years from now we will probably still have 32 hydro units. We’ll probably still have two wind farms or more. We will have all these other things we do while we are doing this new stuff. That’s the really cool part to me.

The reality is that we are not in the business of trying to convince you to purchase more electricity.


Getting LocalHOW PUBLIC POWER IS UNIQUELY POSITIONED // BY SUE KELLY

ALTHOUGH SOME MAY THINK of public power as a relic of the New Deal, in fact, it has much to

offer the next generation of customers.As more millennials become the spenders and

decision-makers, they are drawn to all things locally grown and locally owned. This creates tremendous opportuni-ties for public power — after all, we are community-owned, not-for-profit utili-ties. We have the most diverse array of cost-effective power sources – coal, natural gas, nuclear and renewables, including hydro – to offer our custom-ers. Yet we are confronted by some of the greatest challenges and limitations we’ve ever encountered. Three in particular are keep-ing me up at night right now.

An immediate challenge is Environmental Protection Agency regulation of greenhouse gas emissions from new and existing power plants under the Clean Air Act. The American Public Power Association supports reasonable standards to curb greenhouse gas emis-sions, but we believe that this is best accomplished by legislation, not regulations that effectively ban new coal plants by requiring the use of carbon capture and sequestration technology that is not yet commercially

demonstrated or available. EPA’s September 2013 proposed greenhouse

gas rule for new power plants also relies heavily on an abundant and affordable natural gas supply. But

recent natural gas price and supply volatility issues, in particular our experiences this past winter with the effects of the polar vortex, give many in our industry pause. EPA is also expected to move forward on its greenhouse gas rulemaking for existing plants. We will advocate for reasonable regulations that allow existing fossil-fired generation units to serve out their remain-ing useful lives and for allowing the states maximum flexibility to attain required green-

house gas reductions. Sticking customers with hefty bill increases caused by wholesale replacement of genera-tion sources could well provoke a backlash that would serve no one well.

Grid security is another major concern. Along with protecting the grid from physical phenomena, the electric industry continues to address the evolving chal-lenges presented by cyberthreats. It is unfortunate that some recent one-sided media reports have overlooked the substantial efforts industry and government have undertaken to counter grid security threats. Notably, the

» LEGAL ARENA


» LEGAL ARENA

electric industry is virtually the only critical infrastructure sector that is subject to mandatory federal cyberse-curity standards. And soon, we will have mandatory standards for physical security.

So far, these standards, coupled with additional best practices and management processes, have prevented a cyberattack from causing serious operational con-sequences for the bulk electric system. But that does not mean it cannot happen. Grid security is an iterative process that requires close collaboration. It is, and must be, a shared responsibility between industry and government. The electric industry continues to partner with government and regulatory bodies at all levels to identify and protect critical electric utility infrastructure.

Last but not least, if properly implemented, distribut-ed generation presents a growing opportunity for public power utilities to serve their customers. Combined with new technology and strong consumer interest, substan-tial federal and state tax and ratemaking subsidies have

COMING OUT OF the 2000–2001 energy crisis, California radically changed its energy

procurement policies to ensure reliability as it formed the so-called “hybrid market” that combined elements of regulated utility services with competitive markets. More than a decade later, the nationwide focus is shifting toward resiliency. In response to recent problems caused by extreme weather, states such as Connecticut, New Jersey and New York

are increasingly interested in driving certain resources further down into the distribution system. They want to harden their grids in response to emergencies such as Superstorm Sandy. Having sufficient resources, both at the utility and the local level, is becoming increasingly important to man-

Sue Kelly is president and chief executive of the American Public Power Association.

accelerated the proliferation of distributed generation. This fast growth has major ramifications for utility op-

erations, revenue recovery, retail customer relationships and resource portfolios. Though many of these issues will play out on the state and local level, the American Public Power Association will work with our members to assist them with the many issues these new tech-nologies raise at both the retail and wholesale level.

I am confident that public power utilities across the country will rise to these challenges. Our busi-ness model allows us to focus on our core mission of serving our communities with reliable, affordable and environmentally responsible power supplies and energy services. The times and the challenges may change, but our not-for-profit, community-owned business model will serve us well with a new genera-tion of customers.

Microgrids – A Regulatory PerspectiveA SHIFT TO RESILIENCE // BY MICHAEL R. PEEVEY


» LEGAL ARENA

age the variety of challenges facing today’s electric utilities.

Microgrids fundamentally rely on integrated control systems to coordinate distributed generation including intermittent renewables, with storage units, demand re-sponse operations or both. These resources are known collectively as distributed energy resources. Management of these resources as a microgrid allows for a single

connection point with the distribution system. The reliability and resilience of the grid is dealt with by location; the needs are determined by the individual customer sites such as hospitals, police, fire, water, wastewater and emergency facilities. When the customer or microgrid operator manages itself ac-cording to its needs, and then acts as an aggregated single entity to the distribution system operator, it allows for a number of innovations and custom op-erations. The interconnect point only needs to know whether power needs to be sent into the microgrid or whether power is flowing out.

Microgrids are able to overcome the problems of grid-scale integration by utilizing distributed energy resources as a local portfolio that can be managed at a distribution level, based on local conditions. Further, operation of the distribution system at the local level (customer or load level) is simplified and improved by

Michael R. Peevey is president of the California Public Utilities Commission.

the integration of microgrids into the electricity grid. One possible model for achieving this capability calls for viewing the distribution utility as though it were a system operator acting in much the same way as a transmission operator would. The distribution system operator would manage the distribution grid.

California utilities are also researching ways to increase resiliency of our electric grid. An example of this type of microgrid is located in San Diego Gas & Electric’s service territory in Borrego Springs, a desert community to the east of San Diego. Borrego Springs is situated in the middle of a state park, surrounded by mountains, and at the end of a 69-kilovolt transmis-sion line. The geography and topology of the town and its tendency to have flash floods during monsoon season often results in the loss of electricity service for minutes, if not hours, at a time. On Sept. 6, a large storm and subsequent flood cut off electricity and washed away several utility poles, making restoration of electricity to the town difficult. Fortunately for the residents, SDG&E had installed several batteries and generators in the town and was able to bring power back on to portions of the town throughout the night. The community was, in effect, islanded, or disconnect-ed from the utility’s transmission system that normally serves the area. In essence, SDG&E’s resources acted as a microgrid since these resources were not connected with the transmission system, but were managed and operated locally. Since then, SDG&E has continued to invest and test other technologies that can be paired with locally sited renewable gen-eration to increase the amount of electricity that can be generated and delivered and to allow batteries to be charged on solar power as opposed to using the on-site diesel generators.

Many businesses and large customers are see-ing the potential benefits of investing in their own technologies to ensure their own level of reliability, and also to better manage their own usage. The interaction between the customer-side efforts and the electric grid is still in its infancy, but managing the grid remains the responsibility of the utility. How these technologies, architectures, and services interact and interconnect within a microgrid and with the larger grid raises many questions regarding the future role of the utility. A paper written by staff from the California Public Utilities Commission and pub-lished on April 15 attempts to outline and address many of these questions.

DAKOTA POWER LINE

Some farmers are objecting to a planned $370 million, 170-mile transmission line linking North and South Dakota, according to the Associated Press.


» LEGAL ARENA

OVER THE NEXT 15 YEARS, New York expects to spend more than $30 billion replacing old

infrastructure with new and more resilient infrastructure. As the state energy regulator, the New York State Public Service Commission has a goal to ensure that this enormous investment of precious ratepayer dollars provides consumer value.

Given the enormity of what lies before us, we have already taken a first big step. Our newest initiative, known as Reforming the Energy Vision, will funda-mentally restructure the regulatory paradigm in New York State. It will do so by addressing the need for investment in infrastructure and by promoting system efficiency, reliability and resiliency, while also provid-ing affordable, cleaner energy to customers. Given its monumental importance, REV is on a fast track.

REV calls for a comprehensive review of the roles of distribution utility, regulatory and transaction models. As part of these changes, REV will ensure new utility busi-ness models drive innovation for the benefit of consum-ers by integrating distributed energy resources into the grid and providing the resources’ full economic value and benefits to the grid.

The goal of REV is to create a much more dynamic demand market. For that to happen, we must work with the Federal Energy Regulatory Commission and other stakeholders to modify wholesale market rules so that they align with state retail policies. Just as moving from a one-way electric distribution system to a two-way smart grid system required cooperation and partnership, jurisdictional comity also needs to work both ways.

Over the last 100 or so years, electric regulation and markets have evolved to meet changes in customer demand and technology. Where we once considered electric utilities as vertically integrated natural monopo-lies that largely operated in isolation to meet their local customer demands, we now know that where there is sufficient supply, competitive wholesale markets pro-mote bulk-power efficiency to a much greater degree than traditional cost of service regulation.

A recent industry study showed that consumers in

states with electricity competition gener-ally pay less than they did 17 years ago. It is clear that the wholesale market has proven adept at efficiently utilizing existing resources, but it has not been so swift at addressing demands for new resources.

The regulation of the wholesale market bulk power system is reflective of the Fed-eral Power Act and FERC’s obligation to ensure that the wholesale electric market ensures reliability and results in energy prices at just and reasonable rates. FERC does not have siting approval of transmis-sion or generation resources, nor does it have authority over resource fuel types; such authority rests with the states. Mechanisms need to be developed that incorporate state responsibilities into market incentives that are complementary to what FERC has accomplished.

The bifurcated federal and state regulatory author-ity did not create many challenges in the early years of the wholesale markets because generation and

Spend WiselyREGULATORS’ ROLE OVERSEEING ASSET INVESTMENTS // BY AUDREY ZIBELMAN

WASTE STORAGE

Some Michigan legislators seek legislation to block plans by a Canadian utility to store radioactive waste within a mile of Lake Huron, according to the Detroit Free Press.

The legislation is considered symbolic. Its backers seek the support of the Obama administration and members of Congress.


Audrey Zibelman is chair of the New York State Public Service Commission.

transmission supply was more than sufficient to meet customer reliability needs. However, this fracture now presents significant challenges to both state and federal regulators in circumstances where supply and delivery systems are becoming scarcer.

The challenge of ascertaining what particular player in the value chain is best positioned to make an invest-ment, when the market itself does not produce it, is a particular challenge. FERC needs state policies and actions to provide the demand and opportunity for infra-structure investment that make the retail and wholesale competitive markets successful. In these situations, states and FERC must identify the limitations of the markets and their jurisdictional boundaries and make necessary corrections to ensure continued consumer benefit and policymaker confidence in both wholesale and retail markets.

In New York, business as usual is no longer a pos-sibility. We must move swiftly to a system that fully ac-commodates distributed and central station resources to promote market-based, systemwide efficiency. The new system must drive innovation to enhance con-

sumer value in the goods and services that ensure energy affordability, reliability, resiliency, flexibility and reduced carbon emissions. That’s why we need FERC to partner with us to ensure the wholesale mar-kets provide full value for demand management and to adjust for the changing roles of distribution utilities in the market structure.

Gatherings// Legal Arena

Sept. 8 Energy Marketing Conference – Renewable Energy for Retailers

New York

Sept. 9–10

PV Project Development Africa

Johannesburg



AS BUZZWORDS like “green jobs,” “green power,” “sustainability” and “net zero” have

become more commonplace, so too have concerns about greenwashing and companies living up to their goals and commitments. Fortunately, I can say I am on the front lines, watching change happen daily from one of the greenest jobs possible as an

energy management engineer. In this role, I help companies, property managers, small businesses and any other kind of commercial, multifamily or industrial facility manage their energy use. This is typically done through some kind of capital invest-ment in energy efficiency, which, in my opinion, is the cleanest energy resource.

Pioneering Efficiency THE CLEANEST FORM OF ENERGY IS THAT WHICH ISN’T USED // BY GUS TAKALA

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The work I do is not for a mechanical contractor, ESCO, electrical contractor or commissioning firm, but for a utility, Puget Sound Energy. PSE’s track re-cord as a leader in delivering diverse energy efficiency programs is well documented with novel approaches like the resource conservation manager program, the large power user self-directed program, the multifam-

ily retrofit program and the new construction program. Although PSE is now required by law to offer an energy efficiency portfolio, I would argue that PSE and all utilities need to offer energy efficiency products and services to their customers. If not, they put themselves at risk of becom-ing irrelevant.

Utilities need to start thinking of themselves as en-ergy services companies that handle all things energy related and not just as providers of energy. Custom-ers are becoming more aware of their energy options, especially with the rise of renewables, and they have their own goals to be more green and environmentally conscious. This is especially true for commercial and industrial customers that are feeling the pressure from their own customers to be more sustainable and good stewards of the environment. As such, a utility should not fight against energy efficiency efforts. This is one of the best customer services a utility can offer.

Unfortunately, some utilities make the mistake of contracting out all of their energy efficiency programs to third-party vendors. Although this can be great for some applications, a utility needs to possess the technical knowledge not just on the utility side of the meter, but also on how energy is used on the custom-er side. Customers need help managing their energy use and if the utility does not have this skill, someone else will fill the gap and put another layer between the utility and its customers.

That said, helping customers manage their energy use would not be successful without the help of trade allies. But the relationship should look more like a part-nership than a game of telephone with the trade ally relaying messages back and forth. From my perspec-tive, utilities are in a great position to be an unbiased advocate for the customers and make sure their customers get the most out of their energy efficiency

investments while maximizing all of the energy flowing through the meters. Customers rarely have a choice for their energy provider, but they can choose the right contractor to fit their needs.

Utility customers are making the connection that the greenest energy is the energy they do not use. They want to invest in energy efficiency and reap its rewards. They are asking — and in some cases demanding — that their energy providers provide assistance. PSE’s customers have demanded this for more than 20 years, and the company is respond-ing by figuring out new and innovative ways to help them manage their energy use. This requires moving beyond just capital investments and venturing into ter-ritories like behavior and operation and maintenance programs not featured by most utility energy efficiency programs. Although some may say the regulatory en-vironment won’t allow it, I would counter that a strong in-house energy efficiency department is a necessary customer service. Without it, the regulatory environ-ment may not matter if the utility is simply a battery the customer uses when the sun goes behind a cloud or the wind does not blow.

Gus Takala is a senior energy management engineer with Puget Sound Energy. He recently was named one of “4 Under Forty” young clean energy leaders by the NW Energy Coalition.

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