New Business Opportunities for Utility Distribution Companies in an Expanded Role as a Distribution Platform Optimizer
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The document discusses how six powerful forces are creating unprecedented stresses on legacy energy distribution models. These include changing consumer behaviors, greater complexity, demand evolution, grid risks, evolving regulations, and expanding competition. As a result, close to half of utility leaders recognize the current distribution model must change. Utilities have four choices for a new model - smart grid operator, decoupled integrated utility, platform access provider, and distribution platform optimizer. The distribution platform optimizer combines revenue decoupling and platform access and provides the optimal outcome for the system as a whole by managing all elements end-to-end. For a utility to transform into a distribution platform optimizer, it must first become fully digital from end-to-end with a new strategy, capabilities
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New Business Opportunities for Utility Distribution Companies in an Expanded Role as a Distribution Platform Optimizer
- 1. Digitally Enabled Grid New business opportunities for utility distribution companies in an expanded role as a distribution platform optimizer
- 2. Copyright © 2016 Accenture All rights reserved. 2 Six powerful forces are creating unprecedented stresses on today’s legacy energy distribution model With each fueled and accelerated by the migration to digital and each opening up widening fault-lines that demand radical action Consumer behaviors and expectations are changing Greater complexity driving execution risk Demand evolution is destabilizing the cost-revenue distribution model Grid-related technical risks are a struggle Targets and constraints from regulators continue to evolve Competition from all sides is expanding
- 3. Copyright © 2016 Accenture All rights reserved. 3 As a result, close to half of utilities industry leaders globally now recognize that the current distribution model must change A figure that rises to almost two-thirds in Europe
- 4. Copyright © 2016 Accenture All rights reserved. 4 Platform access provider Distribution platform optimizer Smart grid operator In choosing a new model, distribution utilities have four choices, each of which brings its own opportunities to sell value-adding services Decoupled integrated utility
- 5. Copyright © 2016 Accenture All rights reserved. 5 But until the regulatory model changes, the opportunities for new services and value delivery will remain relatively limited The first is deploying smart technologies within the existing regulatory model – smart grid operator
- 6. Copyright © 2016 Accenture All rights reserved. 6 The decoupled integrated utility is now incentivized to implement cost control solutions that would have reduced revenues in the traditional model Seizing opportunities in areas like demand response and peak load management
- 7. Copyright © 2016 Accenture All rights reserved. 7 Opening up opportunities to offer network optimization services that support grid operations in real time The platform access provider can operate new markets open to all network users
- 8. Copyright © 2016 Accenture All rights reserved. 8 The distribution platform optimizer combines the benefits of revenue decoupling and platform access provision And provides clarity on which of the major beyond-the-meter opportunities are within scope for distribution businesses
- 9. Copyright © 2016 Accenture All rights reserved. 9 The distribution platform optimizer is the model that Accenture believes will come to dominate over time Involving managing and coordinating all elements end-to-end, to provide the optimal outcome for the system as a whole Opening up all the service opportunities available to the other three models, and founded on a clear market model that creates a framework for commercial decisions on asset operations
- 10. Copyright © 2016 Accenture All rights reserved. 10 An electric distribution utility looking to transform into a DPO must first become truly digital from end-to-end With a new strategy, new capabilities, working practices and customer relationships
Editor's Notes
- Most distribution businesses are experiencing profound strains on the traditional business model So, as strains in the current model increase, what fault lines are starting to emerge that require action?
- What aspects of the current distribution model are not fit for purpose for your business? – overall role and remit of the distribution business, the revenue model, financing mechanisms, incentives structures etc…. In the 2016 Accenture survey close to half of executive respondents indicated that the current distribution model is no longer fit for purpose. Some regions, such as Europe have higher levels of concern with the current model – 64%. This is a huge finding and is an early indicator from utility executives that they need to make transformative changes in their distribution business models in order to maintain relevance.
- So, given the change drivers and outlook we’ve described, what does Accenture believe the successful distribution business of the future will look like? We envision the emergence of a range of potential models, including: • The decoupled integrated utility – removing volume bias and the disincentive to optimize. • The smart grid operator – leveraging new technology in the existing management paradigm. • The platform access provider – providing equal access to the network to Independent players. • The distribution platform optimizer – managing and coordinating all elements end-to-end, to provide the optimal outcome for the overall system. We have seen many utilities begin to make these transformations incrementally, but few examples exist today of utilities that have fully transitioned from their prior model to one of these outcomes.
- What is the potential of demand response for the distribution business? Can demand response provide a valuable tool in managing peak demand? Do you have reliable control systems and processes so that demand response can be used optimally? What market mechanisms do you require to deploy demand response for distribution? – what are the regulatory implications? What is the most effective market mechanism for sourcing demand response actions? Have you defined your plays in demand response and beyond the meter? (Segue from previous slide) – utilising customer demand flexibility provides a largely untapped opportunity to optimise the distribution network Accenture believes that demand-response tools will become a key tool for electricity distributors to manage peak load and maintain reliability While these tools haven’t been widely used in distribution in the past, or have been used to manage demand at an aggregate supply balance level, this now needs to change to enable much more granular sub-circuit level demand response to reduce network constraints and reduce the need for network reinforcement costs. Accenture modelling indicates that demand response solutions could provide meaningful changes to peak demand through programs that incentivise action on very few hours per month The practicality of this approach is supported by experience of demand response programs for generation and transmission which typically deliver an average response of about 5% from time of use programs and about 15% from critical peak pricing programs. However, the challenge for distribution companies is that distribution-optimised demand response needs to be much more tightly directed than existing programs Distribution companies need to add a high degree of location awareness to ensure that demand response is effective in supporting the optimization of the network For examples: Identifying circuits and assets at risk from exceeding tolerances from excessive demand Encouragement in selected areas to incentivise additional demand to soak up spilled electricity from PV systems The use of demand response to support the management the distribution network is part of a broader trend away from adding traditional assets and towards more effective use of existing flexibility of assets, generators and consumers. This must be founded on a regulatory model that emphasises performance over capital allied to the sophisticated understanding of the grid’s operations and control that comes from deployment of a digitally enabled grid
- As the regulatory model evolves, which components would you expect to be incentivised through regulated structures and which might move towards competitive models? For services moving to competitive models, who do you expect to be your key competitors? (Segue) Underlying the new flexibility to optimise the broader distribution network will be a set of mechanisms to provide appropriate incentives to all players – the distribution business, generators, customers and storage owners A fully open competitive markets for services could potentially provide the greatest degree of optimisation in the long term. However, in the shorter term the practical constraints such as data availability, network visibility, customer sophistication etc. mean that a more pragmatic balance of competition and regulated incentives is likely to be a more cost-effective approach The executive survey indicated that industry executives also expect such as blended approach to be the most likely within a ten year horizon.
- How will you identify end consumers that could provide meaningful contributions to the optimisation of the network? How will relationships with end consumers be managed across the distribution and retail arms of the company? (Segue from previous slide) Accenture’s executive survey indicates that executives are starting to focus on end-customer solutions that could support them in managing the distribution network more effectively. In many cases the regulatory model currently provides barriers to addressing this opportunity (e.g., retail-distribution split, lack of incentives to deliver peak reductions etc.), but given the potential cost savings available it is likely to receive increasing attention.
- So what is the future of the distribution business? Given the move towards a more highly optimized system - incorporating advanced network controls, embedded and customer storage and customer participation – what overall distribution model should be adopted to ensure that incentives are aligned and that optimization can be efficient as practically possible In our view, the most sustainable model will be the Distribution Platform Optimizer. This view is echoed by utility executives in our research, whereby 66 percent expect their company’s role to evolve in the next 10 years towards one that integrates distributed energy resources (DER) and facilitates the market for DER services. We believe that the Distribution Platform Optimizer model provides the most sustainable long term solution for the utility and all users of the system; controlling costs, providing access to the network and supporting policy makers in meeting sustainability targets In the Accenture survey, the respondents tended to agree, with 66% expecting their role to evolve towards that of a distribution platform optimizer.
- Have you identified a roadmap of initiatives in “no-regrets” capabilities? How can you optimize the economics of energy distribution via integration of advanced real-time analytics and intelligent devices? How can you architect new systems, governance and organizational structure to enable effective IT/OT integration? What are your plans to take action on talent and culture gaps? (Segue from previous slide) However, the executive survey also indicated that many distribution utilities are in the earliest stages of deployment (European utilities are generally further forward, possibly reflecting the changes to the regulatory model that are already underway in response to local challenges of high distributed generation deployment) The transition is no simple matter however. The survey indicates that a broad set of new capabilities will be needed, with the distribution management systems being seen as a critical component to bring them together