Business, technology and regulatory landscapes for distribution utilities are changing rapidly. Traditional business models are coming under pressure from the combined weight of fast-changing consumer demands and regulatory pressures, along with the need to integrate new technologies such as distributed energy resources (DER) and micro grids. In this context, the “obligation to serve” that has guided investments for many decades is fast being supplanted by a required “commitment to optimize” that heralds a new era for the industry and demands the acquisition and development of new capabilities.
These changes are more than an evolution—nothing short of transformational. And while all utilities could choose from a number of strategic options to move forward, Accenture believes that for most, the ultimate prize is to secure a position as a Distribution Platform Optimizer: a digitally-enabled network business that uses intelligence and analytics, fully integrates DER and establishes the platform to offer new and innovative services to customers.
For all utilities, this model is an aspiration. But some are much closer to realizing it than others. Those facing the greatest challenge are utilities whose investments have not kept pace with the changing world over the last couple of decades. Others that have already implemented technology in their infrastructure are in a much stronger position to move forward decisively.
So why are some utilities better placed than others to make this move? First, consumers’ attitudes and demands in different markets and states have a decisive impact on dictating the way that a company delivers. Second, the regulatory approach plays a major role. Some commissions are pushing utilities to adopt more advanced business models, becoming closer to a telco service model than a traditional distribution utility. Another decisive factor is leadership. We are seeing more advanced approaches from senior management teams who have backgrounds in other industries that have already experienced the digital and technology revolutions now impacting the distribution industry.
These drivers are now visibly playing out in some markets.
Arizona Public Service (APS) has embraced working with its regulators. Proactive conversations related to solar integration have become collaborative, benefiting the end users. Utilities are creating some innovative proposals, including a single rate for all consumers on an ‘all you can eat’ basis.
Duke Energy used the American Recovery and Reinvestment Act (ARRA) and Smart Grid Investment Grant Program for demonstration projects to reduce peak demand with demand response and conservation voltage reduction.1
Florida Power and Light has deployed a broad grid innovation technology deployment as the foundation to provide improvements across customer service, reliability, and operational efficiency.
To ensure their commercially feasible, utilities will need to accelerate their development as a distribution platform optimizer in order to manage demand, integrate new supply and optimize distribution.
New approaches like these are a clear signal of the changes coming down the line for all distribution utilities. For this reason, a substantial proportion of the electricity distribution industry around the world is investing and creating strategies that will enable them to meet these new demands. Leaders are fast developing new business models and use cases that derive from the investments in infrastructure and technology they have already made. At the opposite end of the spectrum are utilities that are only now creating the business case for the substantial investments required. They need to catch up—and are experiencing difficulties convincing increasingly savvy consumers and regulators about the benefits they’re likely to see. Regardless of what stage of development utilities find themselves, one thing is clear: Their market is changing out of all recognition. The option to do nothing has long-since expired.