by Michael O'Donnell

Why (and how) utilities see a future in the cloud

Jan 22, 2018
Cloud ComputingEnergy IndustryTechnology Industry

Faced with challenges old and new – the regulatory landscape and new players challenging their monopoly status – utilities see a cloud-driven future. Here’s why.

Disruptive technologies have the capability to trigger rapid advancement in any given industry, yet their adoption is rarely linear, especially in the case of regulated industries. For utilities, times have changed; increasing competition from non-traditional providers (think: Walmart and Amazon providing solar panels straight to consumers) means your local utility can no longer just “keep the lights on” to keep your business.

An industry that has enjoyed its monopoly status for decades now lags behind other sectors in the US that have adopted top-to-bottom technology platforms. Thanks to increased competition, utilities, like every other industry, are now being impacted by rapidly shifting customer needs and expectations and, as a result, have gone from crawling to walking toward digitization to keep up.

Next gen technology can help them bridge this gap, but the first step to change is understanding the regulatory and infrastructure hurdles in place that have brought utilities where they are today, and where they really need to go. First, utilities face a unique challenge: meeting the need for greater investment in aging infrastructure and power grids despite flat or declining retail sales caused by the innovation in energy efficiency and decentralized generation we’re seeing today.

Business models that produced dividends only a few years ago have quickly turned into operational challenges with virtually endless complexities. Case in point: generation, the biggest portion of some utilities players’ portfolio (stemming from investments in the 80s and 90s designed to meet rising energy demand at the time) have already gone bankrupt. Why?

Capital Expenditures: A Historical Problem and Future Solution

While the utilities industry pioneered several customer-first initiatives that reduced consumer energy consumption in recent years – such as LEDs and energy efficient appliances – this ultimately brings the challenge back to utilities, who are now struggling to maintain profitability. Historically, their business models have relied heavily on increased usage of energy to drive customer revenue.

Translation: an asset intensive ecosystem faced with regulatory pressures to minimize rate increases for consumers is now rife with non-industrialized competitors that operate entirely off the grid, both drawing utility customers away and reducing the amount of energy used by existing utility customers.

New entrants like Amazon and Walmart are building energy infrastructure, data centers and wind farms that businesses and consumers alike are finding preferable.

One area where utilities traditionally looked to reduce their costs and increase their rate base comes in the form of capitalized expenditures. If an asset cost – the price of building a new plant, for example – is capitalized, it can be passed back to end-state consumers. As it happens, new competition has put next gen technology front-and-center for utilities as a tool that will help them compete in today’s energy landscape in two ways: the investment can be passed along to consumers as a capitalized expense, but will ultimately offset these by opening new efficiencies that reduce operational costs and save consumers money.

Converting cloud investments into customer savings

Utilities aren’t the first place you’d think emerging tech would rise, but this has changed drastically thanks to competition in the marketplace. Today, there are hundreds and thousands of headlines showcasing examples of how utilities are embracing a Utilities 2.0 model for innovative practice, implementing next gen technology such as IoT, machine learning, AI and blockchain into their services to unlock new efficiencies and opportunities and the benefits are clear.

For starters, utilities are asset intensive, opening opportunities to introduce edge computing devices anticipate and solve diagnostics issues remotely without technicians or expand advanced metering infrastructure (AMI) to the entire utility network. The number of electrical vehicles in the marketplace is continuing to increase year-after-year and charging stations are a low-hanging fruit opportunity to implement blockchain for charging expensing. We will continue seeing more implementation like this in the next 5 years.

However, the single foundation of these applications is information integration. How do you take all this data from different sources and create useful scenarios to drive efficiency and open new business opportunities?

The answer lies in a top-down investment strategy in the cloud, setting up the framework necessary to embrace Utilities 2.0. Full-scale integration across the entire operational suite of core business functions will be the deciding factor for utilities looking to take advantage of the data-intensive innovation we’re seeing, analyze market and competitive trends and navigate the chaotic world of M&A many utilities are undergoing today. Without it, struggling utilities effectively competing for consumer loyalty and business is nothing more than a pipe dream.