By Ron Ambrosio
You walk into a room at night and flip the light switch on the wall. The lights come on. You didn’t think twice about that …you were certain it would work. While we’re not at that point everywhere in the world yet, it is true of most industrialized regions that electricity is a highly reliable resource. But the reality behind that simple action of turning on a light switch is a constantly evolving list of uncertainties that utilities deal with 24/7.
Uncertainty takes many forms in the utility industry, from the health of individual devices as they age, to volatility of fuel prices, to the behavior of you, the consumer, and your use of electricity or natural gas. And uncertainty can be equated to risk — the risk of failing to achieve both operational and business objectives. That’s not a risk any business wants to take.
The utility industry does a remarkable job dealing with uncertainty, but there are numerous factors at play that are increasingly making it more difficult. If you put uncertainty into mathematical terms, every source of uncertainty represents a new variable in the equations that utilities use to plan and operate their business — from what to charge to how much energy to generate. As the number of variables increases, the techniques used to model and solve those equations have to evolve. Not only does the utility industry have to solve more complex equations with more variables, but has to do it faster.
In our discussions with utilities, the IBM Research Smarter Energy team has identified six propositions that represent key factors driving change that contributes to uncertainty in the utility industry:
1. “Distributed”is the keyword for the new utility system: the generation and storage of and intelligence about energy are all becoming more distributed. This can have benefits such as fewer critical points of failure, leading to more resilient infrastructure, but will also lead to new business models such as those being discussed in New York State as part of the Public Service Commission’s “Reforming the Energy Vision”initiative that is a strategic approach to developing a clean, reliable, and affordable energy system for all New Yorkers.
2. The utility system is increasingly instrumented and intelligent: utilities are becoming “data rich,”but we have to put all that data to use in an effective way in order to have a positive impact on operational and business performance.
3. Energy cost is increasingly based on time and place of use: we need to be on the lookout for ways to more rapidly engage and influence when and how customers use energy.
4. Renewable energy sources are becoming cost competitive: photovoltaics, or converting solar energy into direct current electricity, is below 10 U.S. cents per kilowatt-hour, which is lower than grid-supplied electricity in some regions.
5. Renewable mandates are accelerating investments: environmental policies, in the form of regulatory mandates, are driving further investment in renewable supply technologies. This week for example, the White House hosted a Clean Energy Investment Summit highlighting more than $4 billion in private sector commitments to scale up investment in clean energy innovation.
6. Uncertainty will only continue to increase: weather impacts, demand, consumer behavior, fuel costs, policy changes, and disruptive technologies are all contributing factors to a growing number of risks that utilities are facing.
At the 3rd annual IBM Smarter Energy Research Institute (SERI) Conference taking place this week at IBM’s T.J. Watson Research Center in New York, uncertainty and how to quantify and manage it will be the main topic of discussion with nearly 30 utilities (including our SERI partners), government and academic organizations attending. Those discussions and, more importantly, the collaboration with our SERI partners to solve these challenges going forward has important implications for the utility industry.