HP POINT OF VIEW: THE ELECTRICITY UTILITY OF 2020Using technology to become more customer and service centricBusiness white paper

Table of contents

Introduction 3Ensuring security of supply 4Managing changing customer dynamics 6Reevaluating the mix of power sources 8Adapting to the continuously evolving regulatory environment 9Improving environmental sustainability 10Countering cyber security attacks and theft 11The convergence of operational technology and information technology 12A 2020 vision of information technology for utilities 12HP capabilities: Transform utilities to become customer and service centric 14Embracing 2020 and beyond with IT‑driven operations 15

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IntroductionThe world economy and our overall well‑being have never been more dependent on electricity than they are right now—a dependence that will only deepen in the foreseeable future. The factors driving our reliance on electricity are the same ones driving increasing demand: global population is growing, more people can afford to buy electricity, and we are using electricity for more things than ever before.

These challenges have created a series of intensifying industry trends that utilities must manage now and well into the future. While there are many relevant electricity utility industry trends, this paper focuses on the following six: •Ensuring security of supply•Managing changing customer dynamics•Reevaluating the mix of power sources•Adapting to the continuously evolving

regulatory environment•Improving environmental sustainability•Countering cyber security attacks and theft

These are no doubt challenging times for utilities. But there are also enormous opportunities for those that can become more customer and service centric. The best utilities can manage these trends by developing a series of powerful business levers to help maintain the balance between demand and supply. Technology plays a vital role in establishing these levers. In fact, as elements of electricity generation, transmission, and distribution continue to be digitized, operational technology (OT) and information technology (IT) will likely converge to the point where day‑to‑day operations are inseparable from IT.

HP recognizes this convergence as a defining characteristic of the power industry between now and 2020. Meeting these challenges requires that information technology be at the forefront of utility innovation and growth initiatives. Tomorrow’s market leaders will leverage technology to capitalize on, rather than simply adapt to, changing customer expectations. To deliver innovation they will embed technology at every point in their operations that matters, from Smart Grids and intelligent networks to customer management and environmental sustainability. They will automate operations and integrate technology across the value chain to unleash the power of their people with the information and applications needed to accelerate transformation.

This paper examines the evolution through 2020 of the above‑listed electricity utility industry trends and then details HP’s perspective about the IT needed to meet their related challenges. Finally, while the paper often refers to “utilities” and discusses everything from generation through distribution, that’s just shorthand—clearly not all companies span the entire value chain.

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Ensuring security of supplySecurity of supply means ensuring that the world’s ever‑increasing and more volatile demand is met, and that associated risks—power dependency, decreasing energy supplies, and external threats to operations—are continuously monitored and addressed.

As 2020 approaches, HP predicts several factors will make it more difficult to balance demand and supply. Demand will continue to increase because global economies, total population, and the number of middle class electricity consumers will continue to grow. New uses for electricity will increase in popularity, such as electric vehicles, further swelling demand.

The answer to growing demand used to be relatively straightforward: increase supply by building more power plants. But that has become difficult given rising costs, the diversity of new technologies, and greater environmental regulations. Increasing supply is also challenging because demand often rises faster than new supply infrastructure can be added.

Looking toward 2020Utilities will likely continue shifting away from using “brute force” (i.e. building more plants) to meet demand and instead use improved automation and information to operate smarter and more efficiently. By 2020, the power grid will be well on its way to being fully monitored in real‑time with an integrated set of advanced sensors and monitoring devices and robust communication systems. It will have adaptable and trainable, fast control algorithms that can use advanced technologies to enhance or maintain system security and reliability, and to maximize throughput.

In the coming decade, HP predicts that the best utilities will skillfully use technology‑empowered supply and demand levers to: •Balance the tradeoffs between adding new capacity

versus extending and improving existing capacity•Optimize supply by reducing electricity loss during

operations, primarily transmission and distribution•Better manage demand by improving their own and

their customers’ energy efficiency•Curtail (or enable customers to reduce) demand

during circumstances that stress existing supply, such as heat waves—explored in greater detail in the Managing changing customer dynamics section of this paper

•Incorporate and manage increasing levels of distributed generation

Getting to 2020Preparing for 2020 requires better management of both supply and demand. Using the previously mentioned levers can help utilities increase aggregate supply and temporarily curtail the need for supply. While some of these initiatives may have only a marginal impact by 2020, they represent a fundamental change to the industry’s longer‑term operating model.

Improving the efficiency of existing operations: Building new generation facilities is expensive. Retrofitting existing plants with new technologies and more efficient equipment can provide attractive returns both financially and in terms of electricity supply. Generation efficiency can be improved, for example, by incorporating combined cycle gas turbine technology, which can be substantially more efficient than hot gas turbines. IT‑controlled automation of new turbines and engines can further increase efficiencies and minimize electricity waste caused by temperature control issues, operational management complexities, and human error.

Transmission and distribution losses are two areas where the digitalization of the grid can help make significant efficiency improvements over the coming decade. The Smart Grid’s ability to provide increasingly granular and real‑time visibility to consumption data will allow utilities to more accurately predict generation requirements, which will reduce network losses. New distribution automation technologies can help address system losses, manage bidirectional power flows associated with distributed energy resources, and minimize the extent of outages and increase the speed of restoration. Similarly, incorporating new storage technologies across the network can provide dynamic response and energy shifting capabilities to mitigate the intermittency, ramping, and dump power issues associated with renewable generation.

Using advanced storage technology: The ability to store electricity at various locations across the grid could be a ‘game changer’ for securing supply. Based on recent progress, it’s increasingly likely that there will be a breakthrough in affordable, efficient storage capability sometime over the coming decade. The significant benefits utilities might accrue include increased supply, lower costs, and a better way to manage the intermittency of renewable power sources. However, these benefits come with capacity management challenges related to monitoring and managing new storage nodes across the grid. Distributed generation will likely further compound that complexity as customers link their own storage facilities to the grid.

• Driven by demand, worldwide net electricity generation is expected to increase from 19.1 trillion kilowatt hours in 2008 to 25.5 trillion kilowatt hours in 2020, and 35.2 trillion kilowatt hours in 2035—an 84 percent gain.1

• By 2015, several studies expect there to be 3 million electric vehicles on roads globally and over 130 million e-cycles/scooters by 2017.2

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Investing in renewable power sources: Developing renewables is obviously an important lever for managing supply, but difficult to achieve. First, the initial infrastructure is expensive, though once built, incremental costs are low. Second, most renewable sources generate power intermittently, which creates significant planning and integration challenges. And while the proportion of renewable power sources is expected to continue to grow over the next ten years, there does not appear to be any particular new source capable of mitigating existing and future supply issues. The business and technology issues associated with the increasing use of renewable power sources are addressed in the Reevaluating the mix of power sources section of this paper.

Integrating distributed generation models: Today, most supply is generated from traditional sources using a centralized, utility‑operated infrastructure. But that model is changing. Distributed generation—the shift toward putting more generation (primarily wind and solar) into the hands of customers—is building momentum and is expected to intensify through 2020.

While it can help offset some supply pressure, it also adds significant complexity for utilities. For example, self‑generating customers may sometimes feed electricity back into the grid, which poses billing, tariff, and other administrative challenges. But they will likely still expect instant power whenever the electricity they are generating doesn’t meet their needs, which can result in demand spikes and distribution challenges.

Additionally, there is uncertainty regarding what specific roles utilities will be expected to play in terms of helping neighborhood‑based microgrids and communities of micro‑generators manage their systems. For example, will utilities help them store excess capacity for their later use, or leave that to the micro‑generators? Who will ultimately be held responsible for keeping the lights on? Will these communities be truly self‑sufficient and cut utilities out completely? Utilities have to prepare for a variety of contingencies. As demand gets more volatile and less subject to control by the power companies, utilities will need a new set of operating models and tools to affordably balance supply and demand.

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Managing changing customer dynamicsTraditionally, as long as utilities provided consistent and inexpensive power, customers were happy. But that’s increasingly untrue. Commercial, industrial, and residential customers now demand more influence over how utilities operate, and utilities want more influence over customer consumption patterns.

The utility‑customer relationship is changing for several reasons. Externally driven factors include environmental mandates, deregulation that’s giving customers more choice, and the need for utilities to better manage demand in the face of supply challenges. There are also customer‑driven factors, such as mounting desires to adopt alternative power sources, reduce consumption to be more “green,” and lower overall electricity costs.

Looking toward 2020As 2020 approaches, customer wish lists are growing to include:•Tools to help reduce their consumption, power costs,

and carbon footprint•More responsive, attentive, friendly, and thorough

customer service, particularly in competitive markets•Lower rates and more attractive pricing mechanisms•More renewable and sustainable power options from

utilities, and routine progress reports regarding when they can expect them

•Help becoming self‑sufficient and, in some cases, participating in distributed generation projects

While managing the changing customer landscape poses challenges, large opportunities exist for the utilities that can become more customer centric and win the loyalty of their customer base—especially as markets become more competitive. To seize these opportunities between now and 2020, top utilities can respond to and direct changing customer dynamics by deploying demand levers such as:•Investing in the systems and skills needed to gather

meaningful customer insights•Creating effective demand response and

pricing programs•Becoming skilled communicators•Developing a strong customer service organization.

Powerful IT is the common denominator underlying each of these efforts to become more customer centric.

Getting to 2020Electricity utilities are ultimately responsible for balancing supply with demand; however, as discussed earlier, simply increasing supply is becoming more impractical. Demand levers can be more effective than increasing supply because they are faster—increasing supply takes much longer. Effectively managing changing customer dynamics requires the following four capabilities, none of which are traditional areas of strength for utilities.

Discovering customer insights: Researching customer motivations, demographics, usage patterns, buying behaviors, and satisfaction criteria is relatively new terrain for utilities. But for market leaders it will likely be routine by the end of the decade. Understanding customer behaviors and learning how to profile and segment customers should allow utilities to better target their programs and services. The benefits are enormous: improved marketing and sales campaigns, greater customer loyalty, and more effective demand and usage management.

Smart meters, Smart Grids, and a variety of end‑user touch points, including billing systems, customer service interactions, and online assets, are generating unprecedented amounts of critical data. Consumption data is becoming much more granular, evolving from a single monthly meter reading to daily, hourly, even on‑demand output. It is also being gathered not only at the household level, but from “beyond the meter” usages, such as air conditioners, water heaters, and pool pumps. This more‑detailed data helps customers determine what devices to turn off during curtailment periods, which then helps utilities meet their load‑shedding targets. Automating the capture and dissemination of this data improves cross‑enterprise insight, flexibility, and responsiveness—creating a more customer‑centric utility.

However consolidating the data is just the beginning. Utilities will likely soon need the help of direct‑marketing gurus, online marketers, statisticians, quantitative analysts, and efficiency experts to turn these mountains of data into actionable information and outreach efforts that drive behavioral changes. Again, the success of new services and programs can be highly dependent on the utility’s ability to profile, segment, and target their customers.

• Between 2010 and 2020, electricity generation capacity is likely to grow almost three times faster in non-OECD3 countries than in OECD countries.4

• Between 2010 and 2020, worldwide residential solar photovoltaic power generation is expected to increase 565 percent from 23 TWh to 153 TWh.5

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Managing consumption: Many customers want to lower their electricity use, save money, and reduce their carbon footprint. Utilities share these goals because reducing aggregate demand delays the need to build more supply. Utilities have the additional goal of managing demand peaks and temporary supply constraints using demand response programs. This appears to be a win‑win scenario, though utilities often struggle with the idea of lowering demand because it also reduces potential revenues needed to sustain their capital‑intensive business.

To help customers succeed, utilities will increasingly develop a variety of demand response and dynamic pricing programs that incent customers to change their consumption behavior. These programs are designed to be either voluntary or mandatory and are expected to dramatically increase in frequency and sophistication over the next decade.

Voluntary demand response programs rely on customers to change their consumption when prompted by the utility. Voluntary pricing mechanisms attempt to either control total consumption (e.g. tiered pricing) or shape the timing of consumption (e.g. critical peak and time‑of‑use pricing).

A mandatory program is one where the utility executes a curtailment action. For example, the utility might turn off a customer’s appliance (using a device‑level controller) for a period. These programs generally apply only to customers who have chosen to participate in exchange for some sort of incentive. Mandatory demand response programs with no opportunity for the customer to opt out are likely to become more common by 2020 in some countries because they have the potential to be more effective than voluntary programs.

To make these programs more acceptable to the public, customers must be educated about the reasons behind the requested or mandatory behavior change, the associated incentives or penalties, and any required actions on their part or the utility’s part. In many cases utilities should provide much more granular, device‑level consumption data; the ability for customers to conduct what‑if scenarios regarding usage changes; and ways to easily automate compliance.

Communicating more effectively: Introducing new demand response programs and rolling out new technologies is proving to be an enormous change management challenge—and at times a public relations nightmare. Customers have resisted variable pricing and rejected smart meter deployments with complaints ranging from intolerance of new wireless devices in their homes to data privacy and health concerns.

Over the next ten years, utilities will distinguish themselves by how well they communicate the benefits of their demand response programs. Communications typically fall into two equally important categories. The first is ongoing messaging and education, which are required to establish and sustain program awareness. The second is circumstance‑specific messaging, such as time‑sensitive curtailment messages related to a demand response program.

The ultimate aim is to create an ongoing dialogue with customers, which has proven in other industries (e.g. retail and financial services) to improve program performance and customer satisfaction. Additionally, interactions with customers are becoming multi‑dimensional given the rise of social media, mobile devices, and other communication vehicles—success will often rely on choosing the most appropriate message vehicles.

Mastering customer service: Building a strong customer service organization is an essential part of becoming a successful communicator. Robust service teams are relatively rare in today’s utility marketplace, but will be an important competitive differentiator for the next generation of utilities leaders. That’s especially true in deregulated markets where customers can easily switch providers.

Today, customer service is focused primarily on answering billing questions. In coming years, utilities will also have to explain how to:•Participate in demand response programs•Access their websites and other online tools to track

and manage electricity usage•Resolve technical issues arising from digital assets

such as smart meters and device controllers•Incorporate a variety of self‑generation options

HP predicts best customer service organizations will build on strong customer insights and deliver support whenever and however customers want it, including phone, online, mobile device, email, text, and paper interactions. The true measure of success will be a customer service organization’s ability to consistently set and manage expectations, proactively alert customers to impending actions, and routinely include customer input in their transparent decision‑making processes.

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Reevaluating the mix of power sourcesThe increasingly inadequate supply provided by traditional electricity sources, rising customer demand, and calls for lower levels of carbon emissions mean utilities will need to deliver power from new sources, including renewables. There are, of course, numerous related challenges: Which renewable sources should be pursued? How can the intermittency of renewable sources be managed? How can the large upfront investment costs best be met? What operational improvements will be needed to manage the resulting increase in grid complexity and new interactions with customers and independent electricity suppliers?

Looking toward 2020The coming decade is likely to see a slow but increasing penetration of alternative power sources used by utilities and a significant rise in the number of customers who generate and often sell portions of their own power. While these sources are unlikely to resolve global supply challenges by 2020, they are expected to create a much more complex network of power sources. It’s a significant departure from the existing centralized utilities model. Regardless of which new power sources become the most popular, market‑leading utilities will wish to deploy new technologies and skill sets required to manage the related challenges.

Skillfully deploying the following levers can help utilities incorporate renewable energy sources:•Automation and monitoring technologies to manage

load‑balancing challenges created by intermittency•Advanced systems for improving billing, rebilling,

and settlement capabilities•Demand response programs for balancing demand

and (increasingly intermittent) supply•Analytical tools to evaluate the costs, returns, and

tradeoffs between different energy sources

Getting to 2020Incorporating new power sources can enable utilities to better manage electricity availability and broaden business opportunities. But this change comes with significant challenges: managing intermittent supply and meeting substantial upfront costs.

Addressing intermittency: Almost all renewable sources deliver electricity intermittently because they depend on uncontrollable factors like the availability of wind or sunlight. As the proportion of electricity generated from renewable sources increases—forecasted to be 25 percent in 20208—the potential for supply instability and new administrative challenges also grows. Utilities are likely to face new complexities regarding capacity management, billing, rebilling, settlement, and the need to manage a greater number of relationships with independent producers.

Existing electricity utility operating and business models are inadequate for the influx of intermittent electricity and increasing levels of distributed generation. As 2020 approaches, there are some obvious but difficult approaches to managing the diversity and intermittency of new sources, such as properly balancing the network, developing better awareness of the variables that drive intermittency, using demand response programs to manage intermittent supply, and utilizing electricity storage buffers. Each of these approaches requires a much more granular and real‑time view of demand and supply factors across the entire network—and a greater capacity to quickly respond to and initiate change.

Confronting investment cost hurdles: Similar to traditional sources, the initial cost of developing renewable power infrastructure are enormous. However, unlike traditional sources, the incremental cost per unit of electricity is very low and expected to remain stable over time because it’s based on “fuels” such as wind and sunlight that are essentially free. So while long‑term cost models are attractive, the upfront costs pose a barrier to entry. Justifying investments and raising capital, especially in price‑regulated markets, can be an obstacle to implementing these sources on a large scale.

• Between 2008 and 2020, electricity generated from renewable sources is expected to increase by more than 60 percent worldwide.6

• Over 141 gigawatts (GW) of offshore wind power capacity is built, under construction, consented, or planned in Europe: enough to power 130 million EU households.7

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Adapting to the continuously evolving regulatory environmentOver the next decade, regardless of whether a particular market is currently regulated or has been opened up to competition, governments will continue to drive changes in both utility operations and environmental sustainability. Regulatory goals are likely to include protecting customer interests by creating downward pressure on prices and encouraging improvements in operations and customer service. Additionally, deadlines embedded in environmental regulations will come due and new scrutiny applied. The impact is likely to be felt in every utility and reshape many energy markets.

Looking toward 2020This evolving regulatory environment requires utilities to become more agile operationally to avoid disruptions as they respond to new and evolving regulations. More regulation may commoditize the electricity market in some cases, resulting in utility companies that address a smaller portion of the value chain. This change will likely enable customers to more easily switch providers, further increasing competition. Top utilities can anticipate and adapt to these changes by evolving from a centralized and vertically integrated business model (where they do everything for themselves) to one where they manage increasingly complex multi‑company supply chains.

The levers utilities will need to use when adapting to regulatory changes include:•Creating business and information infrastructure

that can quickly and accurately capture and report compliance data

•Modifying operations to quickly comply with new regulatory mandates

•Building collaboration and communication systems that simplify supply chain management

•Separating business and IT operations in cases where larger companies need to be broken into smaller ones

•Improving the monitoring, managing, and reporting of greenhouse gas emissions and carbon footprints

Getting to 2020Adapting to future regulatory changes requires the creation of business models and operational processes that are agile enough to quickly anticipate and accommodate new supply chain elements and environmental dictates. Technology can be the foundation of much of that agility.

Managing increasingly complex supply chains: Similar to the evolution that occurred in the telecommunications industry, utilities will increasingly need to integrate with other providers and partners, and manage a much more sophisticated supply chain. For example, utilities may have to learn how to work with clearinghouse organizations to sign up, cancel, and transfer customers, as well as to facilitate billing.

Regulatory change will likely accelerate the emergence of data/information and power aggregators. These businesses should make it easier for customers to buy power through multiple channels, which will create a more challenging sales and customer loyalty environment for utilities. These changes may also force some utilities to revisit operational issues, such as:

•Who will be legally accountable for outages in an environment where no single utility controls everything they need to assure supply?

•Who actually owns and maintains smart meters, device controllers, and other equipment that resides at customer locations?

•How is device ownership transferred and tracked when customers change providers?

Regulatory changes may also drive some utilities to create several companies where there once was one; separating, for example, the transmission business from the generation business. When that happens, regulators are likely to insist that each of the companies be genuinely distinct entities, with separate IT infrastructure, particularly around assets and customer information. Establishing clear walls between each company should also facilitate subsequent mergers and acquisitions.

Adhering to environmental sustainability regulation: Governments and their citizens want to see results in terms of utilities decreasing their carbon footprint, and regulation has proven to drive change faster than market incentives. Complying with these new regulations is likely to be even more challenging as regulators become increasingly savvy about utility costs and operations. Utilities will need IT systems that produce one version of the truth across the entire enterprise in order to give consistent, accurate, and defensible information to regulators.

Utilities need not, however, remain passive in the face of growing regulations. They can use data from Smart Grid pilot programs to advocate for regulatory frameworks that align incentives, encourage private‑sector investment, and support open standards. Effective standards, particularly around Internet and security protocols, provide market certainty and increase interoperability.

•The European Commission’s Directive on Renewable Energy requires all member states to reach a 20 percent share of energy from renewable sources by 2020.9

• Recent U.S. clean air regulations are likely to force some utilities operating coal-fired power plants to install costly technology and equipment. Many may find it cheaper to simply shut down older or smaller units, which could lead to a 4.5-5.0 percent reduction in overall U.S. generating capacity and higher marginal costs.10

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Improving environmental sustainabilityAs role models, utilities are expected to set an example regarding environmental consciousness. Governments and the public continue to call for utilities to both reduce their own carbon footprint and help customers reduce theirs. These pressures are likely to grow over the coming decade. Environmental diligence requires insight about usage and the impact of changes, the flexibility to effect change, and, typically, automation to sustain change. Customers will likely demand progress reports, although they show little enthusiasm for paying more for greener energy.

Looking toward 2020To meet these calls for increased environmental sustainability, top utilities can intensify their efforts to reduce greenhouse gas emissions from their operations; provide commercial, industrial, and residential customers with strategies and tools for reducing their electricity usage; and use more renewable power sources.

Demand and supply levers available to help achieve these goals include:•Retrofitting existing generation plants, and

building new plants, with cleaner and more efficient technologies

•Deploying more and better energy storage facilities•Upgrading data centers using more

energy‑efficient technologies•Empowering customers to reduce energy

consumption by offering education, providing more actionable consumption and what‑if information, and implementing demand response programs

•Incorporating more renewable energy sources into operations

Getting to 2020Achieving substantial and consistent results and improving environmental sustainability will require a balanced approach focused on reducing the emissions related to utility operations, helping customers reduce their electricity consumption, and incorporating greener energy sources.

Reducing greenhouse gases from operations: Inexpensive electricity has always been at the core of economic growth and the pressure on utilities to keep adding new capacity has been intense. Much of the power infrastructure in developed countries was built before some environmentally sustainable generation techniques were understood or demanded. Thus, the utilities industry releases more greenhouse gases than any other.

One way to reduce carbon emissions is to retrofit existing coal‑burning plants with cleaner and more efficient technologies, such as co‑generation, flue‑gas desulfurization, NOx control, and scrubber capabilities. New facilities, even if they don’t use renewable power sources, should incorporate greener generation technologies.

As storage capabilities improve over the next decade, utilities can use them to operate generation facilities at peak levels and store the unused electricity for later use. That improves generation efficiency and reduces transmission losses, which in turn reduces greenhouse gases. Improved storage capabilities are so significant that many describe storage as “a new power source.”

Finally, like any other enterprise, utilities can lower their own carbon footprint by upgrading their data centers with more energy efficient IT. The reductions in greenhouse gases may not rival upgrades to existing generation facilities, but they are significant and save money.

Helping customers reduce consumption: As 2020 approaches, customers and governments will increasingly want to reduce their carbon footprint, and will expect utilities to help them. In the Managing changing customer dynamics section of this paper, helping customers reduce their consumption is explored in the context of balancing supply and demand. But another positive aspect of empowering customers through education, providing more actionable consumption and what‑if information, and creating demand response programs is the resulting reduction in their usage and, therefore, their carbon footprint. Generating much more granular consumption data, both at and below the meter level, is vital to helping commercial, industrial, and residential customers identify where and how to focus conservation efforts.

Incorporating renewable power sources: Incorporating more environmentally friendly power sources was discussed as a supply lever earlier in the Ensuring security of supply and Reevaluating the mix of power sources sections, but it’s also an important way utilities can reduce their greenhouse gas emissions. The reason is obvious: some alternative sources, such as wind‑ and solar‑powered plants, generate no carbon output. The IEA estimates that in many countries, solar power should achieve pricing parity with non‑renewables by 2020.13

Long‑term adoption rates related to renewables are likely to rise significantly as 2020 approaches, but they’re building on a very small existing base (less than one percent). An unknown growth factor is the level to which investments in renewables will be mandated and subsidized—the key issues being affordability and timing. Replacing traditional generation assets with renewables currently entails substantial asset value write offs that few utilities could absorb without outside support.

• Almost 25 percent of global greenhouse gas emissions come from the electricity and heat energy sectors.11

• In the U.S., integration of the Smart Grid is expected to reduce emissions by 12 to 18 percent per year.12

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Countering cyber security attacks and theft Utility operations face threats from hackers, terrorists, and thieves that can disrupt supply and drain revenue. Between now and 2020, as digitalization spreads across the grid, security vulnerabilities are likely to increase. However, the increase in digitalization can also support efforts to identify and reduce power disruptions and theft.

Looking toward 2020Threats to utility operations take two general forms: cyber and physical. Cyber threats tend to either control or obstruct network operations (e.g. denial of service attacks) or steal or alter data, which can result in financial and intellectual property losses and data privacy issues. Physical threats are typically aimed at tampering with equipment, often to steal electricity. Ultimately, utilities need to protect their operations, data, and revenues. In order to do this as 2020 nears, user and application security will become as important as data security.

As operational and IT systems converge over the coming years and more intelligent devices are extended to the edge of the network—beyond traditional perimeters such as data centers and substations—security threats are likely to increase. Leading utilities can establish rigorous and ongoing security practices to identify and close those vulnerabilities. These practices will often rely on outside experts and span all key utility networks. Levers available to help secure IT assets and prevent energy theft include:•Continually assessing security vulnerabilities •Integrating the new generation of low‑cost

sensor technologies•Routinely applying precautions that ensure

operational integrity before, during, and after a security breach

•Collecting detailed consumption data from smart meters and analyzing it using advanced analytics and business intelligence (BI) capabilities to find evidence of theft

Getting to 2020Anticipating, mitigating, and reducing cyber attacks on operational infrastructure are vital to securing the supply of power. And while the severity of energy theft as a problem varies by geography, it is expected to increase over the coming decade.

Protecting operations: Enterprise security has been a utility’s primary security focus. However, today and over the coming decade, cyber‑attack avoidance is likely to become increasingly important at both the enterprise and remote‑field levels. For example, Smart Grid technology relies on two‑way communication capabilities based on Internet protocols, which create new security vulnerabilities. This will be a learning curve for many utilities—securing traditionally isolated operational systems has not been a significant issue until recently.

Today and increasingly in the future, security technologies will anticipate and avoid cyber vulnerabilities, detect and initiate responses to both cyber and physical attacks, and mitigate their impacts. To protect themselves, utilities need to continually assess security vulnerabilities and apply precautions that ensure operational integrity before, during, and after an incident. There are six specific tasks utilities should undertake on an ongoing basis:1. Engage security experts to determine an

organization’s security baseline and then assess the existing risks and vulnerabilities, which can include professional hacking or penetration testing.

2. Use data encryption technologies to protect information.

3. Secure communications, particularly between the enterprise and meters or other devices in the field, including remote access for users.

4. Strengthen identity and access management processes, which include authenticating users and their individual permissions and system capabilities.

5. Establish overall network security, including all wired and wireless networks and SCADA‑related networks, which have unique protocols.

6. Strengthen fault or event management practices related to data vulnerabilities and problems in the field, such as people hacking into smart meters.

Distributed generation also adds significant security challenges because it’s unclear what level of control, if any, utilities will have. If utilities don’t control an aspect of the network, how can they secure it? And even if they do control it, distributed generation still represents new access points to the grid that must be secured.

Responding to and preventing energy theft: Theft remains an ongoing problem—particularly in developing economies. For example, in some areas of South Asia and sub‑Saharan Africa energy losses due to theft reach 50 percent.16 Electricity theft amounts to 1.5 percent of India’s GDP.17 While there are many cases of poor people taking electricity, some of the biggest culprits are large residential, commercial, and industrial consumers who avoid paying for electricity, often by colluding with meter readers, current or ex‑utility employees, or third parties.18

As 2020 approaches, leading utilities are likely to fight electricity theft using smart meters and sophisticated analytics and BI applications to continuously record detailed consumption data and analyze it for evidence of theft.

• The National Electric Reliability Council reported that over half of the U.S. utilities that responded to their recent survey were experiencing about 150 serious cyber attacks per week, and that attacks abroad had caused multiple city power outages.14

• Cyber security spending is likely to represent 15 percent of total Smart Grid capital investments worldwide between 2010 and 2015, reaching $3.7 billion by 2015.15

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The convergence of operational technology and information technologyThe above six interrelated trends are driving the evolution of the utilities industry. While each possesses a unique set of challenges and opportunities, they all contribute to a significant, fundamental industry shift: the convergence of operational technology and information technology as utilities strive to become more customer and service centric.

OT and IT organizations have traditionally been separate. However, the more utilities digitize their grids and operational assets to ensure supply, improve customer satisfaction, and protect against cyber hackers, the more critical IT becomes to operational efficiency, effectiveness, and reliability. Incorporating information technology into daily operations can expand the variety and effectiveness of supply and demand levers that utilities have at their disposal.

But the benefits of this convergence run along a two‑way street—both organizations have a lot to learn from each other. For example, OT can teach IT about the importance of being more responsive to business changes, which IT can realize by using service‑oriented architectures (SOA), adaptable technology frameworks, critical alert monitoring and management capabilities, and 24x7 support. And IT can teach OT about operational excellence (e.g. information management and analytics, security, backup, identity management, and change control processes).

A 2020 vision of information technology for utilitiesIn response to the trends highlighted in the proceeding sections, HP predicts leading utilities will invest in and rely upon the following categories of IT as they navigate the coming decade.

Business intelligence and information management across operational, customer, and regulatory domainsBusiness intelligence and analytics systems are a common technology thread for meeting the utilities challenges of the coming decade. The level of responsiveness needed to efficiently manage greater supply and new mixes of power sources can only be achieved using BI and analytics to process the volumes of data generated by network devices. That information can enable utilities to quickly forecast the effectiveness of various demand and supply levers, manage short‑term operational challenges, and provide the predictive models needed for long‑term planning efforts.

Developing the device and controller management capabilities needed to improve security of supply, customer management, and environmental sustainability will require BI applications that can generate meaningful information in support of effective and compliant operations. These advanced analytical tools, combined with widespread sensors to track performance and conditions, can provide the information operators and planners need to increase system security and performance more cost‑effectively than using traditional methods. BI capabilities benefit both customers and utilities by providing the information needed to help change consumption patterns and quickly forecast the impact of different pricing signals and incentive programs.

Ensuring security of

supply

Adapting to the continuously

evolving regulatory environment

Reevaluating the mix of

power sources

Managingchanging customer dynamics

Improving environmental sustainability

Strengthening cyber security

attacks and theft

Convergence of operational and information technology

Business intelligence and information management

Automation and service management for the grid, networks, and digital devices

Collaboration and communication platforms

Customer relationship management, supply management, billing, and other business application modernization

Holistic and integrated security

Robust, reliable, constantly available IT infrastructure

IT REQUIREMENTS AND ROADMAP: 2012 – 2020

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Currently, many utilities are gathering vast amounts of data from smart meters and other sources, but are unable to generate much actionable information. That will change. In fact, over the next few years, BI systems are expected to produce and analyze data in real‑time, rather than just on a historical basis. Thus shortening the operational timeframe and allowing utilities to make better, faster decisions based on sophisticated pattern recognition and predictive capabilities. Getting the most from these powerful applications will require new skills from IT and operations staff. Leading utilities should also ensure that their applications architecture is streamlined. Disparate and outdated application environments make it nearly impossible to perform meaningful analytics.

Automation and service management for the grid, networks, and digital devices to ensure operational reliability and the balancing of supply and demandAs operational and information technologies converge over the next decade, utilities must integrate an increasingly diverse set of technologies, including smart meters, pollutant controls, operational provisioning tools, and new storage technologies. Network, service management, and automation technologies that were once relegated to data centers can now be enhanced and customized for managing physical assets, power capacity, service provisioning, and information across the grid. Benefits include substantially improved capabilities for detecting faults/events, determining their root causes, and automating the actions needed to resolve them in the future.

To succeed in the future, utilities will need sophisticated IT‑enabled service management capabilities that reach across operational domains and technology layers to streamline key activities and use data to create value for the business. With the right service management approach, leading utilities will be in position to stay on top of their Smart Grids and intelligent networks—and ultimately improve security of supply and the introduction of renewable energy and distributed generation.

Additionally, improving customer management by extending the network into the home and embedding more device controllers into customer equipment represents new opportunities and technical challenges. Managing this extended network will likely require two‑way communication capabilities to monitor the performance of each device. Systems that provide the option for a utility to automate its interaction with the underlying customer equipment can also become increasingly vital.

Collaboration and communications platforms to improve customer and partner relationshipsAs leading utilities evolve from a fully vertical operating model (where they do everything for themselves) into one where they increasingly integrate with numerous other providers and partners, they will need to establish supply chain management and collaboration systems similar to those used in manufacturing enterprises. Introducing more collaboration technologies—including telepresence, videoconferencing, and other productivity enhancing solutions—can also help reduce the energy expenditures related to travel and commuting.

Over the coming years, these systems are expected to add more multi‑channel communication capabilities, allowing utilities to interact with customers using text, email, phone, and online assets. They will also offer more real‑time capabilities, so utilities can instantly alert customers to an uptick in power usage or an impending power restriction.

Customer management, supply management, advanced billing, and other business application modernization for more efficient business operationsCustomer management tools and applications will increase in importance to top utilities providers. These systems are an important foundation for identifying and targeting customer markets and better managing service organizations. They can enable utilities to segment markets, design and target demand response programs, track results, and generate content for communications. These solutions help utilities improve their service quality and responsiveness by gathering and providing quick access to detailed customer information and choosing the best multi‑channel communication approach on a customer‑by‑customer, message‑by‑message basis.

Billing systems will become more sophisticated and will help utilities manage the data coming from the expanding array of metering and monitoring devices, implement better dynamic pricing and demand response programs, and accommodate distributed generation. They will also help utilities offer pay‑as‑you‑go, prepayment, and card‑based programs that will become increasingly popular with low‑income customers and transient users, such as college students and holiday renters.

Holistic and integrated security to thwart attacks by cyber hackers and reduce physical theftAs utility OT and IT systems converge over the coming years and more devices are extended to the edge of the network, security threats may increase. However, the same extension of devices improves the ability to spot instances of theft. Moving into 2020, top utilities can integrate cutting‑edge cyber security and theft identification and prevention practices—often relying on outside experts—across key networks, including: •Wide area networks (WANs), which link utilities to

their customers•Field area networks (FANs) and neighborhood area

networks (NANs), which collect and send data back to utility operations systems

•Home area networks (HANs), which connect smart devices and smart applications to the smart meters

•Utility operations centers•Traditional enterprise IT environments

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Today’s security technology tends to be comprised of fragmented, data‑centric solutions that are very IT‑focused and designed to setup a defensive perimeter. By 2020, security environments should be much more holistic, integrated, and business‑focused. They will establish a layered system of defense with greater emphasis on users and applications, and be centrally managed. These robust security measures are designed to reduce the odds of catastrophic bulk power system failures from human‑caused and natural disasters such as cyber terrorism, vandalism, or earthquakes and extreme weather events.

Robust, flexible, and highly available infrastructure

Because the above‑described IT will directly impact the reliability of daily utility operations, by 2020 underlying IT environments will need to be:•Highly available to ensure uninterrupted power

generation, transmission, and distribution•Automated and self‑monitoring to anticipate and

manage events that could cause power disruptions•Robust enough to handle massive amounts of data

generated from the increasing number of digital assets and customer touch points

•Adaptable enough to accommodate new regulations, divestitures or mergers, and new operational technologies added to the grid

Powerful IT is the common denominator underlying virtually every effort to become more customer and service centric.

HP capabilities: Transform utilities to become customer and service centricHow do leading utilities meet these requirements in 2020? In a word: transformation. Successful utilities are re‑inventing how they use technology to become more customer and service centric and leverage the convergence of OT and IT systems.

HP has a vision for these leaders called the Instant‑On Utility. Instant‑On Utilities give customers, employees, and partners whatever they want, whenever they need it. They use technology to integrate and automate the value chain, to rapidly adapt and innovate, and to manage risk and environmental responsibilities. They focus on customer satisfaction and delivering powerful, compelling services.

Our relentless commitment to innovation and broad array of capabilities are driving the evolution of the Instant‑On Utility. This vision supports the technical requirements demanded by the 2020 marketplace and the goal of establishing cost‑effective, customer‑oriented operations over increasingly digitalized networks and grids.

We currently provide proven solutions while continuing to invest in important research and development to meet tomorrow’s needs. We offer solutions designed specifically for utilities, as well as market‑leading IT infrastructure services and products that provide a powerful technology foundation. In preparation for 2020, we continue to help utilities transform by embedding technology in efforts to secure supply, increase customer satisfaction, better manage environmental impacts, and ultimately to become more customer and service centric.

Our utilities industry solutions portfolio spans grid automation and management, business intelligence, collaboration and communications tools, applications modernization, and extensive IT security. HP Utility Center is a flexible and robust software‑based framework that addresses the service‑management requirements of today’s and tomorrow’s Smart Grids across a wide variety of assets, domains, and technologies. It helps to quickly activate grid and network assets, deliver services as expected, and exploit operational and usage data for business value.

Our business intelligence and information management solutions enable utilities to garner insights from the enormous volume of information that is expected to be generated by the continued digitalization of operations between now and 2020. We help utilities efficiently gather, store, access, and synthesize massive amounts of operational, customer, and regulatory information. We offer a variety of products and services to modernize and unify applications, streamline business processes, and improve collaboration and communication with customers and the broader supply chain. And our enterprise security solutions provide an end‑to‑end approach to data, user, application, and network security. All these capabilities enable utilities to seize the information and business opportunities created by the convergence of operational and information technology to create a more customer‑focused utility in 2020.

HP CAPABILITIES FOR THE UTILITIES INDUSTRY

Ensure security of supply through automation and management of

Smart Grids and intelligent networks Improve customer management

Boost energy efficiency and environmental sustainability for

utilities and their customers

•Assessment and strategy services•Implementation and

management services•Automation and

management software•Operational data analytics

software and services

•Customer information optimization solutions

•Customer management services and software

•Customer application transformation services and solutions

•Compliance tracking and reporting capabilities

•Energy sustainability management solutions

•Ecological output management solutions

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We are also developing utilities solutions for beyond 2020. Hundreds of dedicated researchers in HP labs around the world are tackling some of the utility industry’s toughest operational challenges, creating new opportunities, and strengthening demand and supply levers. Finally, we leverage intellectual property (IP) from solutions developed for other industries and are creating new IP focused on:•Predictive analytics (Live BI): These tools enhance

the real‑time capture and reporting of analytics generated from Smart Grid and intelligent network data. The goal: to move from a reactive to proactive and predictive operational management.

•Sensing solutions: As one of the largest manufacturers of digital sensors, we are investigating several new uses for sensor and accelerometer technology, such as detecting unexpected vibrations that may be caused by equipment malfunction, theft, or tampering. The goal: to provide more sensitized data to further improve analytics.

•Home energy management: This technology isolates consumption at a more granular level within the home and presents it in a manner that encourages positive behavior changes. The goal: to make home power usage reduction easy.

•Electric vehicles: The advent of electric cars creates a need for roaming billing when drivers recharge their vehicles away from home. We are leveraging the roaming billing software used by telecoms for billing mobile phone owners and applying it to the electric vehicle challenge. The goal: to simplify a utility’s relationship with its electric‑vehicle‑owning customers.

•Security: Our market‑tested offerings include NERC‑CIP and other compliance‑related assessments and consulting services, along with applications, IT, and end‑to‑end Smart Grid security solutions. The goal: to provide a holistic, integrated, and business‑focused security environment.

Embracing 2020 and beyond with IT‑driven operationsThe unprecedented changes in electricity supply and demand are making our societies, economies, and overall well‑being more dependent than ever on utilities. The entire industry faces enormous challenges, but there are also great opportunities for utilities that can leverage IT to become customer and service centric. Today, most utilities operate under a centralized business model. Infrastructures are old, not well automated, and rely on traditional sources of power. Customer service is typically not a strength, which can result in widespread public criticism.

As 2020 approaches and more elements of electricity generation, transmission, and distribution are digitized, operational and information technology will likely converge to the point where day‑to‑day operations are inseparable from IT. Leading utilities can respond by creating agile, demand‑driven infrastructures—fueled by a rich stream of operational and customer data—that efficiently generate, transmit, and distribute electricity from a variety of sources. Some utilities may even be hailed as innovators in both supply and customer management.

Getting there requires a new set of demand and supply levers, and the wisdom to know when and how to manipulate them. HP embraces this 2020 vision of utilities—we call it the Instant‑On Utility. We currently offer the solutions needed to successfully navigate the convergence of operational technology and information technology that will allow utilities to be more customer and service centric. And we’re already investing deeply in the technologies that will likely define utilities IT beyond 2020.

Utilities shoulder an enormous responsibility regarding the health of our societies, economies, and general wellbeing, and HP is a partner you can rely on. To get an insight into solutions that create advantages through transformation and help you lower risks and achieve operational excellence, visit: www.hp.com/go/utilities.

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© Copyright 2012 Hewlett‑Packard Development Company, L.P. The information contained herein is subject to change without notice. The only warranties for HP products and services are set forth in the express warranty statements accompanying such products and services. Nothing herein should be construed as constituting an additional warranty. HP shall not be liable for technical or editorial errors or omissions contained herein.

4AA4‑0139ENN, Created March 2012

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http://news.nationalgeographic.com/news/energy/2011/09/110913-smart-meters-for-electricity-theft/