If utilities moved to the cloud, would they use more renewables?
The cloud has been a game changer for various industries looking to embrace digitization. In the context of energy, it has the potential to significantly increase the ways in which clean and renewable energy resources can be made viable.
Yet many power utilities are lagging behind their industrial counterparts in embracing the cloud and cloud-based services. What’s holding them back?
Archaic regulatory structures and an institutional distrust of moving data over the internet are a couple of major inhibitors. In the past, the IT needs of utilities didn’t necessitate extensive infrastructure or staff such that the utility couldn’t afford to install and run everything in-house.
But industry-wide changes stemming from the global energy transition require a more robust and agile IT infrastructure — and for many utilities, this won’t be economically feasible without the cloud.
That global transition in energy can be characterized by two major trends:
- The growing demand for cleaner forms of energy such as renewables, distributed generation and energy efficiency; and
- A changing set of customer expectations where customers require the same digital services from their power utility as they do from their cellular provider.
The cloud will help utilities create value in terms of operationally facilitating the increased use of renewables and clean energy. It also will support a better experience for customers by helping them to meaningfully reduce their energy use. In some cases, it even can improve energy efficiency for the utility.
The (technological) trouble with clean energy
The big problem with integrating renewables for utilities, especially distributed renewables, is the limited amount of information made available to the utilities in terms of availability and behavior of energy resources.
Without this information, utilities are unable to determine how much of their current demand can be supplied by renewables at any given time, which allows them to reduce the amount of energy they source from less sustainable resources, such as coal. Similarly, they cannot measure the positive and negative benefits to the grid caused by renewables.
In terms of customer energy efficiency and demand management, utilities have a long way to go when it comes to developing the right communications and programs to successfully reach customers. Being able to understand how and when consumers use the most electricity, and better yet how to best curb usage, is a huge struggle for many utilities that traditionally have not had any insight into the "last mile."
In a growing number of cases, it is not that the information does not exist, but that utilities do not have the resources to store or analyze it. Many North American utilities have deployed, or are in the process of deploying, smart meters.
Utilities have used this data to make huge improvements to their billing and outage management operations, but moving on to more advanced use cases such as distributed renewables integration and customer energy efficiency programs requires a second level of investment in IT infrastructure that many utilities are unable to make.
Why the cloud
Meanwhile, the cloud provides advanced IT products and services using offsite processers available via a subscription revenue model. This has flourished in global markets as a way to increase accessibility to advanced IT solutions while providing economies of scale and minimizing risk of ownership.
Through cloud solutions and services, utilities can gain access to both software and infrastructure that are otherwise too expensive or complex to integrate at their control center.
When a utility wants to explore a more complex use case — such as distributed renewables integration — it’s able to embark on new discovery projects without making heavy investments in IT infrastructure. Using a cloud model, it can outsource infrastructure and technology to test out new applications in an isolated environment, not taking away from internal IT resources (so-called "sandboxing"). If the use case proves viable, the utility can choose to expand it over the cloud, or move production in-house.
Similarly, if a program is too complex and technology is rapidly evolving, as is the case with customer engagement and energy efficiency/demand management platforms, a utility can opt for a 100 percent cloud-based solution, paying a monthly fee for the service, to avoid the threat of installing an unworkable or soon-to-be obsolete technology.
Barriers to adoption
Traditionally, the utility preference has been in-house configurations because of the capital versus operating model of utility financing, which favors capital investment. (Investing in cloud-based or Software-as-a-Service IT services are considered operational expense in most cases.)
Even in cases where cloud services are initially deployed to offset the capital cost of a large analytics project, it is not uncommon for a utility to implement the solution in-house upon the completion of service contract to weight overall finances toward capital expense.
Additionally, many utilities and vendors report that system managers distrust the reliability of cloud-based solutions and dislike the detachment from system control.
Vendors also acknowledge that data security and compliance issues could further prohibit cloud adoption due to institutional misunderstanding of the robust security infrastructure that cloud providers typically provide alongside other services. As a result, key vendors are also hesitant with respect to investing in cloud capabilities.
The needle turns?
There are some indications that the tide is turning in this area. New York recently passed a set of revised ratemaking procedures, making it the first U.S. state to directly add provisions that support cloud-based IT solutions.
Where New York has formalized its support of cloud solutions, other regulators — including those in California and Illinois — are beginning to recognize the benefits of hosted IT solutions (particularly as they are able to enhance value for customers), and are thinking about how the regulatory process can be more supportive.