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Cloud Computing and Digital Transformation in Power

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Cloud Computing and Digital Transformation in Power A Powerful Vision How every aspect of the 21st century utility will be transformed by cloud computing and digital technologies Custom content for AWS by Utility Dive's Brand Studio There’s nothing abstract about Pacific Gas and Electric’s (PG&E) experience of the disruption taking place in the utility industry today. Based in San Francisco, PG&E is a venerable, century-old institution In both PG&E’s service territory and around the world, customer that currently serves about 10 million customers in Northern California demand and policy are driving this transformation. For example, across 70,000 square miles. California mandated that 50% of energy come from renewable sources by 2030 and has made it possible for communities to band together PG&E is also situated at the epicenter of the rapid transformation to purchase power from wholesale markets. Dramatic price decreases of the electricity industry. Quickly disappearing are the days when for solar panels and batteries along with the rise of micro-grid control electrons were transported to customers from large, often faraway technologies make it feasible for more and more households to ditch power plants. That model is being replaced by a much more varied the grid entirely. network of distributed and decentralized energy resources, including everything from gas turbines, run of the river hydro and wind to rooftop solar, battery storage and electric vehicles. 02 This rapid industry evolution has propelled PG&E to launch its own rein- A recipe for vention efforts. “With disruption comes opportunity,” said John Nichols, director of enterprise architecture at PG&E, during a talk at last year’s Amazon Web Services (AWS) re:Invent conference. “Disruption and op- reinvention portunity push us to innovation.” “With disruption comes opportunity. Disruption and opportunity push us to innovation." John Nichols, director of enterprise architecture at PG&E To get a better handle on what innovation could and should look like at PG&E, Nichols and his staff studied history. In particular, they examined what happened in past instances of technology disruption. Though the human brain is wired to recognize modest and sequential progressions – like 1, 2, 3, 4 – technology disruptions enable exponential improve- ments at a doubling rate, such as 1, 2, 4, 8, 16. This helps explain why companies that are first to embrace new technologies while others study them have consistently gained such a large competitive advantage. “We chose at that point to make an investment to build things natively to the cloud,” said Nichols. Convinced that fully utilizing cloud computing to improve how PG&E operated and interacted with customers also led Nichols to take steps to try and change the utility’s culture so that his co-workers would understand the possibilities of utilizing the cloud. 03 “Along the way I found that if 10% of the workforce makes a change and operates in a new way, that is a tipping point for the culture,” he said. To help move the needle, Nichols created a cloud mentorship “Along the way I found that if 10% of the program that provided anyone at PG&E who was interested in learning workforce makes a change and operates in more with both an experienced mentor and access to AWS. a new way, that is a tipping point for the culture." PG&E has a lot of other plans for the cloud, including a robust analytics platform for the utility’s data scientists to use to pilot new John Nichols, director of enterprise architecture at PG&E applications, a mobile platform running in the Cloud, and eventually the goal of getting PG&E out of the data center business altogether. 04 Technology driven by policy and customer expectations PG&E is not alone in its embrace of technology, including the cloud, tion utilities are losing their exclusive right to have energy discussions as a way to efficiently and effectively reinvent itself as a more nimble, with their customers because generators and aggregators are able to flexible and customer-centric utility. For example, a report by the market pursue direct relationships with end customers in many places around research firm Research and Markets forecasts that utility spending on the world. According to Eisenbach Consulting, an energy consulting Internet of Things (IoT) technology will reach nearly $12 billion by 2020, firm, 29 states and the District of Columbia currently have some level up from less than $5 billion in 2015. Another forecast by the market of deregulation in their energy markets. research firm IDC predicts that 25% of the top 100 U.S. utilities will reduce their IT costs by migrating their IT infrastructure to the cloud. There’s urgency for utilities to move fast to adopt technologies that improve both There’s urgency for utilities to move fast to adopt technologies that their operations and their customer service. improve both their operations and their customer service. A study by the nonprofit Smart Energy Consumer Collaborative revealed that millennials, now the largest demographic in the U.S., expect the kind The need to move quickly was also underscored by a study released of personalization and customer service they receive elsewhere in the by the McKinsey Global Institute in 2017. It noted that digital tech- economy and are willing to abandon energy providers who don’t live nologies both lower utility operating expenses up to 25% and elevate up to their expectations. Complicating matters even more, distribu- performance in areas including customer satisfaction, electricity supply 05 resiliency, and regulatory compliance. Importantly, the study also pointed out that utilities that sped towards digitalization quickest were likely to reap the biggest rewards. A recent report by the Advanced Energy Economy Institute also explored the benefits of reimagining regulations to move beyond the traditional cost-of-service model. In that model, regulated utilities earned a return on net invested capital while operating costs were passed through to ratepayers without earning a profit. The report highlighted the benefit of allowing utilities to earn a return on services that improve efficiency, including contract- ing with third parties to provide cloud computing services. Activity by state and federal policymakers and regulators is also increasingly acknowledging that cloud computing and digital technologies can benefit both utilities and their customers. The policy changes are significant: Many utilities have been unwilling to investigate the potential benefits of technology because regulators regarded third-party cloud computing services as an operations and maintenance (O&M) expense rather than a capital investment that could be rate-based to earn a reasonable rate of return. This is beginning to change. As part of New York’s ambitious Reforming the Energy Vision (REV) initiative, regulators have started to allow utilities to rate base the expense of third-party cloud services if they are paid upfront. More recently, the Illinois Commerce Commission initiated a rulemaking process that would provide utilities with financial incen- tives to adopt technologies, including cloud computing, that would help 06 It’s no coincidence that regulators are grappling with ways to better unleash the potential of cloud computing and other technologies to improve how utilities do business and serve customers. them better manage and use the massive amount of data generated cloud computing and other technologies to improve how utilities do by smart meters and distributed energy resources connected to the business and serve customers. Responding to public demands, utilities grid. The CEO of the Illinois Commerce Commission, Brien Shehan, has are prioritizing the availability of these tools. In fact, Utility Dive’s long made the case that utilities need to have the option to choose 2018 State of the Electric Utility report found that 45% of utility IT solutions that do the most to improve company operations and professionals believe that justifying investments in grid intelligence, customer services, as well as to lower costs. smart metering, EV charging, analytics and cybersecurity was a top regulatory objective. At the federal level, the Federal Energy Regulatory Commission (FERC) recently gave a green light to a rule removing barriers to All of this activity on the regulatory and utility fronts is a good reminder the use of electric storage resources in wholesale energy markets. that the transformation of the utility industry is real. Though the pace That development underscores the importance of technologies that of change and claims of the potential benefits may sometimes be can increase grid resiliency and allow for better management of a overhyped, the truth is we are on an irreversible path towards a more more distributed and flexible power system. It’s no coincidence that customer-centric and flexible energy system – one that will rely on regulators are grappling with ways to better unleash the potential of existing and not-yet-developed technologies to reach its full potential. 07 A value chain transformed The question for many observers of the utility industry is this: What and natural gas that have achieved grid parity and made it harder and does all of this ferment and change actually look like in the real world? harder for baseload power plants to compete economically. Indeed, the What does it mean when utilities have the flexibility to fully deploy cloud number of coal plants in operation in the U.S. declined from 530 in 2009 computing, IoT, machine learning, and voice recognition and command to 262 by March of 2018. technologies across the entire value chain? The short answer is that the change translates to more efficient operations, happier and more The speed of baseload coal power plant retirements is perhaps less engaged customers, and a more resilient grid. Some examples include: important than the mix of generation that will ultimately make up the new power system.
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