Arnaud Philibert - Sales & Marketing development SmartGrid/Utilities

Utilities, consumers and public services all face the same challenge of assuring better energy production and consumption at optimal cost. Information and communication technologies can help.

Energy company margins eroding

As populations continue to expand, we would expect energy revenues to follow a similar curve – provided the ARPU is stable over time – but this is not the case. The kilowatt-hour unit price will become increasingly variable because it is regulated and often rises more slowly than production and transport costs. Further, consumers (or rather "prosumers" as they are known) are encouraged to use less energy by consuming more efficiently.
Fossil-based energy production costs bound to rise
At the moment oil is relatively cheap, but this situation will not last. A barrel at less than $50 will bring temporary benefits for weeks or months, but many factors will inevitably push the price back up: exhaustion of oil reserves, higher extraction costs, environmental regulations, soaring cost of nuclear safety improvements, and rising oil demand as economies start to growth again. Fossil energy production costs are bound to rise along with distribution costs due to the renovation and densification of grids and the installation of smart meters and the networks needed to carry the data traffic they generate.

Business as usual will put profitability at risk

Selling kilowatt-hours is no longer sufficient to maintain energy companies' business models. Operating expenses may not yet be threaten by cost-cutting, but financial controllers will be taking a much closer interest in them. Investments are now concentrated on energies releasing little or no carbon (1) but whose average LCOE (2) is generally higher.
Both transporters and distributors (3) must make provisions for grid modernization (remote control, smart meters, associated ICT infrastructure, cyber-protection) and prepare for drastic changes in supply and demand in their 10-year plans as the top-down supply chain transforms into a circular economy.
For consumers, smart grid initiatives bring a promise of better energy efficiency, eco-friendly consumption, and even the possibility of becoming micro energy suppliers themselves.

Powerful ICT systems are essential

Highly flexible wireline or wireless telecommunication networks and computer systems are needed to cope with massive smart meter deployment, in progress or planned, and the multitude of sensors needed to manage bi-directional energy flows at the end of distribution grids. The scaling of the ICT architecture must include a savvy measure of redundancy (a network whose power supply comes from the grid it is supporting is exposed to breakdowns of the latter) while optimizing capex and opex.
Energy companies can benefit from telcos' experience
Telecoms equipment vendors and operators have unrivaled expertise in the engineering, commissioning and operation of nationwide networks. Who can better guarantee the highest possible level of performance than companies that have proven their ability to innovate unceasingly to adapt and modernize their own core business? The ICT ecosystem now boasts an arsenal of tools to measure performance and quality of service and solutions to combat fraud and cybercrime. Energy utilities need to durably modernize and strengthen their ICT infrastructures, so why not turn to the top experts: integrators and telcos?

A vast portfolio of billing, CRM and data services

Energy utilities formerly in monopolistic situations used to have "users"; now they have "customers", and the reality of churn is acknowledged in their marketing approach. The kilowatt-hour unit price now fluctuates over time and is usage-dependent. Telecoms specialists can assist energy suppliers in their customer prospecting, loyalty building and service personalization. Their long experience of real-time billing and prepaid services could be leveraged to develop new and potentially lucrative business for energy utilities. Telcos could even open their ICT infrastructures and position as billing and CRM providers. Energy utilities will see the advantages of outsourcing these tasks to experts rather going for costly investments and internal training schemes.
Big Data processing is another service that energy companies could delegate to ICT service providers who have data centers and data processing solutions. By choosing such systems, which assure the very best cybernetic protection available today and comply with local regulations, energy companies can demonstrate that they are assuming their new responsibilities.

From analog to digital: a global structural and behavioral transformation

The way in which energy is produced is undergoing irreversible changes. The first and biggest change lies in consumption modes:
– "Smart" technologies facilitate rationalized consumption. Connected objects in the home and even in vehicles enable real-time control of consumption, which will obviously upset energy suppliers' predictive models.
– Innovative technologies and new regulations have spurred the emergence of decentralized production. Micro production units, such as photovoltaic panels on residential rooftops, inject electricity into the electricity grid. Grid balancing must take this technical constraint into account, and powerful IT systems will be needed to manage flows. Such trends shorten the value chain, obliging utilities to optimize their activities and explore alternative growth paths.

Telecom operators as natural partners for utility companies

ICT players appear as natural partners in view of their experience and repeated success in adapting their business models to disruptive changes in their ecosystems and to fast-evolving market needs. Network operators have not only kept pace with technological progress, they have driven the convergence of different services, starting with the traditional telephone and ending with quadruple-play offers. They can provide consulting services, technical and business assistance and master plans and will have no difficulty in answering utility companies' questions such as "How can we best serve our existing market as it radically restructures?" and "How can we penetrate new markets?".

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(1) GDF-Suez and E-On are both impairing carbon-based generation assets in order to concentrate more on green energies.
(2) LCOE: Levelized Cost Of Energy.
(3) TSO: Transport System Operator, DSO: Distributor System Operator

Energy suppliers, consumers and public services are looking for tools to help them produce and consume energy better and at optimal cost. Telecoms operators' turnkey services are the answer.

Energy company margins eroding

The ARPU of energy companies is declining sharply. The sale of kilowatt hours no longer provides a solid base for their aging business model based on long-term recurrent profitability. Customers want managed, personalized turnkey services and convergent offers. Regulators are calling for more competition and more players along the whole value chain. In short, legacy energy utilities must now adapt to competition, segmenting their market then customizing their services portfolio. In future they must treat their former "users" as "customers" and accept the reality of customer churn. This is exactly the same paradigm shift which has impacted incumbent telecom. Energy utilities are also hit by cost inflation: to comply with regulatory and market constraints, their aging production units will have to be upgraded (or scrapped), concentrating investments on low-carbon systems. All these factors will oblige them to better control their grids and pay closer attention to consumer aspirations.

Powerful ICT systems are essential

Highly flexible wireline or wireless telecommunication networks and computer systems are needed to cope with the massive deployment of smart energy meters (an estimated 145 million units in Europe by the year 2020) and the multitude of sensors needed to manage bi-directional energy flows at the end of distribution grids. The scaling of the ICT architecture must include a savvy measure of redundancy (a network whose power supply comes from the grid it is supporting is exposed to breakdowns of the latter) while optimizing capex and opex.
Telcos can create value for energy companies
Telecoms equipment vendors and operators have unrivaled expertise in the engineering, commissioning and operation of nationwide networks. Who can better guarantee the highest possible level of performance than companies that have proven their ability to innovate unceasingly to adapt and modernize their own core business? The ICT ecosystem now boasts an arsenal of tools to measure performance and quality of service and solutions to combat fraud and cybercrime. Energy utilities need to durably modernize and strengthen their ICT infrastructures, so why not turn to the top experts: integrators and telcos?

A vast portfolio of billing, CRM and data services

Competition on the energy market is new but already intense. Telecoms specialists can assist energy suppliers in their customer prospecting, loyalty building and service personalization. Their long experience of real-time billing and prepaid services could be leveraged to develop new and potentially lucrative business for energy utilities. Utilities could emulate telcos, copying their successful business models and partnerships, m-commerce apps, real-time sales and distribution management and micro-financing offers, to achieve customer satisfaction and position themselves differently on their changing market. The kilowatt-hour unit price now fluctuates over time and is usage-dependent, making billing more complex, so telcos' rich Business Support System (BSS) catalogs can prove invaluable. Telcos could even open their ICT infrastructures and position as billing and CRM providers. Energy utilities will see the advantages of outsourcing these tasks to experts rather than going for costly investments and internal training schemes.
Big Data processing is another service that energy companies could delegate to ICT service providers who have data centers and data processing solutions. By choosing such systems, which assure the very best cybernetic protection available today and comply with local regulations, energy companies can demonstrate that they are assuming their new responsibilities.
From analog to digital: a global structural and behavioral transformation
The way in which energy is produced is undergoing irreversible changes. The first and biggest change lies in consumption modes:
– "Smart" technologies facilitate rationalized consumption. Connected objects in the home and even in vehicles enable real-time control of consumption, which will obviously upset energy suppliers' predictive models.
– Innovative technologies and new regulations have spurred the emergence of decentralized production. Micro production units, such as photovoltaic panels on residential rooftops, inject electricity into the electricity grid. Grid balancing must take this technical constraint into account, and powerful IT systems will be needed to manage flows. Such trends shorten the value chain, obliging utilities to optimize their activities and explore alternative growth paths.

Telecom operators as natural partners for utility companies

ICT players appear as natural partners in view of their experience and repeated success in adapting their business models to disruptive changes in their ecosystems and to fast-evolving market needs. Network operators have not only kept pace with technological progress, they have driven the convergence of different services, starting with the traditional telephone and ending with quadruple-play offers. They can provide consulting services, technical and business assistance and master plans and will have no difficulty an answering utility companies' questions such as "How can we best serve our existing market as it radically restructures?" and "How can we penetrate new markets?".

The smart grid not only converts passive energy users into "prosumers", it transforms the energy industry's traditional top-down business model into a circular economy. The value chain is compressed; energy grid flow management is distributed between all stakeholders and becomes real-time. This is requires continuous, reliable data exchange and processing.

From the Internet of Things to the Internet of Everything

The transformation of the energy sector may appear perplexing at first sight. In fact, this (r)evolution is positive for, as in all activities, good information makes for good decisions.
Today the behavioral trends of individuals and organizations reveal a quest for efficiency in everything they do. It is becoming crucial to base decisions on an uninterrupted supply of information as exhaustive and reliable as possible. The feasibility of streams of detailed binary information is driving new services such as e-health, connected objects and vehicles, and smart heating. In the former analog world data came from a limited number of sensors, but in the new digital era it will be possible to model in fine detail every action and situation. As we move towards increasing automation (the Internet of Things), we manage our behavior, situations and information streams via computers, tablets and telephones (the Internet of Everything). 
The energy industry too will benefit from this new paradigm: energy management and usage efficiency will be based on distributed information of proven reliability.

Performance depends on data transmission and processing

Connected objects are a new and promising market; we can expect to see 80 billion communicating devices worldwide by the year 2020. Telecom operators must seize this opportunity and avoid a repetition of the present scenario which has cost them $23 Bn in lost income poached by OTT players (1).  
As every gesture and event become "digitizable", a gigantic volume of data will be collected via very high-speed IT and telecoms infrastructures, then stored and aggregated on any available terminal (PC, smartphone, tablet). 
The smart home, smart heating and water management will be possible thanks to the presence and power of set top boxes deployed by telcos. This need for data collection and transmission will be an additional incentive for public authorities to promote the deployment of WiMAX, ADSL or optical fiber.

No smart grid without smart data management

Analytical sciences will be essential to exploit all this data optimally. Such analysis is a continuous learning process, so the first entrants will acquire the greatest competence and earn first-mover advantages, as always in markets driven by innovation. To succeed it will be necessary to take into account local regulatory specificities in terms of privacy protection and data confidentiality, which is one reason for partnering with credible regional players. 
Service providers can propose "as a Service" (XaaS) type services providing analytical solutions to meet the needs of both energy utilities and public authorities, complementing them with m-commerce apps and e-administration systems.

Data for the use of everyone 

This is where the revolution really lies! With the Internet of Everything we not only collect data from numerous information sources, but above all we process them and communicate the results to anyone who wishes to optimize their energy efficiency. Whether to comply with the regulations or simply for reasons of mutual advantage, the post-processed data are made available to energy producers, distributors and transporters (2), to the consumers who generated the raw data, and to public services in view of their probable regulation role. Data must be anonymized and made secure before generating indicators that can be exploited by energy grid stakeholders - which today means everybody!

Energy grid: from parcel management to community management 

Involving the "prosumer" in his connected home in public smart grid initiatives opens opportunities within a circular economy that includes smart building, smart districts and smart city projects.
Looking beyond the traditional energy producers, distributors and regulators, today we observe a meshed network of contributors transforming the traditional top-down business model into a more horizontal one based on transversality and interconnection in which every decision is both individual and collective, and above taken in real time. 
Efficiency will of course necessitate much automation; machine-to-machine (M2M) technologies and automation processes will become more important in our daily lives. Leaving aside models and regulations, individuals and enterprises are free to act as they like, provided this is for the common good. ICT systems therefore serve not only to allow objects to interact, but also to provide data for individuals and business managers to underpin their reasoned decisions on energy production, transmission and consumption. 
There is no longer any predefined master/slave schema but rather a complex ICT environment using dedicated applications to serve the interests of the community as a whole. Public services and private companies will no longer focus on infrastructure build and run, but rather "managed services" with which they will need assistance. Telecoms operators appear as the ideal partner, given their broad expertise in ICT and telecommunications architectures using all technologies and in all types of environment. 
Above all, they will prove invaluable inasmuch as they can relieve energy companies of the burdensome tasks of data collection, transmission and processing, and then deliver information for immediate use along with the tools needed to make their customer's job easier.

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(1) Source: Ovum. Users switching to OTT applications, such as Whats’App as an alternative to SMS, have cost telcos $23 Bn
(2) Transport Network Managers (TNM) and Distribution Network Managers (DNM).