IBM Business Analytics and Optimisation: Energy and utilities. The UK s

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1 IBM Business Analytics and Optimisation: Energy and utilities The UK s energy sector must respond to changing times. It needs to adapt if it is to meet the demands of consumers and Government for reliable, affordable and clean energy. With utility companies drowning in data but thirsty for insight, analytics can help address these needs. When will your business become a data-driven utility?

2 IBM Business Analytics and Optimisation: Energy and utilities The country s ageing power infrastructure needs replacing. Increasing energy demand is placing stress on our power stations and networks. New and unproven power generation technologies are being introduced, but cannot guarantee stability of supply. Customers are struggling to pay their bills, while government is demanding a shift to more sustainable energy sources. IBM s experience proves that analytics will be the game changer for the industry. The UK s energy businesses have access to more information from more sources than ever before, from the power stations that generate our electricity to the customers who use it. All of this has enormous potential value, but only if it can be captured, integrated and analysed, and then embedded in the utility to develop new strategies and customer propositions, and improve operational efficiency and effectiveness. Why change? the drivers for smarter energy While various challenges from privatisation to volatile oil prices have influenced the UK energy sector, the basic model of generation and distribution has remained more or less unchanged for a century. That is no longer the case. Energy businesses are facing demands from three main stakeholders customers, society and the industry itself and these are driving change through the sector.

3 1. customers want reliable and affordable power, with excellent customer service. A recent survey conducted by IBM 1 revealed that UK energy consumers expect three main things from energy companies: A reliable energy supply, with minimal disruption. To be treated as valued customers. Help in managing energy use and reducing their bill. Reliable power requires stability of supply. This means balancing any fluctuations in energy generation against steadily growing demand. Decreases or disruptions in supply from the shift to renewables, to the impact of geopolitical unrest must be anticipated and mitigated where possible. At the same time, increases in demand need to be managed, and a shift away from peak consumption periods achieved, in order to prevent demand from outstripping supply and to maintain the best possible service. And there will be an ongoing need to engage customers in order to help them manage their energy use, if demand is going to be cut and energy bills reduced. the challenge: how can the energy industry manage the balancing act between supply and demand and how can utilities convince customers to do their part, in order to keep power available and affordable? The answer to both questions is the same: by capturing, integrating and analysing all available information and acting on the findings to ensure reliable supply, keep costs down by introducing greater efficiencies and better engage customers in the process. This means seeing the explosion in data from new technologies such as smart meters and social networking as new and exciting opportunities to be embraced. And it means adopting new analytical techniques such as sophisticated debt forecasting to help provide insights into how best to help each and every customer. 2. society wants new and sustainable energy supplies without the disruption this could cause to economic growth. The UK government recently reaffirmed its commitment to sustainability with its 50% reduction in carbon emissions by 2027 the target reaffirmed by the UK government in its fourth carbon budget fourth carbon budget, which seeks to cut carbon emissions by 50 per cent by 2027, based on 1990 levels. 2 This means more sustainable and renewable power generation and smarter systems and grids to cope with these new sources of supply. Instead of a few large power stations, the network will have to deal with intermittent inputs from many smaller sources, and manage the data generated by such systems in a smarter, more integrated way. But, if they cannot pay for themselves in the long run, such strategies are unsustainable by any definition. the challenge: energy needs to be provided in a more sustainable way, but the energy industry has to cope with a fragmented value chain and inertia. Changing direction is difficult and usually takes place only under extreme pressure. How can energy businesses meet society s demand for sustainable generation, distribution and consumption without killing margins? By establishing a business case for sustainability, based on intelligent systems that apply all available information in a smarter way to minimise waste, reduce risk and ensure that profits are achieved. For example, new advanced analytical methods coupled with detailed weather forecasting allow the layout of wind farms to be optimised before they are built, simultaneously providing insights that ensure the amount of green energy produced is maximised and the amount of uncertainty and risk to investors is minimised. 3. the energy industry wants to make a profit with tolerable risk. Energy companies have historically grown based on increased energy use, but, under pressure to cut emissions and reduce consumption, they will need to be more innovative in their thinking if they are to satisfy their shareholders hunger for growth. This will be difficult few energy companies will want to risk profits on unproven strategies or untested technologies without a financial incentive. New regulation and initiatives will go some way to providing this incentive. For example, Ofgem s Low Carbon Networks Fund makes 500 million available for projects exploring new technologies and commercial arrangements among distribution network operators. Many of these projects involve new collaborative partnerships and the testing of technologies that produce masses of new data about our energy infrastructure. 4million UK households are suffering from fuel poverty

4 IBM Business Analytics and Optimisation: Energy and utilities Becoming an insight-driven utility Gather data Implement analytics Embed the process the challenge: how can traditional energy businesses be encouraged to break out of the pack, create new business models and invest in a new and improved future for energy, given their low appetite for risk? How can they make more of what they have in order to retain and gain market share and stay ahead of the competition? To do so will require greater insight into everything from their own operations to their customers behaviour. For example, it will mean looking at real-time information from sensors throughout energy networks coupled with predictive asset maintenance analytics to spot problems before they happen, or using data about a customer s lifestyle to offer them the most appropriate and affordable tariff. Why become an insight-driven Utility? Consumers, society and the industry in the UK are all looking to the future of energy but the picture is still not clear. Energy businesses need to take the lead in order to tackle these issues. By capturing, integrating and analysing the reams of data available, energy companies can be streamlined, new insights obtained, sustainable solutions implemented and managed, customers engaged and margins improved. Analytics can help to make all of this a reality. To make the most of data, energy businesses first need to manage that data, putting in place the infrastructure to collect, store and make it available to the right people at the right time. Second, they must find the tools to analyse that data and turn it into useful information. Third, these activities must be embedded within strategic planning and business processes so that analytics becomes a fundamental part of everything an energy business does. For example, smart metering will increase by over 4,000 times the amount of consumption data that a utility company receives about each customer. This data will need to be received, processed and stored securely. Then new analytical tools and techniques will need to be applied to derive insights, such as spotting when vulnerable customers stop using energy, or detecting quickly which areas are affected by a power cut. And to deliver the full value these capabilities then need to move out of the analytics department and into the front line, with smart analytically supported decisions being made by customer service staff and field engineers. This is a big change, though it requires guidance and insight from people who have already helped businesses through similar transformations, such as IBM. It requires investment and innovative thinking to see past the traditional models in order to meet the expectations of consumers, society and the industry. customers: creating and managing data-driven demand Traditionally, energy customers have not been given access to detailed data about their power consumption. The wider impact of their energy consumption habits have not been well communicated and consumers have not been

5 encouraged to change their behaviour. Inconsistent demand patterns have fuelled the need for costly and carbon-intensive peak generation. And tariffs have been based on an average, masking the real cost of peaks and troughs in supply. Analytics can change this. If customers are given clear and accessible analysis about their consumption patterns, enabled by smart meters and smart grids, they will be able to make informed decisions about energy use and become active managers of their consumption. This information will also provide energy businesses with new customer insights, allowing them to offer new products, services and pricing tailored to the particular needs, wants and lifestyles of different customers. Embedded analytics will allow automation such as remote load management, giving utilities a degree of direct control over how and when customers use energy, and taking the onus and bother of doing so away from customers who would prefer to be doing other things. Instead of a demand-led system governed by broad consumption trends, the new model will be based on intelligent supply and greater customer engagement. IBM s work with the Pacific Northwest National Laboratory, one of the US Department of Energy s 10 national research laboratories, has already demonstrated the potential of this model. Homes were equipped with smart meters, as well as intelligent thermostats, water heaters and dryers. 1 Homeowners could customise these devices to turn on and off based on use or economy. Participants were also sent regular pricing updates, including critical peak pricing, via the internet. Customers could adjust energy consumption in order to avoid periods of peak demand (and therefore cost), which translated into real savings. The combination of timely, detailed information, coupled with the automation of home appliances for better energy consumption, meant that customers saved an average of 10 per cent on their energy bills. Participants became an integral part of power grid operations, which helped to relieve pressure on the distribution 10% savings on energy bills using smart meters findings of a study by IBM with the Pacific Northwest National Laboratory network. Those customers who responded to real-time prices reduced their peak power use by an average of 15 per cent, with reductions of as much as 50 per cent during some critical peaks. society: living up to sustainability expectations The energy sector will need to collaborate, innovate and invest if it wants to live up to society s demand for a more sustainable future, but there is much that energy businesses can do today to improve itself. Forecasting and optimisation techniques, based on analytics, will make it possible to work existing assets harder, more effectively and more sustainably. They will also allow new infrastructure to be built, operated and maintained more intelligently. For example, the shift to electric vehicles could prompt a significant rise in electricity demand when they are all plugged in. use the insight that analytics provides to become an insightdriven utility. To help solve this problem, IBM has worked with the EDISON research consortium in Denmark to establish the viability of smarter analytics-based technologies to match the charging of electric vehicles with the availability of wind energy in the grid. Innovative methods such as these, designed to support the sustainability agenda, should be at the heart of any energy company s efforts to live up to society s expectations. This is not a philanthropic, marketing or social responsibility exercise there are hard business benefits involved, but only for those that are prepared to embrace analytics as a means to address sustainability needs, and industry: building tomorrow s energy sector today At the moment, power stations provide big capacity in isolation, connected to a grid that is designed to handle predictable, consistent, high-volume power generation. But this is changing, with many more smaller renewable power Unlocking the value of data: Analytics techniques Utility companies are drowning in data, yet thirsty for insight. getting the most from the data requires the use of increasingly sophisticated analytical methods: 1. retrospective reporting and analysis understanding what has happened and why. 2. real-time alerts and alarms spotting issues as they happen and determining the appropriate action to take. 3. forecasting the future using historical data to estimate what we expect to happen. 4. optimising outcomes making the right business decisions today to achieve the best results in the future.

6 IBM Business Analytics and Optimisation: Energy and utilities stations being built all the time. And what if, in addition, millions of gas boilers in people s homes were replaced with new combined heat and power micro-units? Rather than having a few dozen large power stations, tomorrow s energy sector might comprise a few million smaller ones. This represents an enormous challenge how can the energy output of these units be managed, and how can they be operated effectively and maintained in future? The industry therefore needs to focus on its assets. Utilities need a more detailed understanding of what is happening now and what could happen in the future, so that any problems can be predicted, maintenance issues streamlined and output optimised. Energy companies need to know how much power is being produced, and must be able to control that power and optimise the system. Managing power outages is a key component of ensuring the lights stay on. That s why IBM has developed an Integrated Distribution Outage Planner, helping energy companies to transform the power grid to minimise outages. 4 It is an online, real-time planning tool that can be used in existing and new power systems. As well as planned outage scheduling, it uses analytics to look for the causes of unexpected power cuts and excessive energy use. The solution has been piloted by one of the largest utilities in Asia, Shanghai Electric Power Company. The organisation performs between 5,000 and 6,000 maintenance tasks and tests every month, often manually, which means that frequent power outages are a real problem. Since the project was completed in 2010, outages have been reduced and the rate of equipment availability has increased significantly. Steps such as these, based on the effective and innovative implementation of an analytics-based solution, are vital if energy businesses want to become more profitable, sustainable and customer-focused. Regulators are more likely to view a proactive utility in a positive light. And customers will respond positively if they see their supplier making an effort to understand and respond to their specific needs. 5,000 or more maintenance tasks are conducted each month at the Shanghai Electric Power Company. Analytics can help avoid outages Where next for UK energy? The energy landscape is changing, whether the industry likes it or not. Some utilities are doing more than others, but every company in the sector could use analytics to drive a step change in their performance. This is an end-to-end journey and IBM s expertise in analytics can help in this transformation. IBM s core capabilities in analytics include: data management: ensuring that data is available at the right place and time, accessed by the right people and managed in a legal and compliant way, at the lowest cost. analytics and reporting: creating a vision for the use of analytics and reporting, providing the tools needed to attack all of the data and performing the analysis to identify the insights that help address the most important business issues that energy companies face. embedding the transformation: helping companies ensure that their transformation to insight-driven businesses is a long-term solution, becoming part of strategic decisionmaking and their day-to-day operations. Energy companies should be brave enough to step forward and act now. They should make more of the data they already hold, and prepare for even more. Analytics can help to turn that sea of data into business insight and opportunities, but energy businesses need to act now to make this happen. When will your business become an insight-driven utility? Portal power: The state of energy in Texas ibm was asked by american electric Power, centerpoint energy and oncor energy delivery in texas to help them give their energy customers direct access to their consumption data. by being better informed, the utilities hoped that consumers would act more responsibly when it came to their energy use. in response, ibm created the texas common Portal, which takes data generated by 7.1 million smart meters and allows customers to monitor their personal energy use in 15-minute intervals via an online web service. historical energy consumption is managed securely, reviewed and analysed, offering customers ways to reduce their utility bills and carbon footprint.

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8 ibm contacts Copyright IBM Corporation 2011 Will siddall Advanced Analytics Leader Energy & Utilities IBM Business Analytics & Optimisation (BAO) +44 (0) Jon bentley Partner, Innovation, Energy & Environment Leader, Smarter Energy IBM Global Business Services UK & Ireland +44 (0) Mark ewen Associate Partner Energy & Utilities IBM Business Analytics & Optimisation (BAO) +44 (0) IBM United Kingdom Limited 76 Upper Ground South Bank London SE1 9PZ The IBM home page can be found at ibm.com IBM, the IBM logo and ibm.com are trademarks or registered trademarks of International Business Machines Corporation in the United States, other countries or both. If these and other IBM trademarked terms are marked on their first occurrence in this information with a trademark symbol ( or ), these symbols indicate US registered or common law trademarks owned by IBM at the time this information was published. Such trademarks may also be registered or common law trademarks in other countries. A current list of IBM trademarks is available on the web at Copyright and trademark information at References in this publication to IBM products or services do not imply that IBM intends to make them available in all countries in which IBM operates. Copying or downloading the images contained in this document is expressly prohibited without the written consent of IBM. This publication is for general guidance only. All rights reserved. YTW03191 references 1. IBM customer survey smart meter data 2010/ UK proposes fourth carbon budget. DECC. 17 May Department of Energy putting power in the hands of consumers through technology IBM and Shanghai Electric Power to Pilot New Smart Grid. IBM. 4 November Recycled fibre content 50% post consumer waste 25% pre consumer waste 25% virgin fibre