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Contents 1 2 4 What is smart? Seeing energy differently Power and utilities: a sector in transformation
10 Transformation lessons 13 Winning in smart 16 Ernst & Young in smart 17 Smart contacts
What is smart?
Smart: intelligent new technology, creating a more efficient energy system
Most current electricity grids were designed 40 to 50 years ago. Technology has moved on, and smart puts this new technology to work. Smart energy systems now in development around the world have three key components: the smart grid, the smart meter and smart appliances. By making better use of information and communications technology (ICT) and actively involving energy customers, the new smart systems will change the way we:
Produce energy: Smart grids can accommodate renewable energy (e.g., solar and wind)
and other decentralized energy sources (e.g., micro generation) more easily.
Deliver energy: Smart grids send energy and information two ways, giving utilities more
flexibility to manage supply and demand.
Use energy: Smart meters and appliances show consumers how much energy they
use so they can choose to use less, or to switch their consumption away from peak periods.
Smart
Generation Transmission and distribution Meter Supply and retail Customer
Smart grid
Smart meter
Smart appliances
How fast could smart transform the P&U sector? What new business opportunities might emerge from new converged markets? What lessons can P&U learn from other sectors transformation experiences? What does it take to be a winner in a future smarter world?
www.ey.com/smart
Smart technologies are modernizing energy systems, bringing massive change for the industry, its consumers and for competition. How will utilities cope with the shake-up? And what must you do to get ahead and stay ahead? Visit our smart website at www.ey.com/smart for a wealth of information to support your smart journey:
Learn how smart technology is changing the P&U sector around the world Read about the new business opportunities of a changing market Discover what other industries learned from major change Find out if you have the seven characteristics of a smart winner Use our smart diagnostic to test your readiness to compete [available from 3 May 2010]
Please contact us if you need any help on your smart journey. Helmut Edelmann Global Power & Utilities Smart Program Manager Tel: +49 211 9352 11476 Email: helmut.edelmann@de.ey.com
How to make energy systems less carbon-intensive and less dependent on fossil fuels by integrating
decentralized and intermittent renewable energy into the electricity grid
How to increase energy efficiency to meet growing demand, given the increasing scarcity of energy resources How to increase access to energy, decrease the likelihood of blackouts, make energy more affordable or
keep up with demand for power in accordance with national agendas To address these challenges, new and more intelligent electricity systems are needed, including new communications structures, better utilization of IT and the active participation of consumers.
Today
Production
Future
Key changes
Decentralized generation Intermittent capacity New sources of energy production, changes in generation mix Sustainable, secure sources of supply Increasing complexity and sophistication required Flexible and fluid infrastructure Two-way flow of energy and data Smart meters and grids enable flow of energy to and from customers Smart meters and grids offer new sources of revenue Customers generate their own energy Customers have more control its no longer just about price and reliability The volume and scope of customer data is significantly increased
Hydroelectric power
Gas production
Solar
Trading Transmission
Micro wind
Smart metering
Micro CHP
Solar PV
Infrastructure upgrade
P&Us invest in new smart technologies to meet increasing energy demand, alleviate environmental pressure or replace out-of-date infrastructure. They use smart technology to detect and react to shifts in loads or network failures, improving network effectiveness. Emerging markets such as India or China will probably follow this path, as will some European markets.
How to be smart
If smart is treated as an infrastructure upgrade only, and business as usual continues, the full advantages of the new technologies cannot be realized. The major challenge for P&U companies is to get their upgrade investments right, so that they can respond quickly and cost-effectively to a market exhibiting evolutionary or revolutionary developments.
Evolution
Business strategy transforms slowly until a tipping point is reached, due to a technological breakthrough or customer acceptance. At that point, competition quickly shifts into an advanced stage. Parts of the US have already begun this shift and will potentially move toward revolution much earlier than other countries. Australia and some European markets will probably follow this evolutionary path.
How to be smart
Transformations in business strategy can be slow to take hold. P&U companies need to be alert to signs of change and agile enough to seize new opportunities. For example, smart technology will create a two-way flow of energy and information between consumers and utilities, exchanging usage and price information. The simple business of energy supply could evolve into a new, sophisticated form of energy service, in which utilities help consumers to manage their energy use and react to prices to find the best deals.
Revolution
Significant upgrades to physical infrastructure combine with a new interactive customer relationship and new competitive models that allow third parties to enter the market. This creates a revolution. Market rationalities and business strategies change completely.
How to be smart
P&U companies could face strong competition from new entrants in every part of the value chain. As the market evolves, so will the skills required to compete effectively. The greatest challenge will be deciding where to position your business in the new market. P&U companies will also have to build new partnerships to meet the changing demands of the smart consumer.
Bundling new value-added services Billing and customer care Metering, communication, IT and data management Providing energy to customers Generation
Smart could blur the lines between the P&U, automotive, technology and telecommunications sectors. Those companies that can act as integrators bundling services, data and technologies will drive this process of convergence. For example, telecommunications companies could sell services directly to the end consumer as well as operate the required communications structure of a smart grid.
Telecommunication, technology, retail companies: monthly billing, energy consumption information Metering companies, service providers: meter installation, remote metering Telecommunication, technology, retail companies: local area networks (LANs), load management, data mining Industrial products, service providers: micro grids, network optimization Cleantech, automotive, retail companies: decentralized and/or renewable generation
Metering
Electricity generation
Companies that offer the right combination of services at the right price will win.
Introducing new rates to encourage energy conservation Helping customers remote-manage new smart home appliances Producing energy and selling it back to the grid
Companies that offer the right combination of services at the right price will win.
Transformation lessons
How have other industries coped with transformation and what can we learn? Our analysis of major change in the automotive, technology, telecommunications and retail sectors has identified 10 essential lessons and 10 fascinating case studies that could help P&U companies find the right direction toward a smart world.
1
Develop more symbiotic relationships, or you wont be able to deliver a seamless experience for the consumer.
Automotive
2
Remember cash flow is your lifeblood.
3
Find out what your customer values and use your brand to seize market opportunities.
Technology
4
Look for new partnerships to identify and fully capitalize on market opportunities.
Technology
5
Stay attuned to change and anticipate tipping points, or you will miss the market.
Technology
Technology
10
Smart technology has the potential to unleash immense change on the P&U sector. Where can it look for guidance?
6
Establishing barriers around data limits new market opportunities.
9
Engage with the regulator, or you may not like the outcome.
10
Until you combine market information with data management capabilities, its just data.
Retail
Dont promise what you Collaborate with allies on cant deliver to customers, standardization to open or you will lose their new markets. enthusiasm for change.
Telecoms Telecoms
Technology
Standardizing technology
Early mobile phone companies recognized that market growth depended on developing a common set of standards for digital mobile technology. It took seven years of collaboration between the phone companies (and subsequently hardware vendors) to develop GSM, which became the first internationallyaccepted digital mobile telephony standard in 1989. It is now the dominant mobile technology.
Telecoms
Promoting competition
In the 1990s, European telecommunication regulators deemed switching costs (incurred when a consumer wanted to change mobile telephone providers) a barrier to competition. They intervened to introduce mobile number portability (MNP), to allow subscribers to retain their existing mobile number when switching from one mobile operator to another. This was intended to intensify competition in the mobile market, but success was mixed and the outcome was costly for mobile operators. Countries adopting a more comprehensive approach where the regulator and regulated companies actively co-operate have created more truly competitive markets for consumers and service providers.
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Winning in smart
Smart is beginning to change the energy landscape and shake up the value chain. By altering how energy is generated, delivered and used, smart is making room for new competitors from sectors such as retail, media, telecommunications and technology, as well as from within the industry itself.
Infrastructure upgrade: Investment in upgrading infrastructure provides some opportunities for return
from effective spending and improved performance. However, companies need to be alert to tipping points that signal the market is moving into an evolutionary/revolutionary state.
Evolution: As customers become more receptive to change or where technology becomes suitably
advanced, the market accelerates into a more competitive state. Companies need to be ready with innovative products and services, as well as strong customer communication, to capitalize on opportunities.
Revolution: Once customers are engaged and smart infrastructure is in place, a complete shift in business
models is needed to compete along the value chain. To participate in this rapidly changing business landscape, utilities will need to build or acquire skills that strengthen their customer focus, enhance innovation, reinforce their brand and maintain their strategic flexibility. Your long-term strategy do you aim to become a market leader in smart grids, smart metering and/or smart homes? In which geographical markets do you intend to compete? Some companies will continue to operate within their home markets. For others, energy will become borderless and they will seize opportunities to roll out products and services in other geographies. Technology leadership will also differentiate which companies can seize a stake in smart.
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Winners wheel
Do you have the characteristics of a smart winner?
Based on our experience and knowledge of the P&U sector, as well as the lessons learned from other industries that have gone through similar fundamental transformations, we have identified the seven key characteristics needed to be a winner in smart:
2. Effective partnerships 3. Innovative products and services 4. Technology excellence 5. Strong brand 6. Customer focus 7. Managerial and operational excellence
Does your organization have the characteristics needed to be a winner? And if not, where do you need to improve? Ernst & Young can help you assess how prepared your business is for smart. Our self-assessment tool is based on our experience and knowledge of the P&U sector, and the lessons we have learned from other industries that have gone through similar fundamental transformation. Visit our website, www.ey.com/smart, to use the diagnostic and continue planning your smart journey.
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Customer focus
Smart meters, grids and homes could fundamentally change the relationship between customer and energy provider. Energy and information will flow two ways, giving customers more control over their energy as well as the option to produce and sell energy. Truly customer focused companies will interact effectively with the customer across the entire smart value chain.
Customer focus
Winner in smart
Effective partnerships
Effective partnerships
The ability to partner effectively is critical for success. Partnering with new entrants to the sector is a fast-track method for utilities to gain the new competencies they will need skills such as managing huge amounts of real-time data, creating a truly customer-centric experience or integrating the new technologies in smart homes.
Strong brand
Will your brand make the leap into smart services and products? To date, it has been useful for utilities to be seen as relatively conservative market-followers. Now, some will need to become agents of change to succeed, and some will need to form new partnerships to build and deliver a convincing smart brand.
Technology excellence
Smart will radically challenge the IT and data management capabilities of utility companies. Smart meters will relay a stream of real-time data, which will require real-time analysis and timely response. New IT competencies, such as data mining and data warehousing, will be vital to release the potential value of this new data.
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Ernst & Young is helping companies across the P&U sector to assess opportunities and revise strategies in light of the potential transformation that smart brings.
Figure 4: The smart life cycle Program management Program Management Office (PMO), Program review
Identify and diagnose
Smart readiness diagnostic Smart strategy review Market review Market research Business modeling Valuation Setting up a road map for smart
Solution development
Customer management Supply chain management Vendor selection IT advisory IT security advisory Transaction support Tax advisory
Implementation
Supply chain management Customer management Financial services Project finance IT advisory IT security advisory
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Visit our smart website at www.ey.com/smart for a wealth of information to support your smart journey:
Learn how smart technology is changing the P&U sector around the world Read about the new business opportunities of a changing market Discover what other industries learned from major change Find out if you have the seven characteristics of a smart winner Use our smart diagnostic to test your readiness to compete
Smart contacts
Country/region Africa Australia Canada China France Germany India Italy Korea Middle East Nordics Poland Spain United Kingdom United States Contact name Jonathan Blackmore Brett Croft Steve Power Raymond Ng Pascal Antonini Oliver Becker Arun Srivastava Andrea Paliani In Sang Yoo Jalal Bibi Lars Ansteensen Piotr Piela Phone +27 11 772 3023 +61 3 8650 7623 +1 416 943 3367 +86 10 58153332 +33 1 46 93 70 34 +91 011 4363 3119 +39 0280 669761 +82 2 3787 6533 +97 1241 74502 +47 24 00 27 80 +48 225577580 +31 88 40 78810 +44 20 7951 4345 +1 704 331 1900 Email jonathan.blackmore@za.ey.com brett.croft@au.ey.com stephen.R.Power@ca.ey.com raymond.ng@cn.ey.com pascal.antonini@fr.ey.com arun.srivastava@in.ey.com andrea.paliani@it.ey.com in-sang.yoo@kr.ey.com jalal.bibi@ae.ey.com lars.ansteensen@no.ey.com piotr.piela@pl.ey.com manuel.giraltherrero@es.ey.com peter.spaans@nl.ey.com rpostance@uk.ey.com john.chevrette@ey.com
Global contacts
Ben van Gils Global Power & Utilities Leader +49 211 9352 21557 ben.van.gils@nl.ey.com Bob Ford Americas Power & Utilities Leader +1 215 4485438 robert.ford@ey.com Helmut Edelmann Global Power & Utilities Smart Program Manager +49 211 9352 11476 helmut.edelmann@de.ey.com