Roadmap for 2008

Against a backdrop of rising and volatile energy prices, increasing capital investment, regulatory change and uncertainty and an aging workforce, the utility industry in 2008 will be dominated by issues related to climate change. Utility companies will need to cope with a vast array of new policies, technologies and initiatives ranging from renewable energy resources to the intelligent grid. Energy Insights’ top 10 predictions for the North American utility industry in 2008 are as follows:

1. Climate change issues will drive increased investment in energy and information technologies
   Energy Insights predicts that utility companies will increase their investments in IT systems to measure and manage their carbon footprint – especially emissions/compliance reporting and verification.
2. Renewable energy will compete as a leading source of new electrical capacity In the US
   Wind power will continue its rapid expansion, with North American markets leading global demand. Central solar power will grow from 450MW to upwards of 4500MW in next 10 years. Transmission constraints will be overcome via specific expansion for renewables, smart grid investments and energy storage deployment. Energy Insights expects a national US RPS will be enacted within five years.
3. Distribution utilities will determine the rate of growth for distributed energy resources
   Utility scale energy storage will be deployed slowly, as costs remain high and value is disaggregated among stakeholders. Distributed (PV) will expand rapidly as homebuilders in select regions adopt technology and policymakers and utilities support it. Dispatch of distributed generation for demand response will be adopted by more utilities as benefits become more recognized. Vehicle-to-grid (V2G) will progress over decades – not years – as incremental infrastructure development will be slow to materialize. Residential micro-combined heat and power (CHP) will expand slowly in the near-term, with potential for broader adoption once vendors include stand-alone capability in two years
4. Carbon trading markets will begin to take off in North America, eventually surpassing Europe
   Energy Insights expects the coming year to bring Federal and State legislation to create cap-and-trade markets or at the very least a carbon tax. In addition, financial institutions are increasingly focused on commodity trading, including trading of carbon credits. The coming year will also see investment in technology to analyze the generation portfolio – generators will begin looking at accommodating emissions in dispatch of the generation fleet. In the near-term, carbon trading markets will remain regional, with a unified North American market not emerging until after 2009.
5. Uncertainty about source of supply will focus energy trading on delivery risk
   Energy companies will continue to look for applications to handle nominations, scheduling and logistics that are user friendly and easily integrated with the trading desk. Beyond transactions, there will be increased attention to optionality analytics to take advantage of revenue opportunities associated with storage and delivery in natural gas, as well as changing sources of coal.
6. Smart Metering success will hinge on data management
   Effectively managing and using meter data will emerge as the most critical success factor for smart metering projects. Inability to cope with scale and the pace of technology change will cause at least one well-documented project failure. Annual spending growth for smart metering in North America will reach nearly 20 percent over the next five years, spreading beyond CA and ON to other states and provinces. Smart metering will be the typical first step toward an intelligent grid for most utilities.
7. Intelligent grid initiatives will leverage existing investments and target specific problem areas
   Utilities will invest in technologies to enable greater visibility into the grid, automated decision-making, and improved reaction time to events. Near-term investments will focus on building the communications backbone, initially justified by smart metering requirements. Additional sensors beyond smart meters will be targeted at problem areas of the distribution network. The vision of very quick decisions (VeQuiDs) made in milliseconds by computers and intelligent devices analyzing complex real-time data is still a ways off for most utilities.
8. In-home displays will increasingly provide more information and smart-appliance control capabilities
   In-home displays will need to be integrated with smart metering systems and receive utility communications including price information to achieve their full potential for controlling energy costs and for demand response. Standards for home area networks will be a critical success factor for more advanced in-home displays and smart appliance and building systems. In-home displays will make dynamic pricing programs more attractive to customers.
9. Web self-service and on-line communication for utility customers will increase
   Utilities will offer more rate choices and will enable customers to run online ‘what if’ scenarios and offer service call scheduling and appointment notification through email, web self-service, and text messaging. The web will become an increasingly important channel for outage communication. Utilities will begin to implement specialized portals on their websites, such as those that focus on green energy or specific business segments.
10. Utilities will remain conservative when it comes to IT spending
    Smart metering and intelligent grid spending will eventually migrate to corporate IT budgets, driving IT spending as a percent of revenue beyond the current two percent. Utility IT organizations will continue to focus on driving down the cost of running existing systems to free up budget dollars to invest in growth and innovation.

Essential guidance

In 2008, utilities should take these predictions into consideration as they allocate and spend their technology budgets. Companies should look for opportunities to make technology investments that go beyond meeting mandated requirements and enable business innovation or provide competitive advantage. Vendors providing technology products and services to the utility industry should not assume that these predictions will immediately translate to increased technology spending across the board. They should use these predictions as one input into their understanding of industry dynamics and the role of technology in providing business value.

About Rick Nicholson

With more than 20 years of experience in information technology in the energy industry, Rick Nicholson leads Energy Insights, one of IDC’s industry research companies. In this role, Nicholson is responsible for the company’s research-based advisory and consulting offerings, which provide full coverage of the energy industry value chain including both utilities and oil and gas segments. Nicholson's experience has given him a thorough understanding of market dynamics, business strategies and processes, and technology solutions. He is a recognized and highly respected expert in the alignment of business and technology strategies and the successful deployment of technology to enable business process improvement.