No time to waste, get your data under control
Non-competitive tasks in the domain of Energy Data Management ask for central orchestration to reduce costs for the sector as a whole. Subsequently, utilities can focus on their competitive activities, where disruptive technologies should be utilized as a lever for determining who is the best Utility 2.0 in class.
Context Energy Data Management
Utilities are under high pressure to deal with many current market developments. Adapting to change is key to stay in competition on the market, not only between incumbents but also due to new market entrants, such as aggregators bundling local initiatives. We operate in a market where participants compete mainly on price. Besides lower sales margins, the pressure on the profitability of incumbents is further reinforced by dropping sales volumes due to increased energy efficiency and lower customer retention rates. Moreover the incurred overcapacity for power generation also does not help energy companies to stay afloat. Developing other competitive advantages and profitable business models still seems to remain a major challenge for most of the market parties.
Besides the macro developments, as just sketched, energy companies are preparing for the effect that a wide uptake of smart meters may cause to their business processes. More specifically, the expected data flow volumes will increase significantly; impacting both systems and the entire organization.
Continuous action to deal with these challenges is required in order to stay ahead of the competition. First, and most importantly, energy players have to define a strategic vision regarding their position in the energy market towards 2020. Such a vision should be based upon the types of innovative products and services that have market potential, which requires market analysis. Secondly, they have to prepare to become an Energy DATA Company; storing, processing and analysing large amounts of data. Data handling and quantitative analysis should be a core competence of future energy companies, facilitating the decision making process in every way. Lessons can be learned from other sectors, such as banking and telecommunication, as frontrunners in dealing with Big Data issues. These frontrunners have an architecture based on non-traditional systems such as NoSQL databases and cluster computing solutions such as Hadoop to crunch and analyse large amounts of data based on machine learning algorithms. And last, but not least, competitiveness should be assured by steering on cost effectiveness. Continuous focus on eliminating waste is key to achieve operational excellence in the daily operations.
As a minimal prerequisite for still being in business by 2020, utilities should accurately manage and control the volume flows throughout their company. This can be expressed in the Energy Balance, containing a comparison of the main data processes to keep track of all energy volumes bought, produced and sold. The Energy Balance can be expressed into a five different comparisons of data flows within the company; either with an external source or internally between data flows.
An energy company's customer portfolio is the backbone of almost every data flow within the organization. If it is either about allocation, reconciliation, sourcing, (non-proprietary) trade or billing, it can always be referenced to the customer portfolio. More specifically, it is about the customer's connections register of an energy company. Therefore, it is of utmost importance that customer register is in-sync with the Central Connection Register (C-AR) of EDSN, as this contains the 'one and only truth' about the current state of every connection in The Netherlands. This centrally hosted database is used by every market party dealing with the supply, load balance and distribution of power and gas on the grid.
Figure 1: External synchronization
Source: Sia Partners
The larger part of the energy balance is performed by comparing some of the internal volume flows with each other. In chronological order, the first comparison should be made between the nominated volumes (i.e. net market position as defined in the E-program) and the allocation volumes, as determined by the DSO. Any differences between both volumes results in an imbalance, for which the TSO's imbalance price is charged.
After the end of the allocation period, the reconciliation process starts, taking up to 17 months. During this period, volumes of profiled customers will be redistributed amongst the end users based on measurement data, shuffling volumes from one portfolio to another. Comparing allocation with reconciliation volumes can be beneficial in order to identify structural trends in consumption, to be used in the long term forecasting process. This way, energy companies can act in-time upon structural deviations by adjusting the volumes to be sourced.
Subsequently, sourced volumes should also be compared to the final reconciliation volumes. This way, after the reconciliation period has ended, a final judgment can be made regarding the accurateness of the forecasts.
Lastly, measurement data should also be used to compare the actuals of individual customers with the billable volumes. This comparison should lead to minimizing non-billable volumes in the administrative department, directly impacting financial performance of the organization.
(Non) Competitive Activities
As part of defining a vision towards 2020, energy companies should distinguish their core competences from their other, supporting, activities. Creating focus in the daily operation is of key importance in order to be cost effective. Activities that do not directly lead to a competitive advantage in the market are therefore cost centre orientated and should be carried out in the most efficient way. The main processes as described in the Energy Balance can be labelled as such. More specifically: processes as register synchronization, messaging, time series validation and volume reporting should be performed as lean as possible.
Differentiating between the operational activities based on their added value results in an increased focus on the competitiveness of an energy company. Within the domain of energy data management, activities that deserve a full focus should comprehend (big) data warehousing, data cleansing and data analytics. This should directly be aligned with the departments responsible for long and short term forecasting, customer profiling and segmentation, pricing, risk and trade.
Figure 2: Non-competitive vs. competitive activities
Source: Sia Partners
The future of Non Competitive Activities within the Commercial domain
As stated, the 'Utility 2020' should become more and more a Data Management company where Operational Excellence and Cost Leadership are key to succeed. Question remains if good control of the Non-Competitive tasks in the current Market model, with quite some challenges to handle as a Balance Responsible Party, can be marked as non-competitive. In other words, the best in class of 'Energiebalans' processes is indeed in better shape than its competitors. Fact remains that putting lots of effort and resources in this domain with multiple parties in parallel doesn't sound effective and this should be recognized by all parties involved in this discussion.
Preparing for Utility 2020 the energy companies should cooperate and try to optimize the basics. New entrants will compete in the consumer market and focus on energy services via home appliances. Companies like Google/Apple will try to move into this area via multiple initiatives and the traditional energy companies need to rethink their strategy. The physical ST Optimization and Balancing activities should be under control first, and after that the traditional utilities will be able to position new and distinguishing services.
Last Thursday 11 December Sia Partners held a relation event on this very topic. Relevant market parties debated on the future in Data Management and some interesting results came out of this discussion.
It is clear for most utilities that within five years other Google and Apple 'look-alikes' will be entering the B2C market and intend to get their share. The battle in the households has already started and the large scale rollout of the smart metering here in the Netherlands will catalyse this competitive domain.
Market parties see clear advantages to jointly set the basics right on the non-commercial domain relating to data management. Sia Partners suggests parties to do this joint effort soon, in order to become ready for the battle on the commercial domain. Otherwise they will run out of time!