eBook

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Digitalization for the

Power & Utilities Industry
 Contents
Introduction 1

A roadmap for the future 2

The race for decarbonization 2

The COVID-19 factor 3

Workforce issues 4
Supply chain and operations 4
Financial reporting 5
Crisis management and response 5

Operational excellence and digitalization will define the future 6

Addressing the changing energy landscape 7

Changing customer expectations 7
Coping with aging infrastructure 8

How to overcome the barriers that delay digitalization 9

Barrier 1: Insufficient stakeholder buy-in 10

Barrier 2: Incorrect prioritization 12
Barrier 3: Lack of communication 13

Take the next step to achieving digital maturity 14

Digitalization for the Power & Utilities Industry eBook

Introduction

The power industry is in an unusual position. It is expected that the power industry achieves full
decarbonization by 2050 in order to meet climate change targets and cap global temperature
increases to 1.5ºC 1 .

This target creates a paradox however. Energy demands are expected to grow by an average 1.3%
every year between now and 2040. At the same time, fuel and power demands will be 400% greater
than they were in the 1990s2.

Clearly traditional coal and oil-based energy sources need to be replaced by carbon neutral,
sustainable alternatives. By 2040, coal use is projected to fall to just one-quarter of its current
levels. More concerning is the realization that renewable energy sources are not keeping pace with
population growth and increased demand for power.

According to the International Energy Agency (IEA), “A sharp pick-up in efficiency improvements is the
single most important element that brings the world towards the Sustainable Development Scenario”3

Efficiency improvements will help to maximize production and output from renewables, reducing
waste and allowing operators to achieve more with their current infrastructure. Operators will also
need to seriously consider retrofitting carbon capture technologies where emissions cannot be
reduced through general efficiency improvements.

The Complete Guide to Digital

Introduction
Maturity 1
 A roadmap for the future
To reach the emissions reductions targets set out in the Paris Agreement, the power
industry will need to scale up renewable energy generation six times faster than current
rates. At the same time, energy use must fall by 66%. According to the International
Renewable Energy Agency (IRENA), these reductions can be achieved by improving global
energy efficiency and decarbonizing the power sector4.

Assisting these efforts is a decline in demand for fossil fuels. Coal usage is already
declining, supplying just 25% of energy generation needs by 20405. And as electric
vehicles become more viable, demand for oil will also slow markedly after 2025, before
falling steeply after 2030.

Increasing use of solar and wind generation is likely to increase costs by $1.7 trillion in
2050. However, greater savings will be realized in terms of reduced air pollution, better
general health of the population and a reduction in environmental damage.

The race for decarbonization

Demands for carbon emission reductions have coincided with a fall in the cost of
renewables; solar has fallen by 80% and wind by 40%. They are now economically
competitive with conventional fossil fuels, accelerating uptake by the power generation
industry. Renewables are the cheapest way to add marginal capacity to power generation
in most markets6.

Importantly, some solar and wind systems are generating more electricity than is
being used. This surplus could be put to work electrolyzing water to create hydrogen
for instance. Gas turbines and fuel cells can use this hydrogen as a zero-emission fuel
source in future. There will also be more development of energy storage systems that can
capture these surpluses to cope with peaks in demand on the electricity grid.

The power industry is also set to play a crucial role in helping to decarbonize other sectors
known for high CO2 emissions. The chemical industry is heavily reliant on cheap energy;
migrating producers to renewable sources will have a significant effect on emissions –
even for those whose processes rely on fossil hydrocarbons as raw materials.

Even if the power industry decided to ignore international calls for emissions reductions,
their shareholders will not overlook the benefits of decarbonization. Failure to adopt
green technologies will increase costs – legal, risk, operating costs, increased premiums,
greenhouse gas (GHG) levies, auditing and reporting costs etc. Strategic audits will help
to assess the environmental impact of existing systems – and the cost implications of
not replacing them. Similarly, investigations into new, greener technologies will help to
quantify potential savings in terms of running costs and GHG reductions.

2 Digitalization for the Power & Utilities Industry eBook

The COVID-19 factor
Demand, particularly from industrial and commercial sectors, has fallen, creating
financial stress and disruptions to the power supply. The IEA found that every full month
of lockdown reduced demand by 20% - or over 1.5% on an annual basis7. On a more positive
note, these falls have only affected fossil fuels generation, helping to reduce emissions
by as much as 17% compared to 2019 levels8.

The power industry has a good track record when it comes to protecting output during
natural disasters. Plants are specifically designed to withstand environmental risk
factors like earthquakes, fire and flood.

Viral pandemics are a slightly different proposition however, well outside normal disaster
recovery provisions. As a result, COVID-19 and the global shutdown has had a remarkable
effect on operations. Widespread quarantines have caused workforce disruptions and
increased restrictions that add an additional layer of complexity to normal business
continuity plans.

The COVID Factor 3

 Workforce issues
Where possible, the power industry has moved to a remote working model, allowing
administrative employees to work from home. A large proportion of the workforce is still
required on-site to manage and oversee operations, and to ensure safety standards are
being upheld.

In times of extreme duress, power operators have been able to rely on mutual aid
assistance. But because of the global nature of the shutdown, much of this help has been
unavailable, placing additional stress on operations.

It is also worth noting that mass adoption of remote working also significantly increases
cybersecurity risks. Every remote login represents another potential attack surface that
could be exploited to disrupt operations. Remote working will become more common
even after the pandemic is officially over – but the industry will need to reassess their
cybersecurity provisions accordingly.

Supply chain and operations

As an essential service, the power industry is legally entitled to an adequate supply
of everything required to maintain operation throughout a crisis. Parts, equipment,
materials and fuel must be made available to ensure generation and output is maintained.

Given the indiscriminate nature of quarantines and lockdown, some providers may still
struggle to source exactly what they need. This is also true of suppliers using renewables;
sourcing and transporting photovoltaic cells and turbines may become more difficult as
trade routes are still operating under limited capacity.

The reduction in demand for energy helps to reduce some of the burden on power
producers, but other risks become apparent. As the world enters a deep recession,
customers are more likely to default on their bills for instance.

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Financial reporting
Any form of outage or unplanned reduction in output is likely to carry financial reporting
implications – and a negative effect on share price. Workforce disruption may also have
unplanned consequences. Without enough admin staff, regulatory reporting may not be
completed on time, increasing the risk of fines and costly inspections and audits.

Crisis management and response

Existing disaster recovery (DR) plans would have been perfectly adequate for most
scenarios. The COVID-19 pandemic has revealed blindspots in many plans however,
exacerbated by a lack of adaptability. Future DR plans will need to include a greater
degree of flexibility, allowing them to maintain a high quality of service in the event that a
health emergency limits the number of employees available to work.

As climate change begins to affect weather, DR plans may also need to be strengthened
to prepare for a “double whammy” scenario. How would a power firm cope if their locked
down plant was damaged in a winter storm? How will they bring services back online with
minimal on-site workers?

The COVID Factor 5

 Operational excellence and
digitalization will define the future
Power industry strategy has always been driven by a need to increase production efficiency
and reduce costs to protect profit margins. Adopting an operational excellence program can
help to achieve these strategic goals and overcome the challenges documented in the previous
section. Operational excellence uses hierarchical control (driven by intelligent data systems) to
perfectly align compliance, operations activity management and operations risk management
with key metrics and objectives.

By equipping employees at all levels of the organization with tools and data, everyone is
empowered to make smarter decisions more quickly, reducing operational risk in the process.
and objectives.

By equipping employees at all levels of the organization with tools and data, everyone is
empowered to make smarter decisions more quickly, de-risking operations in the process.

Addressing the changing energy landscape

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Addressing the changing energy landscape
The falling cost of renewables creates a dilemma for the power industry. Yes, it is cheaper to deploy
solar and wind generation equipment – but consumers are also taking advantage, sometimes aided
by government grants, lowering costs further.

These consumers are not only generating their own electricity and reducing demand from central
generators, many are also feeding their surplus back into the grid to claim rebates or bill reductions.
These ‘prosumers’ present a threat to revenue, but this may be offset by providing relief to over-
stretched grids.

Power companies need to plan for these scenarios by deploying smart meters and smart grids
to give consumers greater control over their consumption. This will help to increase customer
satisfaction and potentially reduce account attrition rates.

Smarter grids also allow for greater visibility and control of the power network, allowing producers
to assess consumption patterns on an individual account level. Using the data generated at every
point of the grid, operators can better plan capacity and development, and formulate flexible
pricing models that incentivize energy use.

Changing customer expectations

The energy industry is largely consumer focused, but many operations retain a culture and strategic
mindset stemming from the era when energy companies were a state-owned monopoly. Enabled
by price comparison websites and lucrative joining bonuses, many customers regularly switch
providers, increasing the cost of managing and retaining accounts.

In order to protect profit margins, customer service quality may be reduced, leading to the energy
sector being rated second worst for service and last for reputation9. Utilities have also been behind
the curve in the provision of digital services to customers, placing them well behind other industries
– and the expectations of their client base.

Operational excellence is a critical tool in improving the customer experience - not least because
it is instrumental to minimizing downtime. Digitalizing processes and operations also offers
opportunities to use data more effectively to provide rates and services tailored to the individual,
better meeting their specific needs.

Operational excellence also requires significant improvements to communications, internally and

externally. Some research indicates that consumers will tolerate infrequent service issues if they
receive proactive, positive engagement with the provider in question10. Developing an omni-channel
communications platform will empower organizations to deliver customized communications and to
enable self-service functions that allow customers to take greater control of their own experience.

Operational Excellence 7
 Coping with aging infrastructure
Achieving operational excellence is very much determined by the efficiency of assets
and facilities. The power industry must focus on optimizing performance to minimize
downtime and outages whilst maintaining compliance with their legal and regulatory
obligations.

For too long operators have operated infrastructure on “run-to-fail”, only servicing
or replacing assets at the point of failure. According to the US Energy Information
Association, operators are spending USD $51 billion every year, to replace distribution
infrastructure that is a quarter of a century old11 – and which may not be capable of
meeting the flexible demands of the future.

Managing risks, performance and costs will require greater visibility of every aspect
of operations. Armed with more accurate, real-time data from inside their operations,
utilities companies will be able to move to a predictive maintenance regime that carries
out repairs before failure to prevent outages and downtime.

Digitalization of infrastructure will be critical to achieving these changes and should

be an aspect of every future infrastructure renewal project.d ou whilst maintaining
compliance with their legal and regulatory obligations.

For too long operators have operated infrastructure on “run-to-fail”, only servicing
or replacing assets at the point of failure. According to the US Energy Information
Association, operators are spending USD $51 billion every year, to replace distribution
infrastructure that is a quarter of a century old – and which may not be capable of
meeting the flexible demands of the future.

8 Digitalization for the Power & Utilities Industry eBook

Managing risks, performance and costs will require greater visibility of every

Overcoming the barriers that

delay digitalization
Digitalization provides a way for the energy industry to maximize the potential growth
opportunities provided by the move towards renewables and smarter distribution.
Those who adopt early will realize the most significant benefits, allowing them to take
market share from less well-prepared competitors who are unable to deliver the digital
experience demanded by customers. Given the urgency of the current COVID-19 economic
situation, the power industry as a whole must act swiftly to remain competitive – and
afloat.

The relative complexity (and cost) of building smart plants and distribution infrastructure
may dissuade some operators from making the necessary changes. Similarly, those
already engaged in digital transformation may encounter issues that hamper their efforts
to achieve maturity.

Acknowledging these barriers in advance offers an opportunity to plan a response. Here

are three that every operations manager should be aware of.
 Barrier 1: Insufficient stakeholder buy-in
Because digital transformation affects every person at every level of a business, projects
require buy-in and support from all stakeholders. Without a shared vision of data-driven
operations, efforts will be unfocused, yielding less-than-optimal outcomes.

Stakeholder buy-in is sometimes hard to secure precisely because of the lack of

transparency in operations. The production manager is focused on ensuring sufficient
power generation to meet demand. The procurement manager wants a reliable source of
fuel or renewables. The sales manager is concerned about fluctuating levels of customer
satisfaction. And the CEO wants to be sure that health and safety standards are being
upheld – and that profit margins are protected.

The good news is that digitalization can meet all these demands and more.

Digitally mature firms typically appoint a small team responsible for defining and
implementing the digital transformation strategy. This group must be empowered
to conduct experiments – and potentially make mistakes – in their ongoing efforts
to identify and implement new ways to use data to create efficiencies. A digital twin
will help to lessen the chances of production being affected, but there has to be an
understanding that mistakes will be made (usually in the earlier stages of the process).

The project team needs public support from the CEO and other C-suite executives to
ensure that the company as a whole understand the goals of the project – and that this is
a serious effort to safeguard the future of the company in the face of serious economic
uncertainty. This will help to generate the buy-in from stakeholders to keep moving
towards digital maturity.

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11
 Barrier 2: Incorrect prioritization
Digital transformation typically cannot be completed in one “big bang” project. Instead it is usually
an ongoing process of continuous improvement, with iterative changes building towards a greater
whole.

The goals of digitalization must be bold and extensive, but the stages in between should be smaller
and more manageable. Targets and priorities must be set according to desired strategic outcomes
and KPIs. Goals can be updated and priorities changed as the project progresses, particularly as
more data becomes available.

If customer demand suddenly increases consistently, diverting resources to address the issue
becomes the current priority. The same goes for excess power generation or supply chain delays.

Strategic partners can be invaluable when helping to define priorities. Their previous experience
with similar projects will give some basis of understanding for prioritizing tasks and prevent non-
essential tasks consuming cash and resources that would be better spent elsewhere.

12 Digitalization for the Power & Utilities Industry eBook

Barrier 3: Lack of communication
As well as frequent reminders about digital transformation strategy, stakeholders also
need to be kept informed about progress towards goals. A constant flow of relevant
information will help to keep employees engaged with the process - particularly if they
can see that the digital transformations are having a positive effect.

Communication will also be vital to keeping stakeholders informed of their

responsibilities. Everyone has a role to play in collecting and sharing data, and they need
frequent training and updates to ensure information is being handled correctly and the
correct KPI information is being recorded. By soliciting feedback from stakeholders
you can redefine KPIs as the project matures. This is critical to implementing a culture
of continuous improvement that reduces and costs and improves the overall quality of
service offered to your customers – and to reaching your decarbonization goals.

Communication is not just an internal issue either. Partners will need to be kept in close
contact so they are able to play their part in pushing towards shared goals. Realizing
this, some digitally mature companies will invite their partners to participate in strategy
meetings so they are properly appraised as to progress and have an opportunity to share
additional insights and advice that may be able to further improve planning.

Similarly, keeping consumers in the loop will help to mitigate outages or supply issues.
They are much less likely to switch supplier if they know work is being undertaken to
improve the quality of service they receive.

Digitalization is all about communication, making the right information available at the
right time. This may take the form of reports for the production manager, or automated
responses to events on the grid. As the digitalization project progresses, systems must
continue to prioritize communication – as well as improve the efficiency and profitability
of power generation and distribution.

In the era of the tightly integrated supply chain, communication will need to improve with
suppliers and retailers too. The list of stakeholders will increase to include third parties
as digitalization efforts extend beyond the power station.
 Take the next step to achieving
digital maturity
Digital maturity is a worthy goal for any business in the power industry - and as more
organizations begin to adopt data-driven operations, it will become a strategic necessity.
Given that the power sector has been relatively slow to adopt digital transformation,
there is still plenty of opportunities for producers who act now.

Obviously, there are technical, political and procedural challenges, but with the
right partners and a system capable of creating a real-time digital twin, all should be
manageable. Indeed, choice of partners will be crucial to making digital transformation
an embedded process of constant optimization.

However, the benefits of true digital transformation are significant. Increased

efficiencies and market share will deliver greater cost control, and a stronger profit.
Adopted quickly, they will also help to provide a path out of the post-COVID-19 recession,
allowing businesses to return to profitable growth while still being able to meet their
decarbonization obligations.

Hexagon’s PPM division are specialists in operational excellence and digital

transformation for the power sector - and are helping clients get the most from their
operations. To learn more about Hexagon and how we can help your business achieve its
strategic digital transformation goals, please get in touch via https://hexagonppm.com/
contact/contact-sales.

14 Digitalization for the Power & Utilities Industry eBook

References
1
Mitigation Pathways Compatible with 1.5°C in the Context of Sustainable Development –
Various authors, International Panel on Climate Change - https://www.ipcc.ch/site/assets/
uploads/sites/2/2019/02/SR15_Chapter2_Low_Res.pdf

2
Transformation in energy, utilities and resources; Strategies to confront rising
demand and climate threats – PricewaterhouseCoopers - https://www.pwc.com/cl/es/
publicaciones/assets/2019/transformation-in-energy-utilities-and-resources.pdf

3
World Energy Outlook 2019 – International Energy Agency - https://www.iea.org/reports/
world-energy-outlook-2019

4
A Roadmap to 2050 – International Renewable Energy Agency - https://www.irena.org/-/
media/Files/IRENA/Agency/Publication/2018/Apr/IRENA_Report_GET_2018.pdf

5
World Energy Outlook 2019 – International Energy Agency - https://www.iea.org/reports/
world-energy-outlook-2019

6
How to decarbonize global power systems – McKinsey & Company - https://www.
mckinsey.com/industries/electric-power-and-natural-gas/our-insights/how-to-
decarbonize-global-power-systems

7
Global Energy Review 2020 – International Energy Agency - https://www.iea.org/reports/
global-energy-review-2020/electricity

8
COVID-19 Daily Update: May 20, 2020 – S&P Global - https://www.spglobal.com/en/
research-insights/articles/covid-19-daily-update-may-20-2020

9
Utilities rank second-worst for customer service – Utility Week – https://utilityweek.
co.uk/utilities-rank-second-worst-for-customer-service/

10
Cost reductions, customer satisfaction and vision are key to achieving Operational
Excellence for the Next Generation Utility – PA Consulting – https://www.paconsulting.
com/newsroom/expert-opinion/utility-dive-key-to-achieving-operational-excellence-for-
the-next-generation-utility-14-november-2017/

11
EIA: U.S. Utilities Spending $51B Annually on Upgrading Distribution – Power Engineering
– https://www.power-eng.com/2018/07/23/eia-u-s-utilities-spending-51b-annually-on-
upgrading-distribution/

15
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