Achieving Excellence in Energy Networks

Achieving Excellence in Energy Networks

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Achieving Excellence in Energy Networks

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  • Drivers of Operational Excellence

    The quest for higher efficiency has been on the agenda of energy utilities for the past decade. For example, many have established optimization programs as part of their core strategic plans. But a number of industry fundamentals are bringing operational excellence to the forefront as a top priority for executives in energy network companies.

    The Need for Sustained Growth in Transmission and Distribution Spending. Aging infrastructure and the lack of grid reliability are becoming major concerns for regulators as well as transmission and distribution companies. For instance, it is widely reported that three of the five blackouts that occurred in the U.S. in the past 40 years took place in the most recent 9 years. At the same time, there is a push to unify electricity markets by connecting independent national and regional grids. Finally, the demand for electricity is growing rapidly—especially in countries such as Brazil, China, and India, where governments are working hard to meet that demand. Taken together, according to NRG Expert, global capex in power transmission and distribution is expected to grow by around 5 percent per year to more than $220 billion by 2015.

    Regulatory Pressure to Improve Performance and Asset Management. European and Australian regulatory practice have established incentive regulatory schemes such as cap regulation to encourage regulated entities to reduce operating costs, raise equipment availability and lengthen equipment life span, improve supply reliability, and increase overall grid capacity.

    One common way to establish the cap is by setting annual efficiency goals and a cost reduction target for total expenditure. The level of efficiency to be achieved is established by benchmarking against peers. This means that in order to achieve higher returns, operators need to be best in class in operational excellence.

    Distributed Generation and Smart-Grid Evolution. Significant energy-network investments are required to integrate the growing investment in renewable-power generation. This trend will fundamentally change the operations of power networks as they adapt to the new conditions to ensure that reliability and availability are maintained. These changes in the utility environment are occurring worldwide.

    Smart-grid deployment will help accommodate distributed generation and improve grid management. Currently, the vast majority of electricity networks, especially in the distribution segment, use little or no automation, particularly in remote and rural areas—even in developed countries. Expansion of the smart grid will translate into a CAGR of 15.4 percent for the distribution automation market over the next ten years.

    The economic life of transmission and distribution equipment is estimated to be 45 to 55 years. Peak transmission and distribution electrification in the U.S. and the EU occurred in the 1950s and 1960s. Thus, Goldman Sachs estimates that the average age of transformers in operation in the U.S. is 42 years. The U.K. regulator, Ofgem, estimates that the weighted-average age for electricity distribution equipment in the U.K. is 39 years.
    In China, the five-year plan that covers 2011 through 2015 budgets $400 billion for investment in electricity grids. The Power Grid Corporation of India, which is responsible for more than 50 percent of the energy transported in the country, expects to invest $27 billion over the course of its five-year plan that covers 2012 through 2017.
    New reliability concerns about distributed generation were highlighted in West Texas in 2008, when electricity generation fell from about 1,700 megawatts to 300 megawatts in a single day.
    Smart-grid deployment will also bring benefits to the electricity sector, the consumer, and society. Electric Power Research Institute estimates that net benefits could be in the range of $1.3 trillion to $2.0 trillion in the U.S, with a benefit-to-cost ratio ranging from 2.8 to 6. BCG estimates this ratio to be 2 to 3.5 for Spain.
    According to Visiongain, distribution automation represents $12.34 billion of the $33.91 billion total smart-grid market.