Grid Modernization: Optimize Opportunities and Minimize Risks

Buckle up for the acceleration in electric utilities

Analyst Perspective

Smart grid is not the latest hot topic in the electric utilities sector. However, its long-lasting impact on utilities and customers has shifted the conventional paradigm for good. With the rate of adoption of distributed energy resources to the grid, many emerging players are participating in the ecosystem within a traditionally monolithic industry.

IT and OT leaders together are expected to form a stronger union as the enablement backbone to support grid transformation that the business is often leading. As a result, IT and OT teams are being tasked with implementing and supporting various grid technologies and applications without being fully prepared for the substantial implications involving people, process, and technology.

Info-Tech's industry research on grid modernization explores the cost-benefit analysis of grid modernization programs and their unfulfilled great promises. Combining the lessons learned from previous projects, and perspectives from industry practitioners and technology vendors, this report assists IT/OT leaders to optimize and de-risk any future grid modernization projects by providing you with a practical readiness checklist to guide your team and the business throughout the journey.

JING WU
Principal Research Director,
Utilities Research
Info-Tech Research Group

Executive Summary

Your Challenge

• Grid modernization has profound impacts on people, process, and technology.
• The impacts are not fully understood by electric utilities.
• IT and OT leaders lack tactical insights to collaboratively enable the business to transform.
• IT and OT leaders have not recognized the urgency of developing future talent for the digital utility journey.

Common Obstacles

• Executives often underestimate the IT and OT involvement needed to support the grid modernization program.
• Organizations are hesitant to change and not ready to pivot to the IT/OT convergence.
• Executives do not fully embrace the importance of a customer-centric culture shift to support the grid modernization program.

Info-Tech's Approach

• Demonstrate a sample of cost-benefit analysis metrics to support smart grid technologies and applications.
• Provide insights of pitfalls to avoid prior to embarking on a grid modernization roadmap and tactical implementation plans.
• Identify the readiness checklist for IT/OT leaders to guide organizations about required changes in people, process, and technology.

Info-Tech Insight

• IT/OT plays an essential role in empowering the grid modernization journey to secure the infrastructure, maximize big data, and build a customer centric platform to bridge between utilities, customers, and partners.

Energy is in transition with an unreversible paradigm shift from the customer lens

Smart grid

Old paradigm

• Deliver unidirectional power from utilities to customers
• Dispatch meter reader and connect/disconnect
• Bill once per month with a simple rate structure
• Access call center agent services

New paradigm

• Bidirectional electricity and information exchange between utilities and customers
• Real-time meter reads and remote connect/disconnect
• Various billing rate plans with more reading frequency
• Customer omnichannel platform
• "Amazon-like" services

Info-Tech Insight

A fundamental shift requires organizations to evaluate their priorities and strategies for digital utility transformation.

Major Disruptors Driving the Smart-Grid Transformation

The evolution of "smarter" grid technologies and applications

Smart grid – The Department of Energy in the United States describes "smart" electrical grids as allowing electricity and information to flow in a two-way exchange between the utilities and customers. It consists of a network of communication, automation, controls, computers, and new technologies and equipment working together to make the electricity grid more efficient and more reliable, more secure,, and greener. [U.S. DOE, 2022]

• The level of maturity in terms of control and automation increases over time.
• Large-scale deployment is often driven by government funding programs.

Progression of smart grid technologies and applications deployment

• Advanced Meter Reading (AMR)
• Outage Management System (OMS)
• Geographic Management System (GIS)
• Supervisory Control and Data Acquisition (SCADA)
• Asset Management System
• Mobile Workforce Management System
• Telecommunication
• Network Topology

• Advanced Meter Infrastructure (AMI)
• Advanced Sensors
• Distribution Automation (DA)
• Demand Response
• Distribution Management System (DMS)
• Energy Management System (EMS)
• Customer Portal
• Data Analytics
• Cyber Security
• Substation Automation
• Enterprise Asset, Work and GIS Management

• Self-Healing Grids(FLSIR)
• Volt/Var Optimization
• Customer Omnichannel
• Advanced Demand and Response
• Distributed Energy Resource Management (DERM)
• Advanced Distribution Automation (ADA)
• Advanced Data Analytics (AI/ML)
• IT/OT Cyber Security
• Advanced Distribution Management System (ADMS)
• Microgrid
• AMI 2.0
• Advanced Sensors and Intelligent Protection Devices
• Advanced Inverter Functions (AIFs)
• Advanced Telecommunication

[Natural Resources Canada, 2019; U.S. DOE, 2022]

Global smart grid investment grows and propels technology advancement

The U.S. is planning to spend even more aggressively in developing grid infrastructure to build resiliency against various disruptions. This follows the previous insurgence of government funding of industry investments as part of the American Recovery and Reinvestment Act of 2009.

The new funding injection has a diversified portfolio, including grid hardening and weatherization, and developing advanced cybersecurity technologies. The previous wave of investment focused largely on AMI deployment.

Global investment in smart grid has climbed back after a couple of consecutive low years due to the Covid-19 pandemic.

U.S., China, and Europe continue to lead, driving the market size growth.
Investments should triple by 2030 to meet the Net Zero Target in the 2050 scenario.

$7.86 billion
U.S. smart grid investment grant as of 2016

$17.6 billion
U.S. infrastructure investment in grid infrastructure and resiliency planned between 2022-2026

[Source: DOE 2018; NCSL ]

Lessons learned from earlier projects in Europe

Smart grid projects, including research development, demonstration, and deployment, have been happening worldwide for a couple of decades. There is great value in reviewing, understanding, and sharing what lessons have been learned and how we can avoid common pitfalls and de-risk future projects.

Smart Grid Project (2002-2012) in Europe scope:

1.8 billion
spent and 80% funded by public.

Over 281 projects
across 30 countries and the majority of them are smart metering rollouts.

35 months
is the average project duration.

Key lessons learned:

• Lack of standards caused interoperability challenges for DER interconnection, smart devices, EV communications, and IT applications.
• Lack of clarification of roles and responsibilities caused limited participation from retailers, service providers, and aggregators in projects.
• Private investments were deterred due to the lack of certainty over sharing costs and benefits.
• Lack of diverse strategy caused resistance in customer participation. Skepticism among different customer segments developed over smart grid projects.

Lessons learned from government trial in Australia

Smart Grid, Smart City Project (2010 - 2013) in the Australia scope:

480 million AUD
total investment of which $100 million AUD came from Federal Government.

$28 million AUD saved
over 20 years in areas such as improving network reliability by detected and restored network faults faster.

7 type of projects
in grid application, customer application, distributed generation, distributed storage and supporting information, communication technology platforms, and electrical vehicles.

Key lessons learned:

• Most cost-effective approach requires further investigations although benefits were demonstrated by various advanced automation technologies.
• Cyber security and data privacy should remain at the top priorities due to increased possibility of threats.
• Interoperability standards should be developed collaboratively, not by a single authority, and leverage existing international standards.
• Customer protection should be in place for vulnerable consumers.
• A stronger policy mechanism should be assessed by jurisdictions even though dynamic tariff structures have proven to be beneficial.

Lessons learned from previous rollouts in the U.S.

Smart Grid Investment Grant Program (2010 - 2015) in the United States scope:

7.9 billion USD
invested and 57% of funds came from private investments.

228 utilities and organizations
Participated in over 99 competitively selected projects.

33% of total smart meters
installed in the U.S. were done as part of this program.

Key lessons learned:

• Comprehensive communication systems enable multiple smart grid functions beyond electricity metering, such as water metering and internet services, etc. System integrations are key to the success of smart grid projects.
• Internal collaboration and coordination are keys to success; new skillset training such as cybersecurity and data analytics are cornerstones for organizations to implement and support the project and deployed technologies.
• There is no one-size-fits-all approach to customer education and engagement to overcome the steep learning curves. Customers always expect real-time access to their consumption data and cost. Efforts are required to address the often-marginalized communities. Financial incentives are the main driver that customers expect for the smart grid outcome.
• Acceleration of grid modernization by 2-10 years due to the public-private partnership.