Utilities continue to face an array of challenges that bring new costs and threaten both top- and bottom-line performance. Significant macro forces include: carbon-reduction and other operational changes arising from the Paris Agreement; an increasing global shift away from coal and toward solar, wind, hydro, and other renewable energy sources; and an attendant growing emphasis on distributed energy resource (DER) systems and technology such as smart grids.
In light of this shifting and disruptive landscape, utilities are struggling to prioritize new investments and ensure that initiatives will positively impact not only customer/stakeholder satisfaction and expectations but also increase shareholder value.
Amid these challenges, utilities are embracing some innovative approaches to remain healthy, safe, and profitable. Let’s examine some of these best practice areas and how they benefit the industry.
As the macro challenges outlined above impact utilities, there has been a drive to use whatever investment funding is available to deliver value across a broad range of projects to ensure that customer satisfaction and shareholder value are maintained. This cuts across all aspects of a business, from CapEx to OpEx to IT and so on. Technology plays a key role here, enabling organizations to make smarter, data-driven decisions about how to allocate increasingly limited resources to maximize return on investment.
Over the past few years, operational efficiency has been crucial to remaining successful despite the trying conditions in the industry. This focus continues to be a driving force, as organizations look across the enterprise for opportunities to improve efficiency to reduce overhead or increase revenue. Particular areas of focus include governance and standardisation, cost and change management, and supply chain control.
Digital technologies have been embraced more fully in areas like IoT, but there has been less adoption of tools to help with the critical areas of delivering assets. That is changing, as organisations wake up to how various technologies (cloud, mobility, location-based services, collaboration and real-time analytics) can enhance project delivery – and, by extension, margins.
So how are those three pillars playing out in practice at utility companies? We see significant potential for improvement across all three arising from a few key areas of focus.
Focus: Capital Planning
Improving how projects are selected can deliver upwards of 15% savings, according to McKinsey research. In our experience working with utilities, best practice entails capturing project/investment ideas from across an organisation (not just the executive suite), and then modeling options to help select the projects that will deliver the most value for the least investment.
We have baked such capabilities into our capital planning solution, which enables organisations to maintain a balanced portfolio that considers the status of in-flight projects as well as market changes and larger economic conditions. For example, a utility can monitor initiatives and shift priorities and resources should changing economic indicators signal that a once-promising project is unlikely to deliver expected value.
A practical example: One of our customers uses our portfolio management solution to model multiple economic scenarios (i.e., sources, rates, value, etc.) against portfolios of selected projects. This has helped the organisation effectively predict which projects will drive the most successful outcomes across a wide range of conditions.
Focus: Sustaining Projects/Small Caps (The New Normal)
The utilities industry is no longer looking at a few major projects to deliver, focusing instead on an array of smaller projects. Driving that shift is organisations’ desire to use what limited investment funds they have to increase production without exposure to the risks and delivery challenges common to major projects. These small projects may range in value from tens of thousands of dollars to $10 million or more, with delivery timelines of couple of weeks to a couple of years.
The challenge with such small projects is to ensure visibility, planning, controls, and executive oversight, while still allowing them to be managed simply and effectively – in contrast to the often-complex controls needed to manage a major project.
Our capital projects and programs solution (SaaS/on premise) is a highly flexible application that provides a range of interfaces – both web and mobile – to meet the needs of all project stakeholders (from executives, to project managers and engineers, to the supply chain) regardless of project/portfolio size. For small projects, organisations can take advantage of capabilities such as templates, mobile field status updates, field-initiated change requests to track potential budget impacts, and resource (labour, equipment, and materials) tracking. They also can track actuals and trends in near real time (versus waiting weeks or months for invoices to flow in), and perform analysis to drive management and executive action in near real time as well. We have seen the practical impact of this approach. One of our clients reported saving 10% to 15% on their portfolio of almost a half a billion dollars a year.
With the reduction in investment funding, existing assets are being used to the maximum. But eventually all assets require extensive offline maintenance (outages) to optimize process and production. And while significant elements of an outage on any one asset are the same as the last one and the one before that, more than two-thirds of organisations still fail to deliver these outages on time, in large part due to lack of planning and failure to capture lessons learned in previous events.
What’s more, while these maintenance projects are intended to improve efficiencies, in many cases poor project management yields the opposite effect. Delivery delays from scope creep, inefficient resource management and other factors can lead to increased cost, production and revenue losses, diminished shareholder value, and regulatory non-compliance.
Our outage solution supports the business transformation under way at many utilities organisations as they look to improve management of outage events to minimize both their duration and their impact on revenues. To ensure that an outage is delivered well, organisations need to fully understand, manage and control the scope of the event, including:
They must also be able to manage changes throughout the event, both for additional/late scope and emergent works. Our solution was designed to support the various processes that help ensure outages are delivered on time and budget, helping some organisations to save upwards of 5% on both time and cost across a range of outage events.