By Sarah Wang, Senior Consultant, Industrial Practice, Frost and Sullivan

Power utilities in Australia have played a critical role in ensuring the availability of electricity in every corner of the country. However, over the last ten years, the landscape of power generation has been gradually changing, moving away from a centralised to a partially distributed model, due to rising electricity tariffs and the need for a reliable source of power.

With a growing number of people installing solar panels in homes and businesses, the increasing use of electric vehicles and battery energy storage systems, demand for energy efficient products, and awareness of demand side management, consumers are demanding information on electricity supply, usage patterns, and high service standards from the power utility companies.

Moreover, with the accelerating use of IT enabled monitoring and control systems, the traditional functions of power utilities have been challenged. As a result, power utilities acknowledge the need to improve efficiency and devise new measures to better serve electricity consumers.

Call for change

Digitally savvy consumers expect improved experiences, a wider range of services, transparent and competitive pricing, and the power to control their own transactions and engage with their suppliers. Existing industry challenges call for an urgent change in power utilities.

Power utility companies need to resort to disruptive technologies to transition to a service-oriented business model to maintain profitability and provide improved social benefits.

These changes would also contribute to a shift from the traditional linear energy supply chain to a more complicated model where consumers can be producers and distributors become enablers of energy supply.

The Australian Energy Regulator (AER) issued the Consumer Engagement Guideline for Network Service Providers in November 2013. The guideline does not provide detailed information on how to enhance customer engagement.

However, the quality of a service provider’s consumer engagement will be a deciding criterion when regulatory expenditure proposals are assessed by AER. This has been a strong regulatory signal for power utilities on where and how to invest in consumer engagement measures.

Since the guideline was issued, power utilities have rolled out various activities to seek feedback from residential and business consumers. They have taken responsive measures to address consumers’ concerns and suggestions.

In addition, in the current regulatory determination documents for the next regulatory period (from 2015 to 2020) power utilities have made proactive plans pledging to improve customer experiences. Some of the measures include:

  • Setting up a customer relationship management (CRM) business stream, network management optimisation, and digital enablement
  • Creating and delivering mobile application solutions that provide real­-time information
  • Integrating the existing IT and operating technology (OT) systems into a smart grid solution that is expected to deliver flexible energy choices to consumers.

Retail electricity tariff costs have increased significantly over the past decade in Australia. This has been largely driven by the growing capital expenditure or ‘gold­plating’* have also been compelled to take a cost approach in evaluating investment decisions.

It has been reported in CitiPower’s Regulatory Proposal 2016-2020** that, in an effort to contain the operational cost, “Rather than the costly replacement of some of the oldest substations in Victoria, we will make better use of newer infrastructure close by.”

Adopting leading technologies and managing the electricity from the demand side have also contributed to cost efficiency from deferring network augmentation.

For example, discussions with a large consumer can potentially lead to the consumer using their own generation capacity instead of drawing power from the network during peak hours. Through investments in remote condition diagnostics and condition alerts, power utilities are able to save travelling costs and repair network problems faster.

Use of analytics as a powerful tool

Power utilities have started using analytics more intensively as a key technical solution to analyse and meaningfully interpret the humongous data available to them, after smart meter rollouts and other network automation and monitoring technologies were implemented.

This ensures compliance to regulatory reporting obligations, manages peak demand, provides warning of grid failures, identifies severe grid damage, reduces distribution costs through minimising power transmission losses, uses the smart meters’ quality of supply (QoS) recordings to allow improved analysis, and enhances overall network management and customer service.

Through improved customer services, power utilities are expected to create social value and reap financial returns. However, power utilities’ profits are restrained by regulations which dictate the return on equity.

They have recognised the necessity of venturing into unregulated business areas by helping consumers monitor energy consumption, undertaking compliance auditing, providing public lighting, meter data, and connection services, and offering engineering and construction services to external clients.

By doing so, power utilities would be able to leverage synergies and benefit from the economies of scale of improved social and financial values. For example, AusNet Services has set up an unregulated business called Select Solution, which enables commercial consumers to monitor energy and water use and environmental conditions.

In 2014, AusNet Services went further to buy Geomatic Technologies (GT), a company that offers integrated IT solutions and services using advanced mobile and spatial technologies. This strengthens the unregulated businesses, enabling companies to achieve better total profitability.

Fundamental changes happening in power utilities in Australia are driven simultaneously by advanced technologies (remote monitoring and controlling devices, distributed power generation, data processing analytics, etc.) and growingly digitally equipped customer groups who desire to be better informed and have more control over the energies consumed.

These changes will bring about new challenges and opportunities for utilities, calling for innovation and reform, and will ultimately lead to the development of business models and cultural changes at power utilities in order to remain viable and generate consistent profitability.

*The term is used to describe the unnecessary investment made in improving the network infrastructure, instead of making an investment based on realistic evaluation of combined factors, including the network condition and actual demand.

**Extracted from Page 64, Table 6.2 Our Response to Your Feedback, Regulatory Proposal 2016­2020, CitiPower. 

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