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Cloud Computing for Utilities: The Economics of Software and Scaling up of Decarbonization

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This item is part of the Special Issue - 2020-08 - LTE Networks, click here for more

The proliferation of renewable energy requires an energy market that can react to change, as matching supply with demand becomes more complicated with weather-dependent resources. All over the world, power suppliers, producers, and grid operators are learning that flexibility in the grid system is essential; however, they are also quickly understanding the massive amounts of data required to properly manage new energy dynamics. Cloud computing is a necessary management tool to keep up with the exponential increase and potential of data we are seeing in utility grid operations. It has many benefits, like streamlining energy efficiency and other grid services programs and helping utilities deliver flexible power. However, implementing the forward-looking concept of cloud storage, within the traditional, risk-averse utility model, is where it gets complicated. 

Utilities often do not know how to take on these new initiatives from a capital investment standpoint and lack clarity on how to anticipate returns. In the United States, this is compounded by electric utilities’ incentive structures that offer higher returns for large capital expenditures than for operating expenses, where cloud computing currently falls. Cloud computing also falls out of the realm of utilities’ core functions. For example, where we have seen utilities thrive is when regulators require utilities to invest in research and development. Often key contacts for flexibility programs are heads of innovation departments. However, utilities also face a need for speed in scaling flexibility solutions. Keeping operational processes status quo impedes utilities from taking advantage of today’s new energy landscape.

The key to supporting utilities using cloud solutions is through low or no-cost, performance-based solutions that pay costs off through earned revenue developed by the cloud-based program. This low-cost approach does not burden utilities with having to capitalize the cost of computing and other related program expenses and are therefore specifically intriguing for U.S. clients.

Cloud-based solutions provide additional benefits in the form of security because they do not connect to the electric utilities’ systems, like current on-premise offerings that connect into SCADA systems. These cloud-based solutions are easily scalable and save costs by not requiring complicated onsite engineering. To keep costs low while elevating security practices, industry standards offer valuable guidance, such as the UL standard 2900-2-2 on cybersecurity that certifies end-to-end wired and telemetry solutions.

Commercial models that offer low-cost cloud solutions for a low barrier to entry are critical to helping utilities establish programs that earn revenue from distributed energy assets in a low-risk capacity. The new energy market calls for an innovative, cloud management system to help utilities quickly adopt and enable strong and flexible energy markets. This will offer to their rate base and participating energy players opportunities to maximize the value of their assets.

Gavin Sallery's picture

Thank Gavin for the Post!

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Matt Chester's picture
Matt Chester on Aug 24, 2020

Interesting look into how cloud technologies are necessary in the more modern, clean grid. Is there any chicken and egg issue in renewables not being deployed in some places because it's too hard to keep up with the data, but the cloud computing solutions not being embraced because the renewable penetration & data processing needs aren't quite there, yet? Or do utilities generally see the value in adopting the cloud computing one way or another? 

Gabe Prado's picture
Gabe Prado on Aug 25, 2020

Great article. Even with the clear benefits of cloud, my observations have been that adoption will only really start to take off once there's enough confidence in the security of cloud. Given that reluctance to move away from an on-prem model is due to security-related perceptions, how have you successfully been able to navigate the security topic and drive a change in perception?

Gavin Sallery's picture
Gavin Sallery on Aug 27, 2020

The real flexibility challenges grid operators and energy suppliers are facing today demonstrate that it can't be a chicken or the egg with renewables and complex data processing. However, demand side management is definitely an example of an untapped opportunity -- a chicken waiting for the egg -- waiting for the technology to fully engage it. To address security, industry standards, like UL standard 2900-2-2, establish leadership best practices to follow. These standards are similar to how other industries, like banking, transportation, and telecommunications, established secure benchmarks to develop confidence in their markets.

Rakesh  Sharma's picture
Rakesh Sharma on Aug 28, 2020

Interesting post. The biggest roadblock to cloud adoption is expense capitalization. That said, I think there's been some progress in states like Illinois and New York, which have allowed amortization of SaaS leases as long as they are unpaid.

"The key to supporting utilities using cloud solutions is through low or no-cost, performance-based solutions that pay costs off through earned revenue developed by the cloud-based program." I am curious whether you are referring to the use of SaaS or cloud solutions in supporting functions like HR or Finance. Can you provide an example?

I spoke to an analyst last year who told me that core functions within utilities, such as ADMS, may never migrate to the cloud due to security concerns. Curious about your thoughts regarding this. 

Gavin Sallery's picture
Gavin Sallery on Sep 25, 2020

Hi Rakesh, thanks for your thoughts and questions. One opportunity of cloud computing is certainly with advanced distribution management systems (ADMS), and we do see cloud solutions in this space. An example would be programs that utilize distributed energy resources for local grid constraint management, like demand response, and leverage cloud solutions to communicate and enable near-to-real-time trading with energy assets. These programs save money through infrastructure deferral, for example, by not having to put more transformers onto the grid. Utilities or companies they work with, like Kiwi Power, can apply savings from the performance of these programs to lower computing costs.

While utilities are very risk averse and some may be slow to adopt cloud computing technologies because of ambivalence around security concerns, what is gaining traction is moving semi-critical computing to the cloud. ADMS programs can be structured to operate based on communications outside of the customers' internal networks so as to not go through the internal processes and firewalls.

Paul Korzeniowski's picture
Paul Korzeniowski on Aug 31, 2020

The reality is that utilities, as well as other companies, never really wanted to get into the IT space and run their own computer systems. They were forced to because that was the only option until the Internet arose and high speed network connections became quite common. With cloud, they hand that work to a vendor, like Amazon Web Services, Google, or Microsoft, who run the utility applications in their data centers. This model is much more efficient than the traditional system, so the customers often see lower monthly computing costs and no longer have to hire and mange the IT staff themselves. 

The old models for cost justifying such investments no longer apply. As a result as noted in this blog, utilities and utility commissions need to work together and develop new metrics to account for this type of spending. 

William Dixon's picture
William Dixon on Sep 15, 2020

Gavin,

Very helpful article. Your follow-up comment regarding DSM is spot on. I was the product owner of a DSM, end-to-end (i.e. customer devce-to-control room) software package several years ago and the fact that we were dealing with non-cloud deployment efforts was really a big challange.

Matt Chester's picture
Matt Chester on Sep 15, 2020

I would also imagine that shifting from non-cloud deployment and to the cloud later would be a lot more wasteful of resources than simply utilizing cloud-based operations from the beginning

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