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Innovative Strategies for Cost Optimization

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Ahsan Upal's picture
Regional Manager, Business Development Burns & McDonnell

Engineer and a senior leader with major utilities and consulting firms of increasing responsibility leading geographically diverse operations and large multidisciplinary teams to manage critical...

  • Member since 2019
  • 17 items added with 16,398 views
  • Mar 24, 2020

This item is part of the Innovations in Power - Spring 2020 SPECIAL ISSUE, click here for more

When personal commuter vehicles can double as Uber rides for hire, and when the unused rooms in a house can become Airbnb rentals, it is clear that new business models are taking hold. Utilities’ current model of building single-purpose assets looks inefficient in that light.

To maintain a competitive stance, utilities need to consider both getting more value from their assets and innovating strategies to reduce routine costs in order to maximize the impact of ratepayers’ dollars.

Multipurpose Assets

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Telephone companies used to transmit only audio, and cable companies only broadcast signals, through their copper lines. Today, those same wires are being used to transmit voice, video, internet, financial transactions, security data and much more, multiplying revenue streams while dramatically lowering the individual cost of each service. Electric utilities deliver a single product down their wires; they need to demand more from their assets.

For example, adding solar and wind resources at the sites of existing traditional generating plants like nuclear, hydro and gas would add generation capacity, making greater use of existing sites and their transmission connections while increasing the energy density being harvested per acre. Similarly, could existing coal plants — instead of being fully decommissioned — be converted to house energy storage or data centers?

Some utilities own prime land for substations in urban centers. Could some of these spaces be commercialized, such as with a drive-through restaurant or a coffee shop at the substation property? Might a public library, mall or condo building be built atop a substation?

Utility poles can offer great spots to mount 5G antennas, as well as traffic-, crime- and weather-monitoring cameras. These applications could help shape the adoption of new technologies, such as autonomous vehicles. Adding power line carrier communications on power lines also might allow telecommunications to be carried over the power lines.

Thinking even bigger, remember that transmission line corridors span the continent. Is there a way for retail goods or postal deliveries to be transported along those rights-of-way (ROW), especially to remote communities and between major urban centers? Could urban farming take place along the ROW?

Some of these ideas are more speculative than others, but in a highly competitive marketplace they represent the kinds of thinking and questions that utilities must at least consider.

Cost Reduction Strategies

Beyond wringing more value out of existing assets, utilities must carefully consider opportunities to enhance efficiency.

Capital project designs should consider an asset’s full life cycle costs to better understand the true price of environmental permitting and land acquisition, construction, operations, maintenance and disposal. This leads to a focus on assets that bring long-term value. Examples include increasing loading of existing lines, replacing with high thermal conductors to gain capacity, using gas-insulated equipment to add capacity within an existing substation footprint and free up space to add distributed generation and energy storage to manage grid constraints while avoiding unnecessary transmission or generation build-out.

Educating the public about the larger societal benefits of electrical infrastructure as an economic driver and enabler of modern life is essential. Shortcomings in this area have led to widespread opposition to many power projects, resulting in costly permitting delays that add significantly to the cost of building power infrastructure.

Asset health tracking has the potential to optimize strategic asset management. It is easier than ever to gather, store and interpret large amounts of data. Using analytics, utilities can better monitor their assets to get longer life and run trade-off scenarios between refurbishing and replacing. Amid competing priorities vying for limited capital, such analyses can be leveraged to achieve safety, security, regulatory, performance and reliability targets.

Building on that, a risk-based capital asset planning approach provides a basis to prioritize capital investment decisions based on the probability of an asset’s failure and the associated risk. Refining the level and focus of capital investment needed to achieve business objectives gives utilities a better chance to maximize their return on investment.

Contracting Strategies

This is vital because utilities spend millions — even billions — of dollars each year in capex and opex expenditures to build and maintain their systems. Depending on the project scope, constraints and risk profile, choosing the right contract structure can increase the likelihood of a successful project outcome. The right strategy should drive up bidder competition; clearly define scope, schedule and contract language; allocate risk; create trust among all parties; and reward good behavior that results in favorable outcomes. This ultimately saves money for the ratepayers.

Utilities also should consider risk assessment techniques that place risk with the parties best able to handle it, even if that means looking to external resources. When work is allocated based on performance, that drives greater efficiencies.

Unconventional Thinking

There are many potential long-term cost reduction strategies to explore in construction that draw on the history of utilities as innovators. Automation is rapidly advancing, from modularization to 3D printing of materials on-site. The applications for employing drones and data analytics are still in the early stages of growth; their potential to enhance inventory control is just a beginning.

In an evolving market, regulators should allow a degree of flexibility for utilities to take on calculated risks to test and adapt new technologies, approaches and procedures. They also should hold those utilities accountable for measurable progress on key performance metrics, including safety, customer service, reliability and rate reduction.

There is no single perfect recipe that can deliver on optimization and cost reduction. Many strategies need to be evaluated for the value they might deliver and how they could be refined.

Chris Law's picture
Chris Law on Apr 4, 2020

Thanks for sharing.  I have always been interested in the supporting data for this replacement strategies.   Many of the business cases I have seen dont have that much-supporting upfront evidence - which in some cases is reflected in recent PUC decisions to block say Smart Meter deployments. 

What's your thought on how data from Smart Meters as an example could help support such investment strategies\?

Ahsan Upal's picture
Thank Ahsan for the Post!
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