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The Topic: Transformation TRANSFORMATION THE TOPIC 10 | 21ST - 27TH JULY 2017 | UTILITY WEEK W hen we talk about the trans- formation of utilities, there is a now universal understand- ing that, in large part, we are talking about automation, connected devices and other such digital innovations that can facilitate dynamic service models, speak to decentralised assets at the grid edge and deliver customer engagement. Utilities of all kinds are now pour- ing time and money into pilot schemes and trials of these types of technolo- gies, testing to see if they can achieve good outcomes and provide a business case for deployment. However, in conducting these tri- als, are utilities asking themselves and their investors the right searching questions about their ability to sup- port a very different kind of risk profile for their businesses? This was a ques- tion raised by Alan Gooding, executive vice president for channels and part- ners at Smarter Grid Solutions, during a panel debate in the Utility Week Live Keynote conference. Gooding observed that the wide- ranging work Smarter Grid Solutions undertakes to help distribution net- work operators with their transition has taught him that companies tend to overestimate the rate of change in the short term, while underestimating the extent of longer-term transforma- tion and the far-reaching impact it can have – right out to the investor base. In a grid that is becoming reliant on automated technology and the Inter- net of Things, Gooding said: "That is the challenge for utilities, particularly for those that own and operate infra- structure. Their boards and sharehold- ers expect a certain type of utility and a certain type of investment. "But as they move towards a world that is much more automated, much more IT-centric, much more customer- centric and out at the grid edge – that's a different sort of asset with a different sort of risk profile and a dif- ferent sort of value." He added: "There is a question for these utilities about whether they can go on that journey, or whether the disruption in the market will let other people come in." Asked if he thought this meant the traditional investor profile for infra- structure utilities – low but steady long-term returns with high yield – might have to change, Gooding said: "I guess it's going to have to. "Someone will still need to own the big synchronous generation which gives support to the system; some- one's still going to have to own the wires. But I think you will see less expansion of those things, and those assets will come under pressure in terms of the utilisation and the return they can offer." Gooding also raised concern over the appreciation utilities currently have for the scale of the shi in skill sets which becoming digital utilities will require. "If we're looking at an IT revolution and we're going to need a lot of people to do it, then there's a big cultural change for [utility] busi- nesses and perhaps the number of people they employ versus the amount of assets they own, that profile's going to look different." There's no doubt that there is a big opportunity in being able to commu- nicate with "millions" of customers to flexibly balance the system, Gooding summed up, but: "The question is, are you ready to embrace it? Investors and risk The transformation in the way utilities work will entail them adopting different business models – and that means they will present a different risk profile to investors. "Utilities have a different sort of risk profile and a different sort of value in a world that is much more automated, much more IT-centric, much more customer-centric." • Alan Gooding, executive vice president for channels and partners, Smarter Grid Solutions 1 Design from the point of view of the customer. This is an easy tag line but really achieving it is much harder in practice. 2 Build digital teams that encompass a "value stack" rather than digitising existing siloed processes. 3 Acknowledge that becoming a digital utility will impact your investment and risk profile. Make sure share- holders are behind you and understand the shift. 4 Do not underestimate the importance of security. 5 Work with government, industry and regulators to establish standards for con- nected and smart devices; achieving a secure and effec- tive digital transformation will be difficult without this FIVE POINTS ABOUT DIGITAL TRANSFORMATION Report sponsored by: