ISG Provider Lens™ Power & Utilities Industry - Services and Solutions - Enterprise Asset Management (EAM) - North America 2024

AI and GenAI applications slowly but steadily influencing the power and utilities value chain

The power and utilities industry is witnessing a transition from traditional energy sources to cleaner alternatives such as wind and solar energy, leading to an increase in new asset types to deploy, connect and manage. Additionally, there has been a rise in distributed energy resources (DERs), leading to disruptions in energy production patterns. Moreover, as the industry increasingly adds renewable energy sources such as solar and wind to its energy mix, their integration into the grid continues to be a challenge. Global supply shortage due to the war in Ukraine has led to an increase in natural gas prices, making the purchase or production of power expensive.

The above-mentioned integration challenge will need capabilities around strategy and technology in the form of solutions covering data analytics, AI and digital twin technology. The growing demand for electric vehicles (EVs), driven by falling costs, is increasingly impacting utilities grids and assets, These components play a crucial role in powering these vehicles and managing the associated load.

Growing climate-related events such as storms, wildfires, hurricanes and floods have led to high costs for utilities related to damages and not all these costs are recoverable. For instance, wildfires continue to burn acreage, damaging utilities infrastructure.

While power and utilities companies encounter the above challenges, evolving customer expectations, which now include a demand for personalized and digital experiences, continue to add pressure as there is a need to manage
the complexities of the prosumer (both a consumer and a producer of energy). Meeting this challenge entails creating new operating models, investing in customer engagement platforms, leveraging data analytics for personalized services and implementing digital self-service tools.

Thus, utilities companies need to handle challenges around industry, technology and people by working closely with IT service providers and building niche solutions that can address their specific needs, define a road map for technology adoption and create a ready talent pool with the capability to use new-age technologies.

As an advisor that has helped several leading utilities organizations navigate their digital transformation, ISG believes that building a successful, competitive and future-proof utilities organization requires strengthening its technical and digital foundation, transforming grid operations, continuously improving cybersecurity, digitally enabling its workforce
and improving CX through digital channels.

ISG sees the following trends in the global power and utilities industry:

Energy transition continues to gather momentum

Energy transition is impacting the utilities industry in the areas of generation, retail and transmission and distribution (T&D). The industry is shifting from traditional energy sources to wind, solar and other green sources. These changes are coupled with an increasing preference for distributed energy and the resulting disruption of energy production patterns. Moreover, as customers increase their focus on sustainable energy solutions and become prosumers, the energy transition is becoming mainstream. In addition, organizations in the industry are facing the challenge of measuring their scope 3 emissions, which is a major roadblock in estimating carbon footprint and in trying to achieve
Net Zero goals.

Nuclear resurgence

After the Fukushima disaster in Japan, many countries slowed down nuclear-energy-related activities; a few countries such as Germany had even ordered the shutdown of nuclear power plants by 2022. However, recent geopolitical events and challenges have led to a revival of the nuclear industry and made countries and their policymakers reconsider their views on nuclear energy. This revival is especially led by small modular reactors (SMRs). The SMR market is expected to grow considerably as the utilities industry is set to focus on providing nuclear energy to small, remote power grids, thus lowering the CapEx and OpEx connected with nuclear power facilities. Several nuclear reactor manufacturers are working on innovative designs and improving the fuel economy of existing modular reactors.

Data center and GenAI

The proliferation of AI and data centers could be transformational for the utilities industry. This factor is expected to put a lot of stress on the CapEx and OpEx plans of utilities companies as the need to upgrade infrastructure and integrate renewable energy resources will increase substantially. According to the International Energy Agency (IEA), GenAI data centers require almost 200 megawatts (MW) of power at a single location. Goldman Sachs Research
estimates data center power consumption, led by AI, to be about 200 terawatt-hours, per year during 2023-2030 and expects AI to represent about 19 percent of data center power demand. Dominion Energy, which serves the largest data center market in the world in Loudoun County, Virginia, believes that electricity demand from data centers in Virginia increased by about 500 percent during 2013-2022.

Aging infrastructure

Aging infrastructure such as power transmission lines and transformers, which are prone to damages from operational stress, extreme weather events and climate change can pose significant risks for utilities, making them susceptible to failures and service disruptions and grid safety compromises. This factor also leads to an increase in repair and 
replacement costs and reduced efficiency. Utilities companies need to modernize their asset management systems and utilize dronesupported solutions, IoT, AI and smart meters to manage legacy infrastructure. Smart meters generate large volumes of data at regular intervals, which can be analyzed to predict failures in infrastructure equipment.

Need for grid and asset resiliency and reliability

New entrants in the energy distribution segment, including DERs and prosumers pose new challenges to grid resiliency. Additionally, the increased adoption of EVs has added considerable strain on grids, necessitating modernization and enhancement. Moreover, the emphasis on demand management offerings, energy efficiency programs and smart grid technologies such as AMI 1.0 and 2.0 will enable intelligent monitoring, bringing usage
tracking down to the meter level.

Also, the aging of power generation plants, transmission lines and distribution systems has resulted in increased outages, reduced efficiency and limited capacity. Organizations in the utilities industry have to invest in upgrading
their grids, metering, tech infrastructure and workforce through digital solutions that leverage cloud, IoT, AI and ML. AI can be a game changer in addressing grid reliability challenges by way of predictive maintenance, renewable 
integration and demand-side management. Financial damages caused by weather-related disasters increase every year, with the industry players increasingly getting exposed to litigation risks related to asset and infrastructure
damage. Providers can help with solutions around emergency response, asset health monitoring, work planning, risk modeling and vegetation management. Companies such as National Grid plan to invest heavily — $15 billion in New York over the next five years - to make grids more resilient and prepare for the electrification of cars and buildings.

Energy affordability

Capital, labor and material shortages are expected to drive costs in the utilities industry over the next two years. While transitioning to decarbonization, it is necessary to consider the risks associated with middle- and low-income groups’ energy affordability. As energy transition becomes an increasingly important focus area, industry players should ensure that customer affordability and energy security for the disadvantaged groups are not adversely impacted. There is a need to develop multiple programs to ensure that the energy burden on an average household does not compromise its ability to support its basic needs, while concurrently ensuring there are alternative sources for uninterrupted supply. Low-income households in the U.S. use more than 30 percent of the electricity consumed
in the region and face an energy burden three times higher than other households.

Digitization of the energy sector

The adoption of digital technologies such as smart grids and automation continues to increase across the utilities value chain, right from power generation to transmission and distribution. Organizations must shift to a digital operating model as the value chain becomes increasingly complex. Interoperability between OT such as supervisory control and data acquisition (SCADA) systems, distributed control systems (DCSs), programmable logic controllers (PLCs) and IT aspects such as AI and cloud is needed to support assets and operations. Organizations will prefer providers with deep engineering and OT capabilities as they aim to maintain the IT/OT balance. The focus on digitization has led to new revenue streams and business models and has seen the emergence of new market players in the utilities industry. Large and traditional organizations should adapt to these changes to survive and succeed against competition from innovative and digital-native third-party providers.

Growing cybersecurity concerns

Digitalization threatens security. Increasing connectivity through digitalization and the proliferation of decentralized energy resources require holistic and complex energy networks. The rise of intelligent grids makes systems increasingly vulnerable to cyber threats, making strategic and operational security in utilities critical. These companies should proactively run risk assessments and cybersecurity programs and share intelligence to prevent cyber and physical attacks on grids. At the same time, there is a strong market trend to separately address cybersecurity when
constructing managed service strategies. Grid modernization and energy transition will also necessitate a dependence on digital operations and infrastructure, which, in turn, will increase the risks of cyberattacks. As companies in the
utilities industry digitize their operations, they must also increase their focus on cybersecurity to mitigate potential threats. 

Workforce training and skilling

North America’s power and utilities industry faces the challenge of an aging workforce and the need to attract/retain new talent. Organizations need to invest in training and upskilling their workforce to future-proof them to meet emerging needs and the rapidly changing skillsets required to build and operate the grid of the future. Over the next decade, the power and utilities industry will witness the retirement of more than 50 percent of its current workforce. However, the industry’s challenge in attracting talent and competing against large tech firms is overwhelming. There
is a shortage of talent with the necessary qualifications for new jobs, many of which require competencies around AI and ML, robotics and advanced analytics.

Changing consumer preferences

In this environment, utilities companies need to shift from being infrastructure providers to becoming service providers. With changing customer preferences and profiles, these companies must devise a strategy to engage
with consumers across various platforms and channels (omnichannel), revamp UI/UX portals, enhance self-service features and build more responsive contact centers. Furthermore, they need to leverage data insights to respond to
consumers’ changing needs rapidly and with transparence. Also, with the emergence of new business models, such as community solar and virtual power plants and smart connected (IoT) homes, efficient resource consumption and
improved UX is needed.

Data-and cloud-driven business

Utilities companies are yet to realize the full potential of data and need to overcome challenges around data access, deriving insights, data governance and quality, and the use of cross-functional analytics. By leveraging data and analytics, utilities companies can build powerful predictive models and resultant insights to power efficiencies and cost savings. The need to derive value from data for activities such as maintaining assets, noting weatherrelated warnings and determining customer preference drives the adoption of cloud and IoT platforms. Utilities companies run into unique challenges around adopting cloud-based solutions. Providers should focus on helping them capitalize on their cloud investments by creating transformational assets, comprising cloud subscriptions and transformation services and supported by regulatory review and approval. At the same time, CIOs should not wait for others to address this issue.

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