The Infosys Utilities Blog seeks to discuss and answer the industry’s burning Smart Grid questions through the commentary of the industry’s leading Smart Grid and Sustainability experts. This blogging community offers a rich source of fresh new ideas on the planning, design and implementation of solutions for the utility industry of tomorrow.

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May 22, 2013

UK Parliament All Party Parliamentary Water Group Innovation event May 2013

Yesterday I went to the UK Government All Party Parliamentary Water Group evening meeting on securing sustainable water resources for the future. This short event was chaired by Nia Griffith, Member of Parliament for Llanelli, with talks by Dr Dan Osborn, NERC (National Environment Research Council) and RCUK (Research Councils UK) lead at Living with Environmental Change and Chris Phillips, Chief Marketing Officer, i2O Water.

Dr Osborn talked about the World Economic Forum identifying water supply crises as one of the largest global risks, thus with many new challenges and markets appearing: this from a global market of £500 billion, and about £120 trillion in assets. UK research bodies had budgets of £120 million in this area, with for example Councils spending £13 million on drought research.

Mr Phillips described the world wide success i2O were achieving with their innovative pressure management solution and their close links to research (they are based in Southampton Science Park). He felt that, if properly established, UK water industry competition could lead to a boost in research funding.

A number of interesting discussions were then held. A large number felt that the cyclic, and sometimes short term, nature of work in the UK water industry made innovation difficult for the supply chain, as with tight margins and fluctuating workloads such investment was not feasible. Many felt that the UK needed to increase innovation, and learn from other countries, however generally it was perceived that UK expertise was still valued. Others highlighted the achievements of SMEs in the world water market, indeed UK SMEs, as well as contractors and consultants, were quite successful in the other countries. One gap identified was that the UK was not always as successful in turning research into effective solutions for the market, and more government and industry support was needed in this area. The only negative note was when Nia Griffiths asked if anyone from the utility companies had any comments: no-one from a utility had attended the event!

The official event concluded promptly as Nia Griffiths had to vote, however informal discussion carried on for some time. Overall I found the event very helpful, and believe such meetings should be encouraged in the industry.

May 20, 2013

Competition in the Water Industry part 5 (final in series)

To successfully manage the issues I described in my previous blogs will require companies selling water to:

  • Deliver accurate and timely bills at frequencies demanded by customers;
  • Ensure customers feel in charge of their own information;
  • Engage with customers effectively using multi-channel communication.

Many customers are familiar with and use IT based communications, mobile, internet, social media, etc., however others prefer more 'traditional' methods, such as phone or letter. All must be seamlessly integrated to ensure customer satisfaction. Effective systems will also help to reduce costs. Undoubtedly smart meters will help, but who should pay for these?

Infrastructure providers must successfully:

  • Reduce service impacts year on year;
  • Manage the risk of ageing assets;
  • Reduce running costs whilst continuing to enhance to environment;
  • Continually demonstrate the value they provide.

For all of the above issues the companies who effectively gather and mange information (about assets, customers, environment, etc.) will be best placed to offer value, and hence have sustainable success in a competitive water sector.

May 17, 2013

Competition in the Water Industry part 4

The potential benefits of competition change in the UK water industry are similar to those achieved in the Energy sector (although that has not been without some issues), in that customers will be given choice between suppliers, and prices should be reduced. Customer services should also be improved, as that will be another way to attract customers.

There are however a few issues and challenges. For many commercial and practical reasons (such as installation costs and practicalities) any property is only ever likely to have one set of supply pipes and sewerage, and related treatment and pumping facilities. Thus the customer will have no choice as to who provides their infrastructure, even if the incumbent is sold, or sells off the area as an inset. The cost per property for that infrastructure will be variable, depending on location factors such as:

  • The availability and treatment cost of water;
  • The environmental constraints on discharge;
  • Geographical factors (e.g. terrain, population density);
  • The metres of pipe required to service each property (usually more in rural areas);
  • The age and condition of the existing infrastructure.

The competition regulation thus needs to be carefully constructed to ensure such issues do not create unreasonable cost differences between areas.

I will discuss how companies could achieve success in my final blog.

Competition in the Water Industry part 3

In my last 'competition' blog I looked at some of the proposals in the UK. I will now consider what these may mean to industry and customers.

'Vertical separation' (meaning the accounting and often business separation of parts of a company's business) will mean in the case of a water company that elements such as customer services and billing could be open to full competition. In this regard it would be similar to the Energy market. At present the proposals for competition are limited to commercial customers (all supplied above a yet to be finalised daily volume).  Insets would be fully open for any customers with any supplier purchasing water and sewerage services from the incumbent Water Company at a common price, including the commercial arm of that incumbent Water Company.

This may lead to a number of significant changes, some of which are already being seen in practice:

  • Large national customers, such as supermarkets, may choose to use one supplier only;
  • Water Companies will seek to win commercial customers in other areas;
  • Other companies (e.g. other utilities, supermarkets, etc.) may enter the market.

Business (and potentially in the future domestic) customers will thus be able to choose their supplier, and this should drive down prices. However as well as benefits, there are issues and challenges with this change, that I will discuss in future blogs.

May 16, 2013

Competition in the Water Industry part 2

In a number of countries there is already an element of competition, as the water utilities are privatised and compared through regulation. That regulation can be quite exacting, and companies who are in the bottom of the 'league tables' for performance can suffer significant penalties.

In  the UK changes being proposed include increasing the number of business customers who can chose supplier by lowering the de minimis amount supplied per day, expanding business competition to wastewater as well as supply (it is linked at present), and vertical separation of parts of the water utility, such as billing and customer services. These proposals are laid out by Ofwat, the UK water economic regulator in various documents (e.g. http://www.ofwat.gov.uk/hlg/prs_web20130308hlgfrmwk.pdf). It is also possible that 'insets' may increase: these relate to new areas not previously served by an existing Water Company, or to 'large' commercial customers, or where an existing supplier agrees to transfer an area to a new supplier. In the regulatory proposals (draft Water Bill, June 2012) companies will be able to operate on the basis of a single national authorisation from Ofwat, thus greatly simplifying the process of companies expanding their market.

May 14, 2013

Competition in the Water Industry part 1

Competition is increasingly being seen across the water sector as a mechanism to deliver substantial improvements, especially at present in the UK. Those of us already working in a free market, where competition requires us to constantly innovate and improve, know that it can drive 'step changes' in industries. However water utilities, like other utilities, operate in a different environment than many other sectors. In a short series of blogs, I will look at the potential for competition in the water sector, its advantages and dis-advantages, and how companies can best manage and respond to the changes that will occur. The blog will focus on the UK, as a number of changes in competition are being proposed there.

May 2, 2013

To build or not to build

The recent deal signed by Centrica to source shale gas from the US from 2018 onwards appears on the face of it an assertive step in establishing a continuing strong role for gas in the UK. This comes on the back of the UK government's Gas Generation Strategy and establishing of an Office for Unconventional Gas and Oil for exploration of shale in the UK itself. But beneath the surface of these developments there remains a great deal of uncertainty on how gas consumption will play out in the coming years, particularly in the power industry that uses gas to generate power.

Much of the uncertainty in the gas to power industry has come from still murky, government legislation on subsidies for renewables and nuclear (Electricity Market Reform or EMR) and payments for power capacity which may still be subject to EU state aid rules. Gas generation in the form of Combined Cycle Gas Turbine (CCGT) plant has to compete with non-fossil burning plant to serve power demand, but with no clarity on the expected market revenue (driven by future power prices), prospective new gas-build projects have been unable to get off the ground. Even with recent warnings from the outgoing OFGEM chief on lack of capacity in the coming years (OFGEM's worst case scenario shows a de-rated capacity margin close to 0% in 2015/16), the market is showing little appetite for gas fired generation with spark spreads at historical lows and some utilities cutting back on existing gas capacity. Despite the government go ahead for new build, no new gas plant is in the pipeline - no financing utility is willing to fund a project for which the developer is unable to provide some certainty as to its future income.

The proposed Electricity Market Reform contains two key elements which will ultimately form the basis of future projected revenues for new CCGT projects, namely capacity payments and contracts for differences (CfD). Preparation of secondary legislation on capacity markets and publication of CfD strike prices will not arrive until this summer, meaning that the precise impact on generation technology types is still undefined. A third element, a carbon tax, has been implemented this month and should have a neutral impact on future gas plant income while the final piece of the jigsaw, EPS, to curb emissions from online fossil fuel plant is not designed to constrain new gas plant.

Faced with this regulatory uncertainty, an asset backed utility will be well advised to commission and implement an initial impact analysis on its portfolio in preparation for the flurry of risks and opportunities resulting from the finalized policies. This drill down analysis can guide a company in its business and IT strategies and understand the weaknesses in its asset base as well as on the supporting application landscape.

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Further levels of analysis can build up a more robust view of future growth opportunities and the future risk profile. Utilities and independent power producers wishing to take a step further and interrogate potential exposure scenarios can look at leveraging big data solutions and collaborative data visualisation. Utilisation of pre-built "big data" scenarios for the industry and reusable algorithms can support generation of fast insights from the mass energy data. The insights gained include not only the impact of policy decisions and regulatory outcomes, but also security of supply scenarios and asset rate of return (IRRs). Implemented and operationalized across front to back office, these solutions open up enterprise-wide collaborative analysis and support creation of unique set of EMR pathways that is customised to the utility's own portfolio.

For more information about Infosys Big Data Edge please take a look at the link below http://www.infosysblogs.com/bigdata/show-outcome.html