The foundational technology of a smart city includes connectivity and power. In the U.S., the connectivity conversation over the past few years has been dominated by network upgrades to 5G and digital equity. The utility side has been focused on grid modernization, distribution automation, smart lighting upgrades and smart metering.
However, at the Distributech International 2020 Conference in San Antonio in April, it was evident that a new narrative is beginning to emerge. Utilities are evolving into providers of smart solutions and services.
Why is this conversion taking place?
There are several reasons ranging from market realities to interrelated trends.
1 – Breaking the Business Model
Traditionally, utilities have been incentivized by investors to build big infrastructure and then monetize that asset by selling power back to customers. But with most of the infrastructure already built, the business model is challenged. In short, the old profit margins just don’t work. New products, services and offerings will be created to leverage the existing infrastructure.
2 – Going Green and Getting Rid of Gas
As climate change concerns reach alarming levels, commercial, residential and public sector consumers are motivated to reduce their energy usage. New eco-friendly devices and systems have been designed to nudge down consumption. At the same here is a deliberate move away from oil and gas and towards electrification as a cleaner, more eco-friendly power alternative. The integration of renewables (solar and wind farms) also places new demands on the grid. So, while it may seem that individual energy consumption is decreasing, overall demand for electric power is actually increasing.
3 – Digitally Savvy Consumers
Access to technology and data means that consumers are more informed and, therefore, more demanding of the public sector. They are calling for greater transparency about their energy usage and the ability to interact with their utility providers via a digital interface. For many utilities, the ambition to respond to their customers’ needs is outpacing their ability to innovate. But for others, leadership is ensuring that their organizations shift quickly and learn how to listen to the voice of the consumer and respond by developing and delivering new products, services and solutions.
4 – Device Demands
With more than 50 billion connected devices worldwide, the Internet of Things (IoT) is exploding. All of that connectivity demands power. From smartphones to cameras to sensors to electric vehicles, the demand for constant, uninterrupted power is surging while the tolerance for outages is decreasing. The ability to control power generation becomes a new challenge as well as an opportunity.
What is the big picture?
The overarching reality is that energy consumption is increasing for the first time in over a decade while grid infrastructure is aging. There is a lack of resources to pay for infrastructure upgrades and so a new business case is required.
Emerging is a creative way to leverage assets and transition one network from a singular function to multiple functions. As the number of devices on the network and the grid increases, the cost of infrastructure can be spread out, while creating greater value.
With the right perspective, utilities can now offer their own suite of smart city solutions. These smart city offerings go far beyond LED-led lighting upgrades and systems optimization. By leveraging their physical assets (many of which are 30 feet in the air, above the city’s aesthetic eye line) the value proposition can extend to smart parking, mobility, trash collection, health and safety applications and environmental sensors.
Utilities are coming to realize that they can participate in the smart city marketplace and provide a range of tools from connectivity to device management to data management (hardware, software, services). They are getting into the data business, providing more insight that informs their ability to optimize their own operations, generate cost savings, provide greater customer service while also enabling their own platform to power the new smart city. There is also the future potential to monetize data collected via that platform.
What are some of the expected challenges?
Municipalities and private sector participants alike have experienced that moving into the smart city arena requires a new way of thinking and an entirely new ecosystem of partners. Smart cities come with a complex mesh of relationships. This will inevitably result in some discomfort for those more traditional utility organizations that are resistant to change.
Also some municipalities that are used to being at the center of the smart city conversation may view utilities as competitors rather than collaborators. This is where the power of partnerships comes into play. For those city leaders who are more likely to be threatened by new entrants, the local scene could become more fragmented. For those city leaders who understand the longer-term view, new alliances could create massive impact that benefits multiple organizations. There are no clear answers on the horizon, so it will be up to the strength of the ecosystem to determine the outcomes.
The lack of standards and standardization is an issue that plagues the smart city movement at all levels and in all countries. Global corporations are challenged to constantly adjust while also attempting to scale solutions. Business unit leaders should factor custom builds into their bottom line. While it may be tempting to invest in the creation of software or a service and apply it across multiple customers, the reality is that each city is different. Subsequently, each utility will be different and the pace of their evolution will be unique as well.
What do we know for sure?
Collaboration between sectors will be absolutely critical. This will be a massive paradigm shift that will require new investments in strategic master planning that includes having the ability to be flexible around unforeseen challenges (such as cybersecurity).
In addition, future investment in the grid must be more integrated and aligned with the business case. Smart city platforms only make sense when there is a converged network architecture. The network is the cost center and its applications may be the way to both monetize and modernize.
Those cities/utilities that view themselves as platforms and invite and encourage cross-sector collaboration will thrive. This requires that cities/utilities view themselves as the managers and then consult with specialists and experts to build new systems. By adopting an agile, modern technology architecture, they will be able to adapt to the constant churn of evolving technology.
A flexible, modular approach results in being able to turn on functionality as demands and requirements change.
Those cities/utilities that insist on clinging to old models, old systems and the belief that they must have all expertise in house will struggle. The need for a sense of control (no matter how well-intentioned that sentiment is) will deliver a false outcome.
The one constant is that the future is unknown. With this new reality comes the need to constantly adjust and change. The only way to survive is to co-create. With the right leadership, the right partners, the right mindset, every organization can craft their own unique roadmap and strategy that will lead to the right levels and layers of execution. It is an exciting time to be in the middle of massive sector transformation.
Note: This perspective is informed by interviews with a variety of companies that represent a wide berth of experience, expertise and perspectives: Black & Veatch, Liveable Cities, LoRa Alliance, senet, Smarter Grid Solutions, Telit.