Value Proposition For The Utility Industry

 

WORKING DRAFT Last Modified 12/3/2010 8:14:25 AM Pacific Standard Time Printed 12/3/2010 8:15:57 AM Pacific Standard Time

Value Propositions for the Utility Industry New England Smart Grid Conference

Presentation slides December 2nd, 2010

CONFIDENTIAL AND PROPRIETARY  Any use of this material without specific permission of McKinsey & Company is strictly prohibited

 

Smart c ould ld driv d rive e over $10 $100b 0b in annual annu al benefi benefits ts by b y 20 2020 201 Smart Grid techs cou Smart grid benefits by 2019 $ Billions annually, 2009 dollars Customer applications

Shift peak

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Energy conservation

17

 Avoided cost of capacity

De Descripti scripti on of benefits ▪

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26

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59

Total

 AMI

Meter data over network  Advanced meter functions

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2

Total Grid applications

Volt-VAR FDIR M&D WAM Total

Shifting demand away from the peak lowers peak prices Demand-side management programs aim to reduce energy consumption by customers and the number of KWh that need to be generated Decrease in peak and energy consumption reduces need for new power plants in the future, resulting in an avoided cost of capacity  Automated meters eliminate the need for manual meter reading and meter reading equipment Operational and billing benefits from remote disconnection/connection

McKinsey on Smart Grid

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10

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8

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Volt-VAR increases energy efficiency through conservation voltage reduction (CVR) Fault detection, isolation and restoration (FDIR) reduces outage time through automated switching Monitoring and diagnostics (M&D) reduces inspection and maintenance costs; provides early warning of potential failures Wide area measurement (WAM) increases transmission throughput

1 Gross benefits only – includes both non-financial non-financial and financial bene benefits fits as well as benefits that accrue to utilities, end cust customers omers or society at large SOURCE: McKinsey on Smart Grid

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Lessons on Smart Grid strate st rategy gy o n Smart Type of value v alue Lesson Lessons s learned learned 1. Techs that pay pay for themselves in OpEx savings will be first to dep deploy loy “Bigger bang-forthe-buck”

2. Techs delivering reliability or c-sat savings need real utility discipline

“Pushing the performance envelope”

4. Techs based on open-ended performance improvement must be part of a

“Playing a new role”

collaboration to 3. Techs that deliver CapEx savings require regulator collaboration manage risks

clear, collaboratively-built vision of the future power grid

5. Rigorous piloting piloting is essential… essential… particularly w when hen behavior behavior is involved 6. The biggest “new role” opportunities m may ay not get off the ground without regulatory mechanisms that redistribute value

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Major steps in the t he Smart Smart Grid Grid lifecycle, from the utility’ util ity’s s point-of-vie po int-of-view w

1 nderstand nd ava vailable ilable technolo technologies… gies… and business case cases s Understa 2 Build long-te lon g-term rm roadmap… roadmap… and align stakeholde stakeholders rs 3 Design future fut ure IT IT and OT OT syst system em arch architectur itecture… e… and steps to get there 4 Employ rigor rigorous ous procu procureme rement nt and project ma m anage nagement ment techniques 5 Evol volve ve bus business iness processe proc esses s and and organiza or ganizatio tional nal capabilit capabilities ies with technology technol ogy 6 Revisit strategy, s trategy, review new techs techs,, con contin tinue ue collaboration collaboratio n

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Questions?

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… or e-ma e-mail: il: [email protected]

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