CHAPTER 1 ENHANCED STRATEGIES

A Smart Strategy for a Smart Grid

Planning a smart grid requires a mix of technologies to deliver the greatest
operational savings, benefits and customer satisfaction for the utility.

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E
very year, utilities are faced with
the critical decision of where to
invest capital. These decisions are
guided by several factors, such as regula-
tory requirements, market conditions and
business strategies. Given their magni-
tude, decisions are not made hastily. Care-
ful consideration is given to the financial
and operational prudence of large capital
projects, such as power plants and new
infrastructure.
The utility also makes sure that it has
the resources to support the implemen-
In the last several years, the ubiquitous
coverage of the smart grid has sparked
the interests of many utilities looking to
modernize their infrastructures and find
new ways to interact with their custom-
ers. Most recently, the excitement around
smart grid initiatives has accelerated
as a result of its inclusion in the U.S.
government’s economic stimulus package.
However, utilities must remain cautious as
they evaluate these new technologies.
The current “rush” can result in a lack
of structure around strategy and planning
Unlike planning for other capital
projects, planning for smart grid is not
simply about filing a regulatory busi-
ness case; it is planning a business case
for transformation. It is about imple-
menting the right mix of smart grid
technologies that delivers the greatest
direct (operational savings) and indirect
(customer benefits, customer satisfac-
tion, reliability) benefits for the utility.
Additionally, proper planning and strat-
egy identifies risks and considerations
that facilitate implementation of new

Planning for smart grid is not simply about fil-

ing a regulatory business case; it is planning a business
case for transformation.
tation and on-going operation of large
projects. This discipline is necessary to do
what is best for the utility, and ultimately,
the customer. This same discipline is
essential in assessing the use of smart grid
technologies, such as advanced metering
infrastructure (AMI), distribution automa-
tion (DA) and home area networks (HAN).
for smart grid improvements. As utilities
embrace smart grid technologies, many
are tempted to develop a vision and strat-
egies in a hurried, reactionary fashion
rather than taking a rigorous, structured
approach to determine what technologies
will deliver the most value to the utility
and its customer base.
technologies. Finally, a structured
approach considers the organization’s
capacity to complete the project. Just
as you wouldn’t approve the construc-
tion of a power plant without ensuring
that you have the resources to complete
it, you shouldn’t begin the smart grid
journey without a clear sense of where
you are going and how you are going to

WRITTEN BY get there.

A methodical approach to defining a
Mark Welch, Bryan Lieber — IBM smart grid vision can be accomplished
through leadership workshops that define
Mark Welch is a Senior Managing Consultant in the Energy and Utilities Strategy and Change practice a portfolio of strategic options and estab-
of IBM Global Business Services. Welch has more than 25 years of experience in the utilities and energy lish the criteria to analyze the portfolio’s
industry, and has worked with major corporations in engineering and work management, corporate strat- value (both quantitative and qualitative).
egy, GIUNC/AMI efforts and organization re-creation. These sessions assess the various smart
grid technologies to determine what
Bryan Lieber is a Consultant in the Energy and Utilities Strategy and Change practice of IBM Global unique mix (technologies and geogra-
Business Services. Lieber has worked on several large smart grid projects in the areas of deployment plan- phies) is the best fit to meet the utility’s
ning, business process design and smart grid strategy. objectives.

Shaping a New Era in Energy

 white paper

The key steps to defining a smart grid
vision are:
• Define a decision framework;
• Develop strategic options;
• Analyze value; and
• Ratify strategy.
Ultimately, this approach results in a
richer smart grid strategy and decision
making process that is consistent with
other large capital projects.
Define a Decision Framework
The first step toward defining a smart
grid vision is to develop a decision mak-
ing process to establish the emphasis
and focus of the smart grid program. Are
upfront capital costs the main concern,
or is selecting mature and proven tech-
nologies more crucial? Some utilities
may seek technologies that can be imple-
mented quickly, while others may be more
focused on a multiyear rollout of smart
grid initiatives.
Identifying these crucial drivers and
understanding their importance is
achieved by creating a baseline decision
framework to evaluate smart grid technol-
ogies. The framework should be shaped
by project management, sponsorship
and subject matter experts (SMEs) from
all functional groups (e.g., transmission
and distribution, meter services, billing,
call center, human resources, finance and
information technology) within the organi-
zation. This ensures that the initiative has
executive buy-in and input from all groups
affected by a smart grid implementation.
A good decision framework incorpo-
rates company strategic priorities and
consists of both qualitative and quan-
titative measures. Qualitative factors
include customer satisfaction, technology
maturity and obsolescence, implementa-
tion risks and alignment with business
priorities. Quantitative factors examine
product and resource costs, and product
benefits and savings.
It is also important to understand and
compare functionality available to func-
tionality needed. For example, a utility
might be interested in implementing HAN
capabilities, but may ultimately realize
that DA will generate greater value. In
the end, the decision framework lays the
foundation for the evaluation of a utility’s
smart grid portfolio.
Finally, a decision framework should
consider and evaluate the program risks
and the organization’s ability to success-
fully execute the project (e.g., timeline,
skill set required, availability of resources,
competing projects, technological obso-
lescence/maturity).
Develop Strategic Options
Smart grid is not a “one size fits all”
initiative. Rather than view smart grid as
an “all or nothing” proposition, each utility
should define its own customized solution.
The specific strategy and technologies
of a smart grid program is driven by the
needs of the utility. For instance, utilities
focused on improving grid reliability will
emphasize DA technologies, while others
more interested in reducing operational
costs will emphasize an AMI approach.
Once a decision framework has been
created, the utility should begin to assess
the advantages and disadvantages of
smart grid technologies using a summary
scorecard (Figure 1).
These scorecards provide a compre-
hensive view of the technology and iden-
tify risks, dependencies, resource effort,
key benefits and costs associated with the
technology. Once complete, scorecards
can be used to identify different mixtures,
or portfolios, of smart grid technology
options.

Description
This section is an overview of the initiative and its key activities. The ScoreCard includes sections that list key areas to focus on for planning,
design, and deployment of Smart Grid.

Objectives
This section summarizes critical success factors for the initiatives, such as Program Success, Customer Experience, and Operations Efficiency.

Benefits Startup Effort Ongoing Support Effort

This section is a brief list of ideas related to potential benefits This section will identify a couple of
of the initiative. items required to begin the initiative
and may include the skill sets required,
planning requirements, or confirmation
of executive support.
This section lists ongoing
support required for the project,
e.g., resources, governance, etc.

Workstream Touchpoints Sphere of Responsibility

This section lists the other Smart Grid Responsible organizations
initiatives requiring interface
consideration.
Regulatory Considerations
Jurisdiction/operating company
differences
Risks and Mitigation Project Planning Considerations
These sections provide examples of potential risks and what might be This section provides a jump-start
done to negate or mitigate the identified risks. review of key planning activities to Proposed Owner
manage the project. Process owners

Figure 1 Technology Scorecard

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CHAPTER 1 ENHANCED STRATEGIES
Aggregate Models
Calculation Engines
Financial metrics, depreciation
Sensitivity – costs & benefits
All identical models
Calculated Costs
Jurisdictional Parameters
Volumes & Parameters
Calculated
Deployment & Growth
Costs
Devices & Installation Costs
Comms & Install Costs
IT Costs
Sensitivity range %s
Demand Response Benefits
Figure 2 Financial Modeling Example
The advantage of assembling technolo-
gies into a portfolio is that it enables an
enterprise-wide perspective of the pro-
gram. The value for each stakeholder
organization can be identified and evalu-
ated. The integration of smart grid tech-
nologies is made more apparent.
When selecting a portfolio, there are
a few key points to keep in mind. First, a
smart grid portfolio doesn’t have to incor-
porate all available technologies, only the
ones that coincide with the business strat-
egy. Next, smart grid technologies don’t
have to be implemented uniformly across
the entire service territory. For instance,
a utility could elect to utilize substation
automation only at critical or less reli-
able substations, or choose to install AMI
meters in jurisdictions/areas where meter
reading cost is high.
Finally, timing of the smart grid rollout
is critical. A utility doesn’t have to provide
all of the functionality on day 1. Subse-
quent capability releases can be planned
many years in the future.
One of the major obstacles to imple-
menting a smart grid program is the
lack of maturity in emerging smart grid
technologies. Utilities can counter this
through the use of interim solutions. An
Shaping a New Era in Energy
Summarize results
Graphs for presentations
Summary
Reports &
Graphs
Aggregate Jurisdictional
Models Models
Calculated
Other
Benefits
Inputs
Model
interim solution helps the utility to recog-
nize smart grid benefits in a “manumatic”
environment, combining manual business
processes and a degree of process and
system automation, with the goal to tran-
sition to more integration and automation.
Examples of interim solutions include:
• Advanced Metering Infrastructure (AMI)
– If there is no regulatory structure for
the use of interval data, a utility could
initially use the technology for remote
monthly register reads and remote con-
nect/disconnect with idea to transition
to interval-based rates as they become
required.
• Meter Data Management System
(MDMS) – If interval data is not yet
needed, the utility may be able to defer
investment in an MDMS. At a later date,
a new CIS system/CIS modifications
could provide MDMS functionality.
• Wide Area Network (WAN) Communica-
tions Backhaul – A utility may start with
a cellular backhaul and move to another
technology (e.g., WiMax) as it evolves.
• Direct Load Control – Initially, a utility
could use a technology independent
of AMI (e.g., paging network) and then
transition to load control through the
AMI meter.
Jurisdictional Models
Aggregate results by State
and Company
Distribution Automation
•Reliability Metric Improvements
•Automated T&D Fault Location
•Circuit Reconfiguration
Asset Condition Monitoring
CBM Assessments for
•Reductions in Aging Fleet Failure
•Routine Maintenance Reductions
AMI
Meter Reading
Remote Turn-off/Turn-on
Incorporating interim solutions gives
utilities additional flexibility in what tech-
nologies can be included in its smart grid
portfolio. Once a closer analysis is given
to the technology portfolio, utilities can
determine if and where interim solutions
should be considered.
Analyze Value
Would a utility build a 2 GigaWatt power
plant to satisfy a 100 MegaWatt demand?
It’s safe to say most wouldn’t. The addi-
tional capacity of the plant does not jus-
tify the cost. Although this is an obvious
example, it demonstrates that utilities
have an existing decision process around
large capital investments. In order to suc-
cessfully define a smart grid strategy, util-
ities must find a way to transition this type
of analysis to smart grid technologies. A
qualitative and quantitative value analysis
of smart grid portfolios will provide justifi-
cation of which smart grid technologies to
implement.
Qualitative review involves scoring the
chosen technology portfolio(s) against the
decision framework. This provides a sense
of how the technologies match the utility’s
risk profile, resource constraints and over-
all strategy. For instance, a utility may see

that some technologies are cost-effective,
but too risky to implement in the short-
term. These factors are not captured in
financial modeling and provide key infor-
mation to aid in the transition from strate-
gic planning to implementation.
Quantitative analysis assures cost
effectiveness for smart grid technology
portfolio(s) and is achieved through the
use of a business case or financial model.
This analysis factors in the various costs
and benefits of the smart grid portfolio.
For instance, a technology portfolio with
AMI and DA would indicate significant
costs for the purchase and deployment of
new devices, but would calculate benefits
on improved grid reliability and remote
meter reading.
Figure 2 depicts an overview of a finan-
cial model that could be used for smart
grid value analysis. As the cost-effective-
ness of a particular technology portfolio
is determined, the utility may find that the
Quantitative analysis assures cost effectiveness
for smart grid technology portfolio(s) and is achieved
through the use of a business case or financial model.
portfolio needs to be modified in order to
achieve increased savings. For example,
an advanced communications infrastruc-
ture to implement AMI alone may not be
cost effective. However, if the same infra-
structure was also used to enable DA and
mobile dispatch it would become much
more cost effective. The combination
of financial data and qualitative options
analysis will help the utility to determine
the optimal mix of smart grid technologies
to implement.
Ratify Strategy
The selection of a smart grid portfo-
lio and the associated value analysis is
only the starting point on the journey to
a smart grid; it simply puts the building
blocks in place for the utility to transition
into implementation planning. The final
step in developing a smart grid strategy is
to understand how the project will be exe-
cuted. Utilities should begin implementa-
tion planning by asking the following key
questions:
• What is the project scope?
• What are the key success factors?
• What is the timeline to complete the
project?
• Which technologies do we implement
first (priority/critical path)?
• What resources are going to do the
work? What can be done with internal
employees vs. consultants and contrac-
tors?
• What are the risks? How will we manage
them?
• What are the key integration points?
• What are the competing priorities/proj-
ects?
• Are there regulatory constraints?
A final question leadership may want to
ask is “What is the largest non-core proj-
ect the company has ever undertaken?”
and “Why was this project successful/
unsuccessful?” Considering this will allow
the utility to consider lessons learned
and better understand their capacity for
change.
Once these questions have been
answered, the utility is ready to begin a
smart grid deployment roadmap. The pur-
pose of this roadmap is to lay out the key
initiatives over the project timeline, not-
ing the key dependencies and integration
points. At this point, it is crucial to tran-
sition the organization from a strategy
focus to an implementation focus. Cur-
rent project leadership/sponsorship and
functional SMEs should not be released
from the project, but rather retained to
assist with implementation planning and
execution in new roles within the utility’s
smart grid organization.
white paper
For a variety of reasons, a utility may
decide not to immediately begin its smart
grid implementation once the vision and
strategy have been defined. All is not lost
as this analysis helps to identify the key
drivers, benefits, risks and obstacles asso-
ciated with the smart grid program. This
can be used as a baseline for future analy-
sis or planning once the utility is ready to
continue its smart grid journey.
Conclusion
Implementing a smart grid strategy
and plan is an enterprise-transforming
endeavor. It may be one of the most
pervasive programs a utility has ever
attempted. It will impact most every
energy delivery organization/function;
from operations to customer service and
from procurement to human resources.
The information technology/operations
technology boundary will be crossed many
times. Appropriate evaluation of the
options and alignment with the company’s
strategic goals and challenges is perhaps
the most critical step in the smart grid
journey. Strategic decisions should be
based on rigorous analysis of internal
and external aspects, and not an industry
trend. n
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