Florida Power & Light: Making a Smart (Meter) Bet on the Power Grid of the Future
For a long time, our power grid didn’t look that much different from the one envisioned by Thomas Edison over 100 years ago. But that’s rapidly changing thanks to digitization, leaving utilities like FPL looking to find their place in this new paradigm.
Building a Modern Grid
Florida Power & Light (FPL) is seen by many in the energy industry as one of the utilities at the forefront of the modernization and digitization of the US electric grid. FPL gained this market position in part by taking advantage of a $200M DOE grant as part of the American Recovery and Assistance Act of 2009 to accelerate their smart grid plans, including “deploy[ing] 4.5 million smart meters and more than 9,000 automation devices and sensors on its distribution grid, complet[ing] its DMS [distribution management system] and implement[ing] an overarching situational awareness tool.”[1]
What do these modernization projects mean for FPL and for their consumers? Historically, utilities have used time-delayed, one-directional metering infrastructure to gather data about the consumption patterns of their customers for billing and planning purposes, as well as react to issues like power outages. Collecting this data was a manual process that involved expensive truck rolls and inefficient, error-prone hand recording. Now the smart grid allows them to automatically gather data from meters, to see grid conditions in real time, and to generate predictive analytics to hedge against demand spikes and potential power outages.
From a customer perspective, smart infrastructure helps FPL run its operations more efficiently, “delivering more than $30 million in operational savings in 2014 alone – savings that help FPL keep bills low for customers. More savings come from a reduction in the number of times FPL crews have to make trips into the field to perform work – 170,000 fewer field visits through 2014. Customers also benefit from faster, more convenient service connection and disconnection when opening or closing accounts,”[2] as well as quicker response to natural disasters.
This was no more obvious than in the aftermath of Hurricane Matthew last month. Amazingly, FPL’s smart grid “prevented more than 55,000 outages, and the company restored power to more than 70 percent of [its 1.2 million] customers [who lost power] within 24-hours of the storms passing.[3]” Compare that to Hurricane Sandy where it took utilities in the Northeast upwards of two weeks to return power to the majority of their customers.[4] The metering also allows FPL to give customers access to their energy data via a web portal. Access to this data can allow consumers to save on their utility bill by better managing their consumption behavior manually or through smart devices, or identifying if a different utility rate structure might be more advantageous.
This is not to say that the transition was easy. In hindsight, it appears that the “smart grid” has been a boon to FPL. However, FPL also spent over $600M of its own money on the project[5], much of which it was able to capitalize and roll into its rate base, passing on the cost to consumers. That coupled with some consumer concerns around the physical safety and cyber security of the new system meant that FPL had to mount quite a PR campaign (and legal defense) to convince consumers that this was in their best interest and would save them money on their utility bills in the long run.[6] Though the biggest proof point to sway consumers is likely the reaction of utility to events like Hurricane Matthew.
A Shift in (Market) Power?
The next wave of digitization for the utility relates to harnessing this new digital infrastructure to enable the “distributed grid” and the proliferation of behind-the-meter generation and storage. Unfortunately, FPL has been an outspoken opponent of the proliferation of distributed power, going as far as to spend over $9M in lobbying money to push a ballot initiative this fall to handicap rooftop solar installations in Florida.[7] Understandably meant to preserve FPL’s main revenue stream which is dependent on the sale of kWh, in the long run FPL would be better served by finding ways to harness their increasingly digitized infrastructure to continue to stay relevant.
For instance, FPL should focus on using meter data and predicative analytics to be the marketplace and clearinghouse for the supply and demand sides of the power equation, regardless of the power source and the ultimate end consumer. Some utilities like ConEd have taken steps to begin this type of transformation, and FPL would be wise to follow in their steed.[8] Additionally, as evidenced by the latest hurricane, a huge part of the value a utility can provide is reliable, safe power during times duress when other systems may fail. With that in mind, FPL could diversify into reliability and insurance products that can take advantage of their existing infrastructure and customer relationships.
The power industry is changing as digitization begins to enable a new type of electric grid and FPL would be wise to continue to extend its market leadership in this modern, digital era before they become obsolete.
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Sources:
[1] https://www.greentechmedia.com/articles/read/Grid-Edge-20-The-Top-Companies-Disrupting-The-U.S.-Electric-Market
[2] http://energy.gov/sites/prod/files/Case%20Study%20-%20Florida%20Power%20%26%20Light%20-%20Smart%20Grid%20Solutions%20Strengthen%20Reliability%20and%20Services%20-%20July%202012.pdf
[3] http://www.miamiherald.com/opinion/op-ed/article108384897.html
[4] http://www.utilitydive.com/news/the-10-longest-power-outages-of-2012/92756/
[5] http://newsroom.fpl.com/2015-03-25-FPL-unveils-new-smart-grid-technology-center-a-state-of-the-art-diagnostics-hub-for-improving-reliability
[6] http://miami.cbslocal.com/2014/05/02/fighting-the-switch-the-smart-meter-controversy/
[7] http://www.utilitydive.com/news/floridas-amendment-1-defeat-shows-why-solar-wont-be-stopped-trump-or-no/430373/
Thanks for the post Maria, I found it very interesting!
I completely agree that FFL would be better off by being a pioneer in embracing distributed generation. However, I do understand that this 2-way electricity flow is a disruption to the utilities’ current operating model. In several EU countries like Spain, regulation has been recently modified to limit distributed generation, while smart meter deployment is mandatory and all the old meters should be substituted by 2018. Utilities argue that the reliability of their service could be reduced by the introduction of mass-distributed generation. However, I believe that they fear being disintermediated. A report from the Edison Electric Institute entitled “Disruptive Challenges” foresees “a day when battery storage technology or micro turbines could allow customers to be electric grid independent.” [1]
Hence, it is difficult that utilities embrace a change that may leave them out of business.
[1] http://www.eei.org/ourissues/finance/Documents/disruptivechallenges.pdf
The arrival of the Internet of Things will definitely change the business model for even the most traditional businesses, like utilities. The pain of doing the transition will be higher for the first entrants and produces significant externalities for the rest of the industry, FPL’s move in Florida will certainly ease the smart meter transition for gas and water companies in the region.
Companies like FPL should use these new technologies as a way to deliver more value to their clients. For example, if the system detects a sudden increase in consumption, FPL could get in touch with the client and give recommendations for an efficient energy use. In the case of a water company, these sudden increases might suggest a leakage and the company would be able to help the client to find it. That way the company also keeps an edge over alternative generation/distribution sources.
However, I’m not sure if utilities companies are up to the challenge. Unrivaled for decades, utilities companies are not known for their innovation and their company structures are not designed for it. Using new technologies require more than just buying hardware and software, but also change the way the companies work [1] and there’s the biggest challenge.
[1] https://www.sap.com/bin/sapcom/ko_kr/downloadasset.2014-10-oct-28-03.ceo-perspective-the-internet-of-things-for-utilities-pdf.html
Maria, you raise a number of interesting points in the innovation that FPL has undertaken. In addition to what you have identified, I see one additional challenge and one great opportunity for the company. The challenge (one that Ward mentioned in my post on IoT thermostats as well) is that as the connected home market grows to its projected size of $122BN [1] utility companies in their promise to deliver increased efficiency inherently decrease the revenue that utility companies can charge their customers. This can become seriously problematic to energy companies bottom lines unless they are able to cut costs at an equal or greater level.
This does open the door for another huge opportunity for FPL and its peers in the form of power storage. Largely viewed to be one of the greatest limiting factors in advancing energy today, investing in the ability to store excess electricity at off-peak times using products like FPL’s smart meters so that the energy can be tapped into during peak hours can not only provide the needed cost savings to make their business model work, but could even provide a secondary revenue stream for the company.
[1] “M2 PressWire.” Smart Home Market worth. N.p., n.d. Web. .
Great read Maria! Interesting pick for the topic of digital transformation. I couldn’t even fathom the far-reaching impact of digitization on traditional sectors such as utilities. As mentioned by arc, utilities companies haven’t really been the home to innovation and it is great to see Florida Power & Light lead the charge and be rewarded for it by winning National Award for Electric Reliability Excellence in the U.S. for Second Consecutive Year. This was awarded for Continued investments to build a stronger and smarter energy grids. [1]
It is also great to see others follow suit globally. According to a new EY report, Digital grid is becoming a primary focus area for the global power and utilities sector, with 92% of companies surveyed planning to invest in the next 12 months. In the next five to seven years, investment in digital grids is expected to be in the region of US$500b. [2]
A huge potential that I see for FPL is to leverage digitization for customer relationship management. Many utilities have already launched mobile applications for bill notification, presentment, and payment, as well as for outage management [3]. Given the impact of IoT, these mobile applications can extend into smart homes and connected buildings.
[1] http://www.prnewswire.com/news-releases/florida-power–light-company-wins-national-award-for-electric-reliability-excellence-in-the-us-for-second-consecutive-year-300365238.html
[2] http://www.ey.com/Publication/vwLUAssets/ey-digital-grid-powering-the-future-of-utilities/$FILE/ey-digital-grid-powering-the-future-of-utilities.pdf
[3] http://www.mckinsey.com/industries/electric-power-and-natural-gas/our-insights/the-digital-utility-new-opportunities-and-challenges
Maria, thanks for the insightful post. It is unfortunate to learn that FPL opposed legislation to encourage distributed energy generation, though, as you mention, it is understandable given that it represents a potential for a decline in their traditional revenue streams. It does seem likely, however, that a trend toward distributed generation, paired with smart grid capability, will lead to myriad new business models on which FPL can capitalize. You, Arc and Stephen all mentioned excellent ideas for potential incremental revenue opportunities. I wonder if there are significant cost savings to be had as well: could FPL avoid costly capital expenditures in grid maintenance or capacity expansion that they likely have planned for the next couple of decades? As distributed generation and storage increases, it seems the utility may be able to wind down peaker plants, which likely have a significant annual cost, or avoid adding new plants all together.