new business models for digital...

New Business Models for Digital SolutionsHannah DavinroyBloomberg NEF, Digital Industry analyst

SECOND ANNUALCLOUD FOR UTILITIES SUMMIT

Washington D.C.November 14-16, 2018

Primary researchBNEF

Clean energy Advanced transport

Digital industry Advanced materials

Solar Wind Storage Impact on power & utilities

Frontier power

Electrified transport

Autonomous and connected

vehicles

Mobility services

Impact on transport

Impact on oil & power

Decentralized energy

Internet of things

Automation & advanced analytics

Commodities

Gas & LNG Oil & products

PowerCarbon

Impact on industrials,

utilities, healthcare

Asset mgt, digital

manufacturing, logistics

Connected customer, “as a

service” business models

3D Printing,Lightweighting, Recycling, End-

of-life

Bioplastics, biomaterials

Composites, New

Materials

Impact on industrials,

materials and energy

ChemicalsMetals

Expansion Areas

SECOND ANNUAL CLOUD FOR UTILITIES SUMMIT | Washington D.C. | November 14-16, 2018

Challenges in industry


Changing customer needs

Demand for new products & new

services

Competition from non-traditional tech entrants

Workforce & automation

Automation efficiency

technologies (e.g. robots)

Ageing workforce, and shrinking job

availability

Training, and recruiting for, a

digital workforce

Supply chain changes

Supplier consolidation and

expansion

Changes in manufacturing (3D

printing, new materials)

Logistics, delivery, transit

Emissions regulation & energy efficiency

Government emissions regulation

Shareholder interest in

sustainability

Process energy efficiency & emissions

Corporates are facing a range of challenges

Source: Bloomberg NEF

Why does energy need digitalization?

◦ Cybersecurity

Generators Transmission Distribution RetailEnergy management

Regulation Ageing fossil

fuel fleet Increasing

failures

Renewables integrationChanging load profiles

Renewables integrationGrid congestion

Aging gridBalancing intra-day voltage/frequency

Behind-the-meter generation

New balancing technologies

Two-way power flow

Customer demands for real-time information

Increasing cost of customer

managementChurn in liberalized

markets Regulator mandates

Specifically, the power industry is being challengedWhy does energy need digitalization?



Electricity capacity: 2012-50

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

2012 2017 2020 2025 2030 2035 2040 2045 2050

GW Other flexible capacity

Demand response

Utility-scale batteries

Small-scale batteries

Other

Solar thermal

Small-scale PV

Utility-scale PV

Offshore wind

Onshore wind

Biomass

Geothermal

Hydro

Nuclear

Oil

Peaker Gas

Gas

Coal



Energy shifted by storage & software: all of these categories will need advanced software, often AI based and edge computing reliant

0

200

400

600

800

1,000

1,200

1,400

1,600

2012 2017 2020 2025 2030 2035 2040 2045 2050

TWh

Small-scale batteriesUtility-scale batteriesDemand responseOther flexible capacity



Hardware such as chips and sensors are getting smaller, more powerful, and less expensive

AI and advanced analytics as technology matures and comes to market

Data as a commodity, cloud computing allows for flexible processing

Market access with startups entering markets in which they haven’t previously participated

Democratization of technology in industryWhy does energy need digitalization?

Hardware such as chips and sensors are getting smaller, more powerful, and less expensive

AI and advanced analytics as technology matures and comes to market

Data as a commodity, cloud computing allows for flexible processing

Market access with startups entering markets in which they haven’t previously participated



IoT platforms built on democracy of tech

Connected machines

Assets, machines

and sensors

Data acquisition

Operational logs, realtime

measurements, SCADA data

Commsprotocols

Packaging data for

transmission

Edge gateway

Aggregation and local

processing

Wide area network

Internet or private

networks

Platform

Edge computing infrastructure Cloud storage and processing infrastructure

Security and encryption

Applications AnalyticsCore

algorithms (control, ML)

Applications programming interfaces (API)

Event handling/Stream processing

Data storage, cleansing, interpretation

Communications interface

Wide area network (WAN/wireless/3G/satellite)Local network (wired or wireless connections)




Digital utilities


Scope of digital activity by utility

Source: Bloomberg NEF, company reports and presentations. Note: Grey implies that the firm is forbidden from activity due to regulatory framework. Green Mountain Power has only limited activity in generation.

Digital Utilities

How industry spends money on IoT

1

• Company-wide scheme • CDO, digitalization plan, set investment numbers, cross department • Iberdrola, Enel, BP

2

• Targeted investments at business unit level• Often driven by mandates or rate-base opportunities. Most

commonly at specific generation sites and the distribution grid.• Duke, Ameren, PG&E, Schlumberger

3

• R&D spend• Funding for special pilot projects, research labs, innovation centers• PG&E, Ameren

4• VC, M&A• Spending $$ on startups, with accelerators, incubators or VC arms• Ameren, Innogy, Origin, AGL, Tepco

Digital Utilities


How utilities are paying


Building in-house

Data centers

Software

PrepaymentFull cost upfront

Implementation costs

O&M savings for thermal power plants, total impact

Digital tech helps reduce costs at thermal, hydro and nuclear generation

Source: Bloomberg NEF, company reports and presentations. ‘O&M reduction’ is specified as digitalization-only for Exelon, but unspecified in source for China State Grid and Enel. All three are historic values. In addition to power plant automation/sensors, Enel has a target to reach 60% IoT-enablement, from 6% of capacity today.

$240m Iberdrola expected savings from 2017-22 due to digitalization alone

3.2% Average power loss reduction at power plants due to digitalization

100%All of Iberdrola’s thermal power plant fleet is digitalized

Weather forecasting to predict renewables output

and protect assets

Optimization of assets to improve performance,

efficiency, fuel burn

Predictive maintenance for reducing operating

costs and avoiding failures

Worker optimization for improved productivity and

safety

25%20%

23%

Exelon nuclear State Grid Enel hydro

Percent reduction

Digital Utilities

Asset performance management – results

• APM can improve capacity factors by 3%

• Reduce maintenance costs by 25%• Improve safety and regulatory

compliance

Benefits

$168$157

$93 $88

$40 $37

Peaking gasplant

With APM Load-followingcoal plant

With APM Onshore windfarm

With APM

U.S. levelized cost of electricity ($/MWh)

Digital Utilities


Source: Bloomberg New Energy Finance, company reports and presentations. Note: Reported O&M reductions are not solely due to digitalization, but further gains are largely due to digitalization. Enel capacity represents percentage of renewable capacity enabled for Big Data and predictive maintenance. Iberdrola focuses on remote operation to measure digital deployment, while EON’s reported penetration covers predictive maintenance specifically.

Wind O&M cost reductions Penetration of digital solutions

100%

75%

10%

100%

85%

60%

Iberdrola

Enel

EON

Iberdrola

Enel

EON

Ach

ieve

dT

arge

t

Fleet coverage (percent)

24%

15%

8%

5%

1%

Enel onshore wind(2009-17)

EON offshore wind(2010-15)

EON onshore wind(2010-15)

Iberdrola solar andonshore wind (2017-22)

Enel onshore wind(2017-20)

Ach

ieve

dE

xpec

ted

Percent

Digitalization results: renewablesDigital Utilities

Outage reductions, annualized Dollars saved, annualized

Power grids are becoming more automated, more flexible

Source: Bloomberg NEF, company reports and presentations. Note: ‘Outage reductions’ based on minutes interrupted for Iberdrola, Enel’s on SAIDI figures, Exelon’s outage duration for ComEd, and Ameren’s unclarified. ‘Dollars saved’ represents opex for Iberdrola and Enel, capex for Vattenfall, and both for PG&E. PG&E penetration is based on percentage of circuits automated, while Enel and Iberdrola are based on substations. Enel has 28% of grids with smart tech monitoring, targeting 90% by 2020.

Penetration of automated network operations (e.g. digital control)

7.8%

5.2%

4.4%

2.8%

5.0%

3.3%

1.3%

Exelon

Iberdrola

Enel

Ameren

Duke

Iberdrola

Enel

Achieved

Expected

Percent outage reduction

57

50

140

60

PG&E

Vattenfall

Iberdrola

Enel

Achieved

Expected

Million dollars

99%

90%

86%

65%

100%

100%

Undisclosed

75%

Achieved

Target

Achieved

Target

Achieved

Target

Achieved

Target

TEPCO

Enel

PG&E

Iberdrola

Percent of network automated

Digital Utilities

Impact of drones on transmission & distribution

Source: Bloomberg NEF, Measure, Sterblue

$1,893

$906

$0

$400

$800

$1,200

$1,600

$2,000

Ground-based In-house drones

Cost of substation inspection (USD)

100

5

50

0

20

40

60

80

100

120

Helicopter as aService

In-house dronesNo BVLOS

In-house dronesBVLOS

Speed of transmission line inspections (km/day)

$179

$215

$111

$0

$50

$100

$150

$200

$250

Helicopter as aService

In-housedrones

No BVLOS

In-housedronesBVLOS

Cost of transmission line inspections (USD/km)

Digital Utilities

Who are the main players?And why are they excited about digitalization and IoT?

• Data ownerships and privacy – do you want your hardware or service provider to have all your data?

• Intellectual property – do you see yourself as a technology company that wants to build and own IP?

• Interoperability and visibility – do you use a range of hardware and service providers?

• Cloud vs on-premise – what are your security concerns and existing infrastructure structures?

• Payment structure – how do you normally pay for services and software?

Concerns of buyers of IoT services Who are the main players?


Business models for digital products


PaaS

Data access, business consistency, interoperability

Deployment time, cost, switching, use cases

Pay for users

Benefits and Disadvantages Business Models

Pay for connected assets

Pay for performance

Pay for complexity

Consulting

SaaSCheaper, in-house IP, off the shelf

Not interoperable, data sharing

ConsultingFast solution, custom,

Expensive, external expertise

Enterprise access

Industrial IoT strategy Interoperable

operating platform

Enhanced analytics &

control of assets Developing an AI

focus Relying on engineering

know-how

Scal

e of

am

bitio

n

Skills focus

Who are the main players?


Strategy• Working with industry leaders• Built for developers

Strategy• Targeting oil and gas • Challenging subject expertise• Double the startup network

Source: Bloomberg NEF, company information and presentations

What is big tech up to?

Utility partners

Oil and gas partners


Utility partners

Oil and gas partners

Source: Bloomberg NEF, CB Insights

Most heavily funded industrial IoT start-ups, 2018Applications – $327.4 million

Platforms – $260.8 million

Communications – $226.8 million

Cybersecurity – $693.5 million

Hardware – $156.5 million


VC/PE digital technology fundraising

Startups are threats - having raised over $4bn this year in industrial IoT tech



335

274

449

253 248

668

213

273

642 653

$0

$100

$200

$300

$400

$500

$600

Jan Feb Mar Apr May Jun Jul Aug Sep Oct

Million USD

IIoTcybersecurity

Chips

Advancedmaterials

Artificialintelligence

Advancedmanufacturing

Industrialrobotics

IIoT platformsand apps

Source: Bloomberg NEF, Bloomberg LP, Crunchbase, company reports and presentations. Note: Deals with multiple utilities investing in the same round are only counted once. PE stakes, when not taken by a corporate VC arm but by a standard division within a utility, are counted under M&A. All deals are completed and organized by completion date. Area of activity is a subjective determination by BNEF, based on the target’s primary business and utility’s motivation as stated in press releases. Deal value is only presented when publicly disclosed, and is otherwise zero.

Utility venture capital deals by deal count Utility venture capital deals by disclosed value

VC targets a wide range of applications, and software startups are growing

0

100

200

300

400

500

600

700

800

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Disclosed value ($m)

0

5

10

15

20

25

30

35

40

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Deal count

0

5

10

15

20

25

30

35

40Chart Title Other

Oil and gas

Utility

Renewables

Off-grid solutions

Small-scale solar

Advanced transport

Fuel cell

Storage

Efficiency and services

Aggregation

Energy management

Digital infrastructure

Cyber security

Data analytics


Topics to cover

• IoT platform differentiation

• Industrial business strategy & transformation

• Utility digitalization

• ‘As a service’ business models

• Regulation & policy

• Data-centric business models

Analysis & data • Hardware to software business transformation

• Company rankings

• Emissions strategy

Topics to cover

• Automation

• Asset performance optimization

• Predictive maintenance

• Supply chain optimization

• Digital manufacturing

• Logistics streamlining

• Product development

• Extraction and exploration management

Analysis & data • Impact on efficiency

• Impact on emissions

• Impact on jobs

• Costs & benefits of digitalization

Topics to cover

• Chips

• Advanced comms

• Machine learning & AI

• Robotics

• Drones

• 3D printing

• Blockchain

• Cybersecurity

• Startups, fundraising, investors

Analysis & data

• Data commoditization

• Edge computing trends

• VC/PE, M&A flows

• Patents & IP

Emerging technologies Industry digitalization IoT business models

BNEF Digital Industry Coverage

Covering the new digital technologies and associated startups, economics, policies

Quantitatively and qualitatively assessing the impact of digital tech on electricity, oil & gas, mining and manufacturing

Reviewing the disruption due to implementation of digital tech in industry: new business models, products, services, offerings, policies

Questions


Contact Information


Hannah DavinroyBloomberg NEF, Digital Industry analyst

[email protected](212) 617-3406

mailto:[email protected]

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