McKinsey: Analytics is key to success for grid operators
Advance analytics could be the key to a bright future for grid operators rising to the global challenge of distributing electric power during COVID-19 and changing regulatory trends.
According to a report by consultants McKinsey & Company top performers are now using analytics to optimise costs, improve operations and advance their evolution as they navigate a rapidly changing landscape.
McKinsey & Company’s Transmission and Distribution (T&D) Benchmark report provides an insight for operators looking to improve their service of electricity transmission and distribution. During the past 10 years more than 110 companies have applied the benchmark to help identify areas of opportunity in a bid to stay competitive at this imperative time.
Current pressures on operators include:
- COVID-19 could spark economic challenges as regulators reduce the cost of electricity in some countries
- burden of an aging asset base
- grids need adapting to new power flows
- low interest rates and political pressure push to keep public services affordable
According to McKinsey & Company the convergence of these factors is prompting the sector to renew its focus on performance. The report identifies three ways grid operators can use analytics to unlock their potential along with three insights for targeted action.
Unlock potential using analytics
1. Install investment planning
One European operator developed a model looking at more than 10,000 variables from grid assets to import and export capacities. It can simulate the impact of external events, such as the risks of grid failures. McKinsey & Company state using the model to inform investment decisions enabled the operator to reduce its capex (capital expenditure) by between 10 and 30 per cent.
2. Draw on available data
By drawing on data already available, operators can build algorithms that help them rethink asset strategies, reduce opex (operating expenditure) and capex. These algorithms can predict failure points in the grid to help operators’ direct maintenance spending to the areas that need it most.
3. Equip employees with digital tools
In field operations, using technology to optimise high-value activities such as smart scheduling, live dispatching and remote support can deliver considerable improvements. One European operator, which adopted remote-support devices and required contractors to use a mobile app, managed to improve its success rate for critical interventions by up to 30 per cent.
1. Balance quality with spend
The McKinsey & Company report challenges the constant call from operators “we need to spend to maintain quality”. Research has shown that top performers focus on two key operational drivers, totex (total expenditure: operational plus capital) and SAIDI (System Average Interruption Duration Index: a measure of supply quality).
By doing this they can optimise their totex while keeping their SAIDI score below that of others with higher spending. Achieving this balance is vital as it can have a fundamental effect on an operator’s cash flow and credit rating.
2. Is prevention better than cure?
Analysis shows that achieving cost efficiency involves striking the right balance between corrective and preventive maintenance. However, the report reveals stark differences in approach from one region to another.
The emphasis on prevention among the East Asian operators leads to a world-class supply quality, but at a higher cost while Latin American operators’ reliance on corrective maintenance harms their quality of supply.
3. Outsource to cut costs
The new data reveals some of the most successful grid operators outsource up to 70 per cent of functions from Human Resources (HR) to finance. To be effective, outsourcing must be implemented with governance in place as operators should not become dependent on powerful suppliers for critical capabilities.