Beyond your Borders: How a Utility Can Successfully Expand Internationally
For utilities, international expansion can be a tricky thing. It means placing your assets in countries other than your own and essentially starting up a new business. For some utilities, international expansion is the key to growing your business and remaining successful. For others, it can be a mistake that ends up in a substantial loss of funds.
What makes a utility’s expansion successful, and what are some companies that have successfully gone beyond their borders?
In the U.S., Duke Energy is at the top of the list when it comes to utilities. The country’s largest electrical power holding company, Duke Energy is surprisingly focused on primarily the U.S.
Duke owns a whopping 58,200 MW of base-load and peak energy generation in the U.S. and services roughly 7.2 million customers. Also noteworthy is Duke’s large service area, which spans 104,000 square miles.
With such a large service area, it would make sense that Duke would want to stay put. However, the company has expanded into Latin America, Canada, and even Saudi Arabia.
Duke’s international subsidiary is called Duke Energy International and is headquartered in Houston, Texas. Most of its 4,900 MW of generation capacity are in Latin America. The company entered the region around the turn of the twenty-first century and has been highly successful ever since.
According to investing analyst site Trefis, the company has been successful in Latin America because of the region’s high growth potential and high electricity prices in the region, though drought could put Duke’s Brazilian operations—which are primarily hydroelectric—in Jeopardy.
“If the drought continues in the next year as well, it could potentially impact the margins for Duke’s international operations,” Trefis writes. “Chile has also been facing a drought in recent times and this has slowed down hydroelectric power generation in the central part of the country. If this were to persist into the future, the output of Duke’s hydro-power operations in the country could also be impacted.”
While it’s certainly a big factor in Duke’s international expansion, the utility has been very cautious about its expansion, ensuring it has a strong base of revenue in order to weather more difficult times. Duke presents a great example of a utility that’s expanding internationally in a smart fashion, while keeping its homegrown business booming.
Britain’s largest independent gas and electric supplier First Utility is also looking toward international expansion. The company, which has been around since 2008, has been increasingly successful in the U.K., but not wishes to take its services to neighboring European countries. Specifically, the group is looking toward Germany, the Netherlands, Belgium, and North America as possible areas for future international expansion.
However, in order to do that, they need the funds.
"There are things we are interested in doing like taking our business model beyond the UK. Raising some capital to do that might be something we'll consider in future," Chief Executive Ian McCaig said in a telephone interview with Reuters.
They have several options for raising the capital for international expansion, including putting the company on the open market in the form of an IPO.
While these plans are not finalized, the company certainly knows what it’s looking for in terms of somewhere to expand to.
"We are looking at markets where there's a deregulated environment coupled with a low level of price control intervention from the state," McCaig said.
Essentially, First Utility is looking for markets ready to take their energy infrastructure to the next level.
First Utility isn’t the only one looking to emerging markets for potential expansion. A number of European utilities are looking to take their business to fast-growing markets.
GDF Suez is a leader in harnessing the potential of emerging markets. Unlike Duke or First Utility, the company produces more energy outside of its home market of France. It’s the largest energy producer in the Middle East and the second largest in Brazil. The company’s chief executive, Gérard Mestrallet, believes for utilities to see continued success in the future, they need to look outside of their home markets.
“Ninety per cent of incremental energy demand will be outside the OECD,” he said. “In Europe and the US, energy demand is declining by 1-2 per cent, even though economic growth is flat.”
Italy’s Enel is also looking toward expanding into emerging markets. Since the Italian power market isn’t particularly large, the company has had to look elsewhere to be successful.
“We’ve moved from being an old lady in a small market . . . to a multinational across 40 countries,” Fulvio Conti, Enel’s chief executive, said.
One company that’s facing expansion hardships is Germany’s E.ON, who has recently expanded into Brazil and Turkey. This was preceded by an earlier move into Russia. While the expansion is certainly beneficial, analysts predict that it won’t be enough to offset E.ON’s declining profits in Germany.
Political and economic unrest in Turkey has also put some of its assets in jeopardy, as the cash flow from the country isn’t necessarily a guarantee anymore. Similar problems are being encountered in Russia.
“As a result of regulatory changes, weak demand growth and currency impacts, their returns there have been lower than expected,” Sofia Savvantidou of Citi said. “It’s too early to judge whether it’s been a success.”
So, international expansion might not be the answer for every utility, though there are certainly some for who it has been exceedingly successful.
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Why Transmission & Distribution Utilities Need Digital Twins
As with any new technology, Digital twins can create as many questions as answers. There can be a natural resistance, especially among senior utility executives who are used to the old ways and need a compelling case to invest in new ones.
So is digital twin just a fancy name for modelling? And why do many senior leaders and engineers at power transmission & distribution (T&D) companies have a gnawing feeling they should have one? Ultimately it comes down to one key question: is this a trend worth our time and money?
The short answer is yes, if approached intelligently and accounting for utilities’ specific needs. This is no case of runaway hype or an overwrought name for an underwhelming development – digital twin technology can be genuinely transformational if done right. So here are six reasons why in five years no T&D utility will want to be without a digital twin.
1. Smarter Asset Planning
A digital twin is a real-time digital counterpart of a utility’s real-world grid. A proper digital twin – and not just a static 3D model of some adjacent assets – represents the grid in as much detail as possible, is updated in real-time and can be used to model ‘what if’ scenarios to gauge the effects in real life. It is the repository in which to collect and index all network data, from images, to 3D pointclouds, to past reports and analyses.
With that in mind, an obvious use-case for a digital twin is planning upgrades and expansions. For example, if a developer wants to connect a major solar generation asset, what effect might that have on the grid assets, and will they need upgrading or reinforcement? A seasoned engineer can offer an educated prediction if they are familiar with the local assets, their age and their condition – but with a digital twin they can simply model the scenario on the digital twin and find out.
The decision is more likely to be the right one, the utility is less likely to be blindsided by unforeseen complications, and less time and money need be spent visiting the site and validating information.
As the energy transition accelerates, both transmission and distribution (T&D) utilities will receive more connection requests for anything from solar parks to electric vehicle charging infrastructure, to heat pumps and batteries – and all this on top of normal grid upgrade programs. A well-constructed digital twin may come to be an essential tool to keep up with the pace of change.
2. Improved Inspection and Maintenance
Utilities spend enormous amounts of time and money on asset inspection and maintenance – they have to in order to meet their operational and safety responsibilities. In order to make the task more manageable, most utilities try to prioritise the most critical or fragile parts of the network for inspection, based on past inspection data and engineers’ experience. Many are investigating how to better collect, store and analyze data in order to hone this process, with the ultimate goal of predicting where inspections and maintenance are going to be needed before problems arise.
The digital twin is the platform that contextualises this information. Data is tagged to assets in the model, analytics and AI algorithms are applied and suggested interventions are automatically flagged to the human user, who can understand what and where the problem is thanks to the twin. As new data is collected over time, the process only becomes more effective.
3. More Efficient Vegetation Management
Utilities – especially transmission utilities in areas of high wildfire-risk – are in a constant struggle with nature to keep vegetation in-check that surrounds power lines and other assets. Failure risks outages, damage to assets and even a fire threat. A comprehensive digital twin won’t just incorporate the grid assets – a network of powerlines and pylons isolated on an otherwise blank screen – but the immediate surroundings too. This means local houses, roads, waterways and trees.
If the twin is enriched with vegetation data on factors such as the species, growth rate and health of a tree, then the utility can use it to assess the risk from any given twig or branch neighbouring one of its assets, and prioritise and dispatch vegetation management crews accordingly.
And with expansion planning, inspection and maintenance, the value here is less labor-intensive and more cost-effective decision making and planning – essential in an industry of tight margins and constrained resources. What’s more, the value only rises over time as feedback allows the utility to finesse the program.
4. Automated powerline inspection
Remember though, that to be maximally useful, a digital twin must be kept up to date. A larger utility might blanche at the resources required to not just to map and inspect the network once in order to build the twin, but update that twin at regular intervals.
However, digital twins are also an enabling technology for another technological step-change – automated powerline inspection.
Imagine a fleet of sensor-equipped drones empowered to fly the lines almost constantly, returning (automatically) only to recharge their batteries. Not only would such a set-up be far cheaper to operate than a comparable fleet of human inspectors, it could provide far more detail at far more regular intervals, facilitating all the above benefits of better planning, inspection, maintenance and vegetation management. Human inspectors could be reserved for non-routine interventions that really require their hard-earned expertise.
In this scenario, the digital twin provides he ‘map’ by which the drone can plan a route and navigate itself, in conjunction with its sensors.
5. Improved Emergency Modelling and Faster Response
If the worst happens and emergency strikes, such as a wildfire or natural disaster, digital twins can again prove invaluable. The intricate, detailed understanding of the grid, assets and its surroundings that a digital twin gives is an element of order in a chaotic situation, and can guide the utility and emergency services alike in mounting an informed response.
And once again, the digital twin’s facility for ‘what-if’ scenario testing is especially useful for emergency preparedness. If a hurricane strikes at point X, what will be the effect on assets at point Y? If a downed pylon sparks a fire at point A, what residences are nearby and what does an evacuation plan look like?
6. Easier accommodation of external stakeholders
Finally, a digital twin can make lighter work of engaging with external stakeholders. The world doesn’t stand still, and a once blissfully-isolated powerline may suddenly find itself adjacent to a building site for a new building or road.
As well as planning for connection (see point 1), a digital twin takes the pain out of those processes that require interfacing with external stakeholders, such as maintenance contractors, arborists, trimming crews or local government agencies – the digital twin breaks down the silos between these groups and allows them to work from a single version of the truth – in future it could even be used as part of the bid process for contractors.
These six reasons for why digital twins will be indispensable to power T&D utilities are only the tip of the iceberg; the possibilities are endless given the constant advancement of data collection an analysis technology. No doubt these will invite even more questions – and we relish the challenge of answering them.