The Utility Business Case for Asset Monitoring and Diagnostic Centers

Globally, the replacement and maintenance of utility infrastructure is providing the industry with an important opportunity to upgrade and modernize the electric network. Even in a world that may result in a level of generation decentralization over time, there is a critical need for new utility asset management techniques and technologies that improve total up-time, reduce asset maintenance costs and improve overall asset health. A critical component of this opportunity is the deployment of cross functional capability and new applications in the form of monitoring and diagnostic centers.  

Monitoring Aging Utility Infrastructure

According to the U.S. Department of Energy, approximately 70% of transformers are over 25 years old, 60% of circuit breakers are more than 30 years old and 70% of transmission lines are 25 years old or older and approaching the end of their useful life. Equating this to investment need, the Edison Electric Institute estimates that by 2030 the U.S. electric utility industry would need to make a total infrastructure investment of $1.5 trillion to $2.0 trillion, of which transmission and distribution are expected to account for about $900 billion. We are seeing this investment take hold, over 3,000 utilities in the U.S. have cumulatively installed millions of poles, small transformers, and other distribution equipment. Indeed, according to the DOE 2015 QER report, utility investment in capital has routinely outstripped depreciation expenses over the last decade, leading to positive and growing net capital additions. What this means is that utilities are adding property, plants, and equipment at a faster rate than they are losing it to wear and tear or obsolescence.

However, while there is a pressing need to update and replace energy infrastructure globally (some estimates project that 60% of grid assets will need replacement this decade), equal attention should be paid to analyzing asset information from the deployment of sensors, communications and advanced asset management software. The benefits of a thorough approach in this regard can provide utilities with a host of monetary benefits.

Building Monitoring and Diagnostic Capabilities

Across several jurisdictions, we are seeing progressive utilities build smart operation centers that have monitoring and diagnostic capabilities at their core. These utilities are working to manage capital budgets effectively, ensure that asset management practices trend towards condition based monitoring and that they minimize catastrophic failures. Indeed, as awareness of this opportunity grows, there is a deluge of software vendors that are offering capabilities in this space, often with complementary capabilities across a utilities’ technology stack (Schneider Electric, GE, IBM, ABB etc.). In addition, common across these providers is that they are tackling similar use cases. To that, in the graphic below we highlight the highest value use cases that we are seeing being deployed by utilities. These use cases are often the bedrock of integrated monitoring and diagnostic centers, backed by cross functional and technical expertise and include catastrophic failure avoidance, capital spending optimization, optimizing maintenance, analyzing and scoring risk, compliance productivity and dynamic asset rating. 

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Use Cases to Build a Monitoring & Diagnostic Center

To enact these capabilities what is critical for utilities, is access to quality information from the right assets such as FACTS devices, circuit breakers, phase angle regulators and power transformers. This is however the most significant challenge, as the lack of quality real-time asset information can delay any business case benefits. To that end, successful utilities in this regard, have simultaneously invested in data quality efforts on information available from assets that currently have sensors deployed, while also building a plan to roll out sensors and communications to additional high value assets over time.

Building a Business Case

To ensure that a monitoring and diagnostic center has a thorough investment approach, any business case should mirror the use cases deployed and include, extended asset life, improved productivity of assets, reduced impact of catastrophic events for electrical assets and a host of type 2 benefits such as increased customer satisfaction from reduced outages, faster recovery from security events/outages, higher quality analysis of incident data etc. Below are a number of business case areas that should be considered:

• Avoided Catastrophic failure costs – Essentially calculating utility spend to replace large assets from a certain amount of avoidable major catastrophic events over a time period (10 years generally - capital and O&M). From this, a conservative percentage should be applied to standing up a monitoring and diagnostics center.
• Avoided Asset replacement costs - These benefits should be based on unique utility characteristics and that a monitoring and diagnostics center claims a conservative saving.
• Reduced routine maintenance – This is a percentage saving on an annual maintenance spend with an amount attributable to a monitoring and diagnostics center.
• Increased revenues from operational efficiency -  This is a percentage of revenue growth from increased capacity sales from operational efficiency and includes savings from reductions in quantity and duration of planned outages.
• Reduced inventory value carrying costs – This is a percentage reduction in annual inventory costs due to enhanced asset life-cycle management.
• Deferred asset replacement costs – These are calculated as annual savings from deferring asset replacement based on unique utility characteristics.
• Other Benefits – Reduced contractor needs, utility characteristics contributing to savings such as reduced costs from outage related congestion etc.

Growing Capability

As utilities evolve we are seeing asset monitoring and diagnostic capability grow due to the fact that there are not only aging assets but new types of assets to manage, an increase in smart grid data and an evolving set of asset management analytics techniques. All of this is providing opportunity for utilities to build robust practices in this space. Indeed, while optimizing life-cycle asset management of traditional assets is the critical function of an effective monitoring and diagnostics center for a utility, these capabilities could and should expand to new and more complex asset classes such as hardware, firmware, software, communications systems and storage capabilities. That said, in order to grow capability, utilities should begin this task by asking a holistic set of questions:

• What are the highest value use cases that should be first deployed?
• What assets should and can be monitored first?
• Should a monitoring and diagnostic capability be centralized or spread out among sites?
• Do we have the right level of data quality to implement a solution?
• Should a solution be hosted or provided as a service by a vendor?

Ultimately, by creating monitoring and diagnostic centers and deploying predictive asset maintenance analytics, utilities are improving total up-time, reducing asset maintenance costs and improving overall asset health. However, the critical task is not deciding upon a vendor, or growing capability at speed, but rather building realistic business cases that take into account when and how quality asset information will be available, and for that reason a holistic strategy is required.