Four challenges for power generation companies in their digitalization journey
Digitalization holds great promise for the power generation industry. However, a range of internal and market challenges can constrain its effective uptake and implementation for those early in the digital journey. Digitalization can play an important role in solving a range of operational and business challenges for power generation companies.
Four key challenges for power generation companies:
1. Driving operational excellence
The market disruptions, increasing complexity, emerging technologies, regulatory changes and new supply-demand dynamics of electricity mean that many power generators are increasingly focused on driving operational excellence – to improve the availability, flexibility and efficiency of their plants.
Operational excellence for plants covers not only supplying reliable, affordable power and optimizing uptime, but also managing physical and cyber security, disasters and emergencies, public safety and environmental performance.
There is not always a direct link between the areas that operational excellence initiatives need to focus on and available key performance indicators (KPIs). Additionally, many plants have multiple systems in place but often with different database schemas, reporting schedules and protocols, so aggregated re- porting of new operational KPIs around flexibility, profitability and better use of resources can be difficult.
A challenge for those operating fleets of power plants is to ensure that best practices at one plant are applied across the fleet and lessons learned are effectively shared. A further challenge is that successful operational excellence initiatives rely upon cooperation and transparency across power plants, and especially across divisions – something that may need cultural transformation and breaking down traditional departmental silos to be realized.
The most crucial aspect of any operational excellence program is to define what success looks like. This means understanding what factors will drive business growth, enable optimal asset performance for current market conditions, while producing power in a safe and sustainable fashion, and delivering the profits that stakeholders will demand.
It also means defining the right metrics that indicate success in these areas, while ensuring that appropriate measurements are made and information is visible and shared for more rapid and effective decision-making.
People, processes and technology are the underpinnings of operational excellence initiatives. These initiatives must be owned by the most senior business function leaders to ensure the correct buy-in and commitment and make sure the program is delivered.
Moving forward, power generation companies must continue to evolve operational excellence initiatives as the continuous improvement engine of the company and the driving force for innovation. Big data and artificial intelligence are increasingly a feature of these innovations and one of the greatest opportunities is to use machine learning to provide plant owners with guidance on how to achieve operational excellence.
Big data also has a role for fleets of power plants. It can enhance operational visibility of KPIs across the fleet and provide the ability to ‘double click’ into individual plants or specific classes of equipment across the fleet.
2. Knowledge and workforce management
The energy industry has a shortage of skilled and experienced workers. For emerging markets, there is often the need to attract and import experienced workers; in developed markets, the issue is compounded by a high proportion of the workforce nearing retirement. In the United States, for example, 40 percent of the workforce at electric and natural gas utilities will be eligible for retirement in the next five years. This ‘generational shift’. driven by a retiring workforce, presents a significant challenge for the energy industry.
A further challenge to those operating in mature power markets is the cost-effective at- traction and retention of skilled and seasoned operations personnel, in the face of increasing competition for talent from other technical and process industries.
Even when new talent is obtained, there is still a need for education and training. As an industry that has long relied upon knowledge being passed via ‘on-the-job training’ and the individual know-how of experienced workers, many companies are having to deal with capturing this implicit knowledge and systemizing it for effective succession planning and knowledge transfer
Due to the need to move away from reliance on individual knowledge while retaining the necessary skills and competence, the ability to securely access both remote internal and external expertise is a huge enabler for these markets. Partnering with experts in power generation can bridge this gap and enable cost-effective, innovative solutions for the industry.
3. Regulatory compliance
Power generators are caught in a difficult situation. The increasing cost of complying with environmental, labor and other regulations is creating additional operational complexity and straining operating margins. These may in- volve meeting ever more challenging emissions limits, evolving the power generation capacity mix towards natural gas and renewable sources or updating aging infrastructure. At the same time, failure to comply can result in substantial fines or the closing of plants.
The financial burden of compliance is resulting in a cost squeeze on operating margins. This therefore involves an investment trade- off in other areas, such as human resources. The result is that power generators increasingly need to achieve more with less – they need to make continuous improvements in
operational efficiency to sustain their existing margins. For example, a recent study by Cap Gemini showed that over a quarter of power generation executive respondents targeted investment in the areas of reducing selling, general and administrative expenses or direct labor costs.
Digital solutions are required to support and facilitate this transition. This includes asset optimization strategies that take into account emissions, abatement costs and equipment life. It involves data visibility, ensuring that crucial regulatory data can be easily collectible, accurate and visible in real time to ensure cost-effective compliance.
With the increasing digitalization of assets and the exponential rise of cyberattacks around the world and across all sectors, the power generation industry is no exception in facing heightening cyber risks. The 2015 attack on the Ukrainian power grid is a cautionary tale for the entire industry.
However, finding solutions to these risks is not easy. For one, IT and OT, both of which are critical in creating a secured environment for as- sets, have different priorities. IT systems are usually renewed after four or five years, OT systems after 10, 15 or even 20 years. IT may wish to introduce new measures to improve security, which OT sees as an imposition that could disrupt operations.
Secondly, successful and resilient cyber security programs require not only investment in technology, but also in acquiring skilled re- sources and evolving business processes to address new risks. Cyber security requires a defense in depth approach that relies on disparate security controls to span the spectrum of industrial cyber security risks.
Finding the right security partners can also be challenging. While there are many potential partners who do many things well, and some do one thing expertly, few have the know-how in all the relevant domains – power generation and transmission, distributed control systems and automation, digitalization and the cloud, and cyber security. By 2018, an astonishing 50 percent of IIoT device manufacturers will not be able to address threats due to weak authentication practices.
Making a meaningful argument to a company’s leadership to justify investments in cyber security is not easy. It is almost impossible to put a value on things we avoid without knowing if we have avoided them. Instead of thinking about the investment in cyber security from a value perspective, companies should think about it as an insurance policy – a way to avoid potential costs and unacceptable risks that could be incurred through a disruption to operations brought on by a cyberattack.
Committing to a long-term strategy beyond a quick fix is key. Many companies buy an off-the- shelf solution that will help them through compliance. Others seek help from consultancies to make security assessments and close the gaps they find, but fail to put in place a long-term, sustained security program. Or they miss the critical step of providing continuous training and keeping their staff motivated, and risk losing talent and knowledge in a market where skilled cyber security personnel are in short supply.
Ultimately, a sound cyber security strategy needs to be a long-term commitment. Working with the right partners, companies should consider the entire life cycle of the program, and not just the initial design, focusing equally on processes, people and technology.
This is an excerpt from the Digitalization and power generation: Evolve, adapt and thrive during the Energy and Fourth Industrial Revolutions white paper. Read more here.