In 2010, the Office of Gas and Electricity Markets for England and Wales (Ofgem) adopted a revised utility regulatory framework that will tie a utility’s revenues to incentives for delivering innovation and outputs. The framework soon took on the abbreviation RIIO. The main aim of RIIO is to motivate utilities to deliver total value for the money they collected and to pursue innovation such as integrating low carbon and renewable energy sources into their generation portfolios. Under RIIO, companies could realize additional revenues and enjoy financial bonuses for meeting or exceeding output goals, and for working with greater efficiency. They could also face penalties for falling short of goals or being less efficient. Could situational intelligence provide tools for complying with, and possibly benefiting from, this new framework?
The new RIIO framework immediately raised several difficult-to-answer questions with high stakes:
- How can I define, track, and improve efficiency?
- What are my best ways for integrating low carbon and renewable energy sources?
- Which investments in innovative technologies will yield the greatest return?
- What is my risk for penalties?
Fortunately, these are the types of questions at which solutions based on situational intelligence excels. By correlating, analyzing, and visualizing data from multiple silos, situational intelligence allows collaboration across the utility for identifying and implementing answers to such broad but important questions. The important difference is that situational intelligence enables these regulated companies to constantly analyze and visualize their progress and “operationalize” their performance monitoring – rather than expend significant manual effort to produce snapshots of the situation to support intermediate reporting or future negotiations with Ofgem.
In particular, situational intelligence excels at pinpointing. From a thorough understanding of risk, utilities can predict and proactively prevent future asset failures, which leads to key actionable insights in safety, reliability and customer satisfaction. Understanding risk also supports modeling capital investments to realize the greatest operational improvement or risk reduction for the money invested.
As Electricity North West alluded to in a recent SmartGrid GB meeting, situational intelligence also supports new ways to identify additional capacity from the existing network, by modeling the effects of new commercial conditions with large energy consumers in times of network stress or outage. Given the dynamic nature of commercial agreements, with commercial users continually coming on and off the grid, implementing solutions based on situational intelligence could deliver significant cost savings and risk reduction benefits.
A recent blog post from analysts at DNV GL suggests that utilities that can deliver outputs and innovations under the RIIO framework can receive “a steady stream of revenues, and a steady, predictable return on capital.” Those utilities that exceed goals for outputs and innovations could earn “significantly greater revenues.” That sounds like a strong incentive to pursue situational intelligence solutions.