Between 2003 and 2013, capital expenditures (CAPEX) for utilities in the United States nearly doubled, from $43 billion per year to more than $82 billion per year.
Physical assets form the bulk of CAPEX spending for utilities. To plan these expenditures and deploy resulting assets in a more effective way, regulators, shareholders, utility executives, and ratepayers have increased their attention on CAPEX.
This means that justifying, planning, and allocating CAPEX more effectively will become an even more crucial management function. Even a one- to five-percent improvement can lead to significant gains in return on investment and the overall effectiveness of CAPEX.
While CAPEX is rising, there is downward pressure on utility rates and revenues, resulting in reduced margins. Energy efficiency, demand response and distributed generation take away load from central generation and distribution, which decreases utility revenues. To keep expenses in line with revenues, utilities need to become more analytical and predictive in choosing how to spend CAPEX. Rather than rely on static, historical analysis to guide CAPEX spending, utilities need to dedicate expenditures to either mitigating expensive risks or taking advantage of revenue-enhancing opportunities.
To manage the complexity of and hence the risk to their operations, utilities need continuous visibility into the asset function with contextual analytics that include normalized metrics. Situational intelligence can deliver this capability for utilities.
Once a utility has situational intelligence applications in place, predictive analytics can guide asset decisions by analyzing the decisions’ effects on CAPEX spending and asset criticality. Knowing not just what conditions are today, but what conditions might be tomorrow, gives a better understanding of the overall risk to the fleet of assets. That, in turn, can guide where and how to best invest capital dollars to improve utility safety, reliability, and efficiency.
For more information on smarter capital spending for utilities, see this white paper.