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    Monday, October 12, 2015


    Powering the future; Leading the digital transformation of the power industry

    Marco Annunziata and Ganesh Bell, September 29, 2015 (General Electric Power and Water)

    Executive Summary

    A set of technological and macroeconomic forces is converging to trigger a deep transformation of the energy industry. The world needs more power to extend electricity access to over one billion people and to support stable growth and rising living standards for billions more. This requires developing new energy supplies, while building and upgrading grid infrastructure.

    At the same time, the convergence of digital and physical innovations, together with advances in energy technologies, has begun to impact the industry. These advances help open the way for bi-directional energy flows in the grid, for real-time demand adjustment, for a smarter combination of energy supply sources and to deliver higher electricity output from existing assets, as well as enhanced performance from future infrastructure investment.

    These trends pose a new set of complex challenges to the industry: balancing the fuel mix, ensuring the reliability of power delivery and quality, improving asset level visibility, identifying new revenue sources, integrating new technologies, neutralizing cyber security threats and coping with an aging workforce.

    These challenges also present unprecedented opportunities. The future of the power sector is a new value chain augmented and interconnected by digital technologies—one where both power and information flow in multiple directions; all actors add value; and the overall efficiency, cost-effectiveness, resilience, and sustainability of the system are enhanced through information sharing, openness, collaboration, and coordination between stakeholders through the right set of incentives.

    It will encompass three key elements: (1) a digital centralized generation pillar, relying on a mix of fossil fuel and renewable sources; (2) a digital grid, connecting generation and consumption, and enabling the multidirectional flows of energy and information; and (3) a digital consumption pillar, improving consumption patterns along with distributed generation and storage capacity.

    Energy providers will join a new breed of digital-industrial companies. This will require changing their business models to take full advantage of new digital capabilities: balancing the fuel mix through big data analytics, accelerating the adoption of natural gas and renewables; optimizing plant operation by using analytics to reduce cost and emissions while maximizing economic output; and developing new ways to interact with customers. The power grid will realize its potential as a platform, accelerating innovation and efficiency gains.

    This transformation will not be easy. It will require investing in infrastructure and new technologies; changing mindsets, public policies, and business models; investing in people through education and on-the-job skills upgrading; and developing open standards and ensuring interoperability. It will require the highest degree of cyber security against potential data privacy and system security risks.

    The opportunity is unprecedented. Imagine: A future of energy that realizes the goal of ubiquitous access to clean, reliable, sustainable and secure electricity, while fostering economic growth through the creation of new energy ecosystems. The convergence of digital and physical technologies brings this within reach…

    New challenges for energy players:

    Balancing the fuel mix. Power generation will be able to rely on an increasingly diverse and flexible range of supply sources: centralized generation through fossil fuels, nuclear or renewables, distributed generation, and stored energy. Balancing the supply mix on a real time basis will be essential to maximize the energy output and cost-effectiveness of the whole system.

    Reliability of power delivery and quality. The energy value chain will become more complex, encompassing a multiplicity of moving parts with different priorities and incentives, as well as a wider mix of supply sources. Ensuring that power can be delivered reliably, without outages or unforeseen changes in quality, will require a commensurately sophisticated effort of monitoring and control.'

    Asset level visibility. In order to achieve both of the above objectives, system operators will need to be able to monitor—in real time— the state and performance of all assets linked to the network. This will enable them to continuously assess demand and supply expressed by all elements on the system, as well as their responsiveness to price signals.

    Identifying new revenue sources/correctly valuing and allocating the cost of investments and other efforts that add value to the system. The traditional model that compensated utilities with volumetric tariffs is becoming suboptimal. The energy system of the future will need to develop a set of incentives that induces all players to add value through actions and information provision, ensuring adequate compensation for investment and incentivizing sufficient risk-taking for innovation and experimentation.

    Aging workforce and knowledge capture. Population aging in advanced economies is mirrored by the agingof the workforce across a number of industries—and the power industry is no exception. The prospective simultaneous retirement of large cohorts of experienced workers is set to create a problematic skills shortage just as the industry faces a challenging transformation. While younger generations of workers will bring new skills to the industry, it is crucial that the knowledge and experience accumulated by more senior workers is captured and embodied in the companies’ institutional memory, accessible to the new workforce. Digital innovations that facilitate communication and collaboration as well as the creation of a digital memory capturing the experience of the workforce should be used to this purpose.

    Technology integration. The management of industrial technology has traditionally been split between two separate fields: information technology (IT) and operations technology (OT). IT worked from the top down, deploying and maintaining data-driven infrastructure largely to the management side of business. OT built from the ground up, starting with machinery, equipment, and assets and moving up to monitoring and control systems. With smart machines, big data, and the Industrial Internet, the worlds of IT and OT suddenly collided. Data, once the purview of IT, is now ubiquitous on the operations floor. In order to fulfill the promise of using data to enhance productivity, IT and OT, developed separately with independent systems architectures, need to come together and find common ground to develop a new information-driven infrastructure…

    The future of energy is a new value chain augmented and interconnected by digital technologies, where both power and information flow in multiple directions, all actors add value to the system, and the overall efficiency and resilience of the system hinge on information sharing, openness, collaboration, coordination, and the right set of incentives. The end result will be a system that provides electricity in the most reliable, sustainable, and economic manner.

    It will encompass three key elements, highlighted in the chart below:

    1. a digital centralized generation pillar, relying on a mix of fossil fuel and renewable sources;

    2. a digital grid, connecting generation and consumption, enabling the multidirectional flows of energy and information; and

    3. a digital consumption pillar, which will play an important role not just in improving consumption patterns, but in adding generation and storage capacity…

    New business models…

    Energy providers will join a new breed of digital-industrial companies. 8 This will require changing their business model to fully take advantage of new digital capabilities. A first priority will be to use the insights provided by big data analytics in order to balance the fuel mix. Conventional thermal generation will remain a vital component of the energy mix for decades to come,9 but new technologies will accelerate the adoption of natural gas and renewables, requiring software to manage and optimize the generation portfolio.

    Switching from reactive to proactive and predictive maintenance so as to maximize uptime will also require a mindshift. In general, management and operations of power producers will have to adopt a “data-first” mentality, always thinking in terms of the potential insights that can be gleaned from data and analytics to improve the value of the service.

    Digital tools can also give energy providers new ways to interact with consumers. Many utilities and other energy service organizations are seeking to transition from electricity provider to trusted energy advisor. This requires utilities to work with customers in new ways to identify and tailor solutions. For example, detailed interval data as well as information from connected devices can help utilities and other service providers to develop onsite power solutions to increase reliability or efficiency retrofits to reduce spend. Social media can help utilities communicate with customers regarding outage restoration or peak demand events, or simply engage customers in a discussion around energy services or conservation.

    The electric grid as a platform

    Platforms have quickly emerged as a defining characteristic of the digital economy. Their role and value in consumer sectors is by now recognized: they are both an enabler of efficiencies and a key avenue of value monetization. Platform business models have revolutionized the way that value is created, delivered and monetized across a set of interdependent providers, users and intermediaries. As a concept, platformdriven businesses are not new. They have existed in the physical realm for centuries: a “bazaar” or “market” is a platform that brings sellers and consumers together in some central location for a trade, enabling faster diffusion of information (through physical co-location) and more efficient transactions.

    Digital-age platforms do a lot more, however. They unlock the potential of under-utilized capacity. They enable instantaneous and universal access to information through digital apps on mobile devices; they turn data into analytical insights that can dramatically increase efficiency by accelerating the feedback loop between price changes, and supply and demand responses. They also accelerate innovation and value creation. Common operating systems that enable the rapid and wide deployment of new digital consumer apps have reached the point where “there is an app for everything”. A similar proliferation will take place in the industrial world: Predix, the operating system for industrial apps, is set to spur the rapid development of an industrial app economy that will accelerate efficiency gains across industrial sectors.

    The electric grid embodies many of the platform characteristics. It connects multiple users of a network, enabling the exchange of products, services and information. Traditionally however, the platform potential of the electric grid has been limited by the very specific nature of the sector. Economies of scale, the exclusive role of centralized generation and the lack of data collection and response mechanisms dictated a very simple hub-and-spokes model, with centralized power producers supplying electricity and charging bulk tariffs regulated to allow them to cover investment and operational costs while ensuring affordable safe and reliable power access to consumers.

    With the rise of distributed generation and demand management set to complement centralized power, the electric grid has for the first time, an opportunity to become a true platform, enabling a symbiotic relationship between central and distributed resources, utilizing a wide range of data such as weather and vegetation changes, granular load projections by neighborhoods, central generation and distributed resource output capabilities, demand response capability, and grid asset health to find the optimal resource mix and power flow path to maximize grid reliability and minimize delivered electricity cost.

    These digital platforms will enable central and distributed resource providers to determine locational prices for energy and ancillary services, and consumers to determine how best and when to use energy. In the event that a reliability issue such as an outage must be handled, the digital platform will autonomously communicate with grid devices to reroute power flow, island critical loads using microgrids, and ensure that the proper steps are taken to restore the grid to proper operation safely and quickly.

    Enabling conditions

    While there will be tremendous benefit gained from further digitizing the energy sector, challenges beyond technology and policy remain. In particular, a grid with seamless interaction between central and distributed resources will require open standards and interoperability. Any platform that manages assets as critical as the energy infrastructure will need to be secure physically, but especially digitally. Finally, a new generation of personnel will be required to facilitate the industry’s transition to a digital future as a significant portion of the current workforce retires…


    The power industry has begun an exciting digital journey, one that will bring a deep transformation of the entire value chain. A set of macroeconomic and technological forces have catalyzed this transformation, creating new challenges but also new opportunities for the industry.

    Access to electricity across developed and emerging markets is critical to global growth. Today with over a billion people without electricity access and growing energy demand from rising living standards of billions more, the industry faces a formidable challenge. Supplying secure and reliable power in a sustainable manner will require investment in new generation and transmission-distribution infrastructure, making the existing system more energy efficient as well as diversifying the fuel mix.

    Advances in distributed energy technologies, energy storage, and connected devices are making it possible for consumers to also play a role in the generation and distribution of energy, opening the way for bi-directional energy flows and optimizing peak demand. Utilities are deploying digital technologies to integrate distributed technologies, manage fluctuating demand and quickly resolve outages to realize industry goals. The penetration of digital technology adoption however is limited. Operational challenges of sustained profitability, data deluge and an aging workforce still remain significant.

    The convergence of digital and physical technologies that is unfolding across industry can turn these challenges into unprecedented opportunities. The power sector needs a digital strategy that enables a new value chain augmented and interconnected by digital technologies. Our vision of this value chain links digital generation and digital consumption by a new digital energy grid that can also serve as an intelligent technology platform and a marketplace for new revenue sources, pricing schemes that incentivize innovation for existing and new players in the energy ecosystem. A digitized value chain will yield a system with greater reliability, affordability and sustainability.

    In the energy sector, machines will merge with data analytics at a scale like never before. This will result in substantial value gains starting from the planning and siting of power generation plants to their operations. Moreover it will enable a more dynamic management of central and distributed power. Meanwhile, digital consumption will become more efficient, participative and responsive to demand and power supply conditions.

    Power producers and utilities are embarking on a journey to digitize their processes. This will require not just investment in new technologies, but also a shift in mindset and business models—and the shift will need to be faster than ever before. Digital innovations rely on openness and collaboration to realize their full value. Therefore, power producers and utilities will need to break down barriers separating their organizational silos. To do so, their CEOs, CIOs and COOs need to select the right technology partners that can help them bridge the IT and OT domain expertise. Internal and external collaboration will be mutually reinforcing. As this new wave of innovations brings together very different areas of expertise at an accelerated pace, partnerships are essential to succeed.

    This transformation will need high coordination among stakeholders. Energy providers will join a new breed of digital-industrial companies, by investing in new technologies and finding new ways to provide tailored solutions to customers. It will need development of open standards and interoperability between products, the nurturing of a new generation of personnel, and the highest level of cyber security.

    The opportunity for all participants in the future of electricity is unprecedented—it is full of digital promise.


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