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Smart Utility and Building Trends 2019 - An Interview with Andres Carvallo CEO - CMG Consulting LLC - Austin, Texas

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Andres Carvallo is the founder and CEO of CMG Consulting, LLC, a strategy consulting and advisory company focused on enabling Smart Grids, Smart Utilities, Smart Cities, and Smart Buildings. Outside of CMG, Mr. Carvallo is a Board Advisor at Smart Electric Power Association, Board Advisor at Texas State University Ingram School of Engineering, and Board Advisor at The University of Kansas Energy Council. Mr. Carvallo is an award-winning engineer, speaker, author, editor, and executive who is recognized by the IEEE as one of the early developers of the smart grid concept and technology. Andres defined the term Smart Grid on March 5, 2004. Andres championed Austin Energy's industry leading smart grid program design and implementation from 2003 – 2010 and architected the Pecan Street Project in 2009, while leading a total utility process and technology transformation investment of over $4 billion in generation, energy storage, smart grid, demand response, electric vehicles, smart buildings and microgrid projects. Andres has received 35 industry awards since 2005 for his contributions and successes.

Highlights of Andres Carvallo interview conducted January 7, 2019

Platform Convergence and Integration

“The current vortex of Smart Utilities, Smart Cities, and Smart Buildings is in full swing. Those domains used to be standalone. For the last 30 years the vendors and their products have played largely in their own niches with their own devices and protocols. In the last five years, however, things have been shifting rapidly. Some of the same folks in these different segments are talking to each other internally. There's clearly a move towards common, integrated platforms. They're looking at smart IoT product lines that talk to each other and integrate easily. It’s primarily a software development effort. It doesn't happen in one weekend, but it's a watershed development in industry activity.”

Platform Integration Resulting in Data and Storage Cost Overload

“We clearly see the big companies coming at the utility sector at 100 miles an hour with Amazon and Alexa leading the way. You also have Google, Apple, Microsoft, and thousands of smaller companies doing the same thing. It is going on at the commercial, industrial and residential levels. I applaud the current push of installation of devices and software to integrate systems. However, an unintended consequence is the amount of data being gathered and managed is going through the roof. Companies use Amazon and say ‘we'll pay a little more for the unexpected increase in storage because it’s already on Amazon,’ but all of a sudden, they're realizing, ‘oh my gosh wait a minute.’ Now they see it's 10 times their original storage estimate and the bill from Amazon is exceeding their planned budgets. Managing data overload and costs will be a challenge for the foreseeable future. It is inevitable on the way to becoming a Jetsons society.”

Going Green in Wholesale Energy Markets Pressing Utility Business Models

“Going ‘green’ 100-percent is a big driver creating all kinds of pushes and activity across the utility industry. This will only accelerate in 2019. You have companies like Google, Facebook and Apple buying energy in the wholesale markets (no longer as retail buyers). Most wind and solar developers are doing utility scale development. Until recently, finding customers willing to sign up for Power Purchase Agreements (PPA) was difficult. Today, you can talk to somebody like Austin Energy or anybody who's offering renewable PPAs and they are delighted and happy that companies like Google and Microsoft and Apple and many others are buying directly from the developers as wholesale buyers for their own retail use.  This is accelerating renewable development.

Some Fortune 500 enterprises have become wholesale market energy members across the United States. These enterprises are trying to buy clean and cheaper energy. But they're not buying power like you and I buy retail priced power. They're buying power at a wholesale level because they have massive data centers, massive buildings and facilities. They're creating competition among and within utilities. Couple that with the acceleration of wind and solar farms offering renewable energy and you’ve got one of the hottest things happening right now. If buildings go positive energy, as I projected in 2011, if they start producing their own energy and they start feeding energy back to the grid, then the utility itself doesn't need to provide as much power. And so they become a wires provider, something like an eBay of energy in a model where they're moving energy back and forth, maybe providing services along the way, and they're getting a piece of the action, instead of selling the entire thing themselves in a monopoly fashion. That's where the utility business model is heading.”

Market and Technology Pressures on the Traditional Utility Business Model

“The challenge in the buildings sector is that it is further behind on IT integration than most all other sectors. That’s ironic, because the building sector has been automated for a long time. The problem with that is that it was built on old narrowband standards like Lonworks and BACnet that were designed 20-30 years ago when broadband barely existed. The old standards ran legacy HVAC systems, boilers, chillers and all that infrastructure. The challenge now is to adapt those old devices and infrastructure to the newer communication standards and technologies like Thread, 6LowPan, Wi-Fi or Zigbee.

Upgrading legacy infrastructure to new standards has started to happen but it's fairly slow. The challenge is, if you're a company that’s been running your equipment for the last 10, 15, 20 years, that equipment was just not designed to integrate easily with Internet Protocol (IP) standards. Now you have to put in a gateway and add staff, you need to change your Building Management System (BMS) or Building Automation System (BAS). Maybe you're a building manager and your BAS only controls lights and temperature but it doesn't do security and access and presence and isn’t conducive to retrofits.

How do you bring that building or facility into the 21st century? Do you install a new software platform first and then start swapping the hardware, or do you swap the hardware first, then add the software? Which software platform do you choose? Companies are pressed by emerging technologies, energy costs, and customers to upgrade their systems. Climate change is pressing policy and business decision-making.

In turn, there is a lot of wild west surrounding the utility sector. A lot of new companies say that they have the latest and greatest technologies to provide solutions to their industrial and commercial customers. There's a lot of acquisitions and mergers along that line happening. Engie, EDF, E.ON, NRG, NextEra Energy, Edison International, Semora and many others are attacking this space because they see the big potential downside in their customers changing their business model - what prevents the customers from going 100-percent solar plus batteries and fuel cells and leaving the grid altogether?

Because of all this activity, utilities are reshuffling themselves and attempting to develop new business models. They may have to create a new division of the company and go after this new market because if these guys leave, they’ll want to recapture them.”

Smart Connected Building Platform Integration – Foundation of the Smart City

“If you can solve the problem of technology upgrade and platform integration at the building or facility level, then you can do families of buildings. Then you can do entire utilities services territories and entire cities jurisdictions correctly. But how do you effectively integrate and manage everything in buildings and industrial complexes – security, lighting, cooling, heating, water, equipment, etc.? A lot of companies don't have the time or the staff or the resources to figure all this out. The simple answer is we need to move all infrastructure to Internet Protocol (IP). In my opinion those who do well there will win the business and establish the standards. It's like Microsoft Windows running on a PC and eventually they're running an entire data center.

Again, the problem for the building owner is that he or she is running HVAC, boilers, chillers and equipment bought 10-20 years ago running on old control and communications protocols. The owner needs to wait until those devices fail and replace them with new products. It's similar to the challenges that the utility experiences. The utility doesn't replace their systems every 18 months. They have to run the course on asset depreciation. The same happens with buildings. So, you have to retrofit the old ones. The opportunity and challenge is how you retrofit. You have to create a sort of layering of new technologies over the old devices and infrastructure. It’s a retrofit strategy that is not going to go away any time soon.”

Managed Services Providers (MSP) the Wave of the Future

“The first wave of all this transition is usually done by early adopters of new technologies and new business models. Early adopters are companies that tend to have resources and have an appetite to go after it. They’re willing and able to take risks. They tend to do things in-house themselves. Companies like Honeywell, Siemens, Johnson Controls and many others will offer all the bells and whistles to integrate all devices and services. The question is who will truly easily and securely integrate all third-party devices? By the end of 2020 there will be hundreds of managed service providers. I believe that managed services will be the way to go for most building owners.”

Voice Activation Adding Another Layer of Security to Defend

“Corporations are starting to use voice activation to run virtually everything. Imagine a manager on the shop floor in a manufacturing setting talking to the computer instead of going to his or her keyboard to type things. They’re talking to Alexa telling it to do things while they’re working on the assembly line. Those conversations, the data being used and Intellectual Property (IP) are being stored in the Cloud with the potential of being hacked.

Aside from the privacy and storage issues, the challenge with voice user interfaces is that we are adding another layer to secure. The more layers we add to computing the easier it is to hack it.”

Security at the Industry-specific Microchip Level

“In an effort to truly secure our infrastructure, you’re hearing a lot of discussion now about creating systems designed for specific industries. Engineers are discussing the design of microprocessors and other chips that execute very specific functions with limited external reprogrammable capabilities.

As it currently stands, chips used today are created in a generic fashion in order for them to be applicable to any use case. Which means that, as a hacker, if I come in through the backdoor, I can see all the functionality on that chip and I can then reprogram that chip to do something I want it to do. The chips we have today are smarter and more flexible than they need to be in industrial settings.

We're not ever going to be able to control the bad guys. They're going to always find a way to break into whatever we create. Therefore, we need to design industrial microprocessors, chips, hardware, software and communications protocols to very specific, tightly controlled purposes. That may be the way significantly reduce or even eliminate hacking”

Andres Carvallo can be reached at andres@512cmg.com.

Michael Albrecht's picture

Thank Michael for the Post!

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