Smart grid technologies and the development of a decision making framework for market entry

This thesis explores business opportunities in the "smart grid" environment for the Power Electronics Global Product Group (PE GPG) of ABB, Ltd. The goal of this thesis is three-fold: 1) Provide a detailed definition of the smart grid landscape. 2) Create a framework for decision makers in the face of uncertainty, providing a view of both current initiatives and growth opportunities. 3) Use this framework to identify areas where the PE GPG can have the greatest market success in terms of revenue and profit; and perform a high-level analysis of those key opportunities, including a preliminary market, technical, and financial assessment. Working with key stakeholders across the unit and corporate level, the smart grid was defined, with a technologies map created, and key opportunities identified. With the opportunity set defined, a framework was developed to aid senior management in finding the best opportunities in the smart grid market. By subsequently applying this framework, two segments were identified as the most promising: plug-in electric vehicle charging and battery energy storage. While straightforward to identify opportunities in this manner, this process really highlighted the need for a comprehensive framework for decision makers, as well as the importance of such tools in identifying promising new projects, allocating resources efficiently, and communicating the strategic vision throughout the organization on an ongoing basis. Thesis Supervisor: John Kassakian Title: Professor of Electrical Engineering and Computer Science Thesis supervisor: Jonathan Byrnes Title: Senior Lecturer, Engineering Systems Division This page has been intentionally left blank ACKNOWLEDGEMENTS The author wishes to express sincere appreciation to my ABB supervisors, Fabian Binswanger and Conrad Jansen, for their outstanding support and feedback while developing this project. I also owe a tremendous amount of gratitude to Tanja Vainio, LGO '04, who provided invaluable assistance navigating the ABB organization as well as showing enormous hospitality during my stay in Switzerland. Additionally, I wish to thank my ABB co-workers, whose willingness to help was remarkable, for their significant contributions. I would also like to thank my faculty advisors, Prof. Jonathan Byrnes and Prof. John Kassakian, for their sage advice, keen understanding of the issues, and never ending patience. This thesis would not have been possible without them. I wish to acknowledge the Leaders for Global Operations Program for its support of this work. The support I received from my LGO classmates was one of the true revelations of this project, and through the experience I have forged new friendships and enduring bonds. I never cease to be amazed by the intelligence and integrity of each and every one of my classmates, and count my two years at MIT as some of the most enriching in my life. I would like to thank my family for their love and encouragement during this journey, as they continue to be a positive and uplifting presence in my life. Finally, I would like to thank my amazing partner, Tatiana, whose contributions to my life are too numerous to count, and whose unwavering love carried me through to the finish. This page has been intentionally left blank TABLE OF CONTENTS ABSTRACT . 3 ACK N O W LEDG EM ENTS.5 TABLE O F CO NTENTS.7 LIST O F TABLES . 9 LIST O F FIG URES . 10 LIST OF ABBREVIATIONS, ACRONYMS, AND SYMBOLS.11 1. INTR O DUCTIO N . 12 1.1 PROJECT M OTIVATION AND GOAL . 12 1.2 THESIS OVERVIEW. 13 2. BACK GR O UND . 14 2.1. ABB CORPORATE BACKGROUND . 14 2.1.1. Corporate Structure. 15 2.2. POWER ELECTRONICS AND M EDIUM VOLTAGE DRIVES. 16 2.3. POWER ELECTRONICS GLOBAL PRODUCT GROUP. 16 2 . 3 . 1 . O rg a n iza tio n . 1 6 2.3. 2. Power Electronics Technology . 18 2 . 3 . 1 . S tra teg y . 2 2 3. TH E SM ART G RID . 23 3.1. DEFINING THE SMART GRID.23 3 . 2 . D R IV E R S . ,. 2 4 3.3. SMART GRID IMPLEMENTATION CHALLENGES.25 3.4. APPLICATIONS AND ENABLING TECHNOLOGIES . 27 3.5. ABB'S ROLE IN THE SMART GRID . 31 3.5.1 ABB Sm art Grid Vision . 32 3.5.2 Smart Grid Products and Strategy . 33 4. INTRODUCING A SCORING MODEL FOR OPPORTUNITY SELECTION AND PO RTFO LIO M ANA G EM ENT.35 4.1. PORTFOLIO M ANAGEMENT . 35 4.1.1. Why Portfolio M anagement? 37 4.1.2. Goals of Portfolio M anagement. 38 4.1. 3. Pitfalls in Financial Models for Portfolio Management. 39 4.1. 4. Applying the Correct M odel. 40 4.2. CREATING THE SCORING M ODEL . 40 4.2.1. Defining the Criteria . 40 4.3. IMPLEMENTING THE SCORING M ODEL . 42 4.3 . 1 T h e Id ea S creen . 4 3 4.3. 2 The Preliminary Assessment . 43 5. APPLYING THE PORTFOLIO SCORING MODEL TO THE SMART GRID.45 5.1. DEFINING THE SMART GRID SEGMENTS. 45 5.2. APPLYING THE SCORING M ODEL . 46 5.2.1. Applying an Initial Idea Screen . 46 5.3. PRELIMINARY ASSESSMENT . 56 5.3.1. Energy Storage . 56 5.3. 2. Distributed Generation.60 5.3.3. PH E V/E V Charging.62 5.4. DETERMINING THE W INNERS.68 6. IN TEG R A TIN G TH E PO RTFO LIO . 70 6.1. RESOURCE ALLOCATION.