Decision modeling to understand energy transformation decisions

Many companies are facing the prospect of steep increases in the cost of energy in the coming years.  In response, many are looking at alternative energy sources. However, navigating the transition to this new world contains hidden dangers, so an evidence-based modeling approach can make a big difference.  This article looks at this decision-making process through the lens of US cable operators, to understand the specific decisions they face.

Worldwide, the cost of on-grid, coal- and petroleum-generated energy is expected to rise rapidly, while the availability of renewable and distributed power sources such as solar, wind, and hydrodynamic energy is decreasing.   These changes are altering the landscape for energy-intensive industries across the world.  Amongst them: U.S. cable operators, who face a sea change in the profile of energy costs, as subscribers grow more hungry for video and bandwidth at the same time that the cost of power to support a typical cable operators’ plant is expected to grow steeply.

Cable operators have an opportunity to “get ahead of the curve” through structured decision analysis of choices about energy usage.  Quantellia’s Mark Zangari and Tim McElgunn, Chief Analyst of Bloomberg BNA Broadband advisory services, presented on this topic at the Society for Cable Telephone Engineers (SCTE) Smart Energy Management Initiative (SEMI) forum.  Through a combination of data provided by Bloomberg BNA and modeling provided by Quantellia, Zangari and McElgunn were able to demystify some of the important factors involving this complex decision making process.  McElgunn also authored an accompanying analysis report, which is available to Bloomberg BNA subscribers.

Says McElgunn, “Within the next five years, the cost of energy to power the U.S. cable industry will become the single largest network cost component.” As shown in the video below and described in more detail after the video, operators who make good decisions stand to benefit substantially.

Background – The Energy Cost of Success for Broadband Providers

In recent years, U.S. cable operators have steadily expanded their service offerings to both consumers and businesses in such a way that energy demand and associated costs will continue to increase.Bloomberg BNA research shows, for example, that over three quarters of U.S. internet service customers subscribe to “bundles” of two or more services, which may include pay TV, home phone, and wireless service in addition to high-speed data.

Cable operators are responding to this increasing demand by building new data centers and expanding existing ones.These data centers contain equipment with increasingly lower energy footprints – to as low as 3 watts per server blade.However, the total growth in energy demand exceeds the benefit from these technology improvements.

For these reasons, cable operators face difficult decisions in a complex environment.Where should facilities be located?How should existing local and/or regional infrastructure be leveraged?How should cooling and heating be planned?Should operators consider alternative energy sources to utility-delivered power?

Says  McElgunn, “The U.S. cable industry has effectively transitioned to an all-digital video plant, and is preparing for an eventual transition to an all-IP network.”A digital network is less costly to operate than an analog one, however, HDTV impacts this trend in important ways.Says McElgunn, “By the end of 2014, essentially all new television sales in the U.S. will be HDTV-compatible, increasing the number of HD-fed sets per home. Bloomberg BNA estimates that approximately 40 million U.S. cable households will subscribe to HD tiers in 2017, with 1.5 HDTVs connected per home. “A large number of these HDTV sets will be displaying HD linear channels, as well as video-on-demand (VOD).  A single HD video stream consumes approximately 8 Mbps, and there are multiple simultaneous such streams delivered to essentially every video household for some portion of each day.“This leads to massive demands on the network,” says McElgunn, “This will impact both distribution and access plant and the resources required for content generation and formatting.”

In addition, U.S. cable operators offer services to businesses, which place additional demands on networks, and the energy required to operate them.However, McElgunn and Zangari write that “Current architectures and software designs require that generation and transmission resources that are preparing and delivering all of that video operate at full power virtually 24 hours a day every day.”This applies to multiple parts of the cable plant: headends, data centers, and outside plant facilities, which together will require substantial growth in energy to power them.

Modeling a Solution

Quantellia worked with Bloomberg BNA to build a model that integrates forecasting data with a systems model to allow cable operators to quickly and precisely determine if a proposed energy usage strategy exposes the operator to unacceptable financial and/or technical risks, and to visualize how adjusting specific decision parameters impacts desired outcomes.

Among the variables included in the model are expansion of Network DVR, balancing increasing server efficiency versus equipment replacement costs, evolutionary network and facilities design changes, and energy price changes over time.

Some findings were as follows:

• Capital costs are a substantial component: Each additional watt of power consumption adds incremental costs due to the increased quantity of energy the operator needs to supply.However, each additional watt also increases infrastructure needs, and the annualized capital costs resulting from higher power consumption can be significantly greater than the effect on power supply charges.
• Moore’s Law effects are mitigated by power issues: As illustrated below, although the cost of delivering a given unit of computing performance has been dropping rapidly over the years, the cost of power required to deliver that performance has not been dropping at the same rate.
• Timing is everything: Operators who take too long to change their energy contracts face steep competition through decreasing margins as costs increase.
• Sleep mode versus peak shaving: Policies that invoke “sleep mode” for idle equipment can reduce energy usage, but it’s important to keep in mind that capital-intensive infrastructure must be built to support the “peaks” of usage, so “peak shaving” is also an important cost containment strategy.

Organizational Challenges

Despite the cost benefits from making good decisions about energy usage, says Quantellia’s Zangari, “most U.S. cable operators have separate organizations with independent budgets for the establishment and operation of facilities, and the operation of the network equipment housed in those facilities.  While power and its supply and assurance is managed as a facilities function, network equipment and its performance falls under the operational and financial responsibility of the Network organization.”  Therefore, there is no single department within a typical cable operator with a holistic view of energy management.

A model like the one discussed here, provides this kind of cross-organizational view and equips decision-makers with access to all the factors relevant to measuring, understanding, forecasting, and minimizing the cost of energy.

See http://www.bna.com/broadband-advisory-services-p12884902148/.

If you’d like a copy of this model to run yourself, please drop me a line.

This is an encore presentation of an article that originally appeared in the World Modeler Blog in 2013.