How cloud can change the game for utilities

TODAY, utilities worldwide are navigating through significant change across their operations and external environment— bringing unprecedented challenges and opportunities. The pervasive changes now under way are being driven by four defining factors of the current utility industry context. Each of these factors brings profound impacts across the utilities value chain—from Generation to Transmission and Distribution, and from Trading and Risk Management to Retail. The four factors considered in this article are listed below and we have also given insight on how we think Cloud Computing is changing the game and helping Utilities to resolve these teething issues;

Factor 1 – Capital-intensive and cost-constrained
Factor 2 – Uncertain and riven with change
Factor 3 – Data-rich, social and analytics-enabled
Factor 4 – Collaborative and suffused with M&A

As Figure 1 illustrates, the inherent characteristics of cloud computing that directly address the four factors are driving forces for industry change—thus providing utilities with an effective platform to support future high performance and growth. These factors are why we believe cloud will fundamentally change the game for utilities in the next few years. Within each of the four defining factors shown in Figure 1, there are specific near-term opportunities to be seized in utilities’ migration to cloud. We will highlight these opportunities alongside our analysis of cloud’s longer term impacts.

Factor 1: Capital-intensive and cost-constrained Cloud reduces costs and lowers capital expenditure
Utilities are facing a need for heavy investment in priorities, such as replacing aging assets, decarbonizing their generation, expanding their network capacities and implementing mandated smart metering programs. Cloud changes the game by offering utilities economies of scale that reduce total cost of ownership (TCO)— while also enabling them to shift their investment profile away from capital expenditure and toward operational expenditure.
These attributes of cloud bring particularly significant benefits for the management and delivery of utilities’ current capital programs. By their nature, many of these programs—smart meter deployments, new generation build, offshore transmission networks and so on—have sharp peaks and troughs. In many cases, this fluctuating pattern drives utilities either to build temporary capabilities or to subcontract to third parties.

Under either of these models, cloud computing can provide a cost effective and flexible solution: first, by enabling utilities to scale faster and avoid significant investment in a temporary capability, such as scheduling and mobility solutions for the meter installation workforce; and second, by allowing them to transition to a subcontractor in an efficient and cost effective manner, while keeping the option of bringing the activity back in-house with minimal disruption, if required. Also, within the capital expenditures domain, cloud services can enable utilities to focus their ongoing capital expenditure on the areas offering the best returns— primarily those in their core business capabilities and operations—as opposed to investing in IT, which is fundamentally an enabler for these capabilities.

Furthermore, by shifting the emphasis from fixed to variable costs through pay-per-use pricing, cloud helps utilities align their costs more closely with business need and revenues, as well as supporting continuous cost improvement over time through greater automation and flexibility. Cloud’s effectively infinite processing power and high scalability can also help utilities reduce distribution costs by facilitating capabilities, including automated meter reading and enhanced outage management.

KEPCO virtualizes to operate private cloud
After a successful pilot, the Korea Electric Power Corporation (KEPCO) has implemented virtual desktops accessed through a thin client with network access, enabling users to create customized virtual PCs on the network server. A KEPCO official announced: “It has been proven through the three-month tear down and redesign process—which Accenture conducted before the actual testing of cloud computing—that it is highly efficient in terms of reducing cost…Once this test proves cloud computing as a viable solution, KEPCO plans to convert the thousands of its PCs to virtual settings.”

Factor 2: Uncertain and marked by change Cloud is flexible and agile, with reduced sunk investment
New regulations i.e. by Nigerian Electricity Regulatory Commission (NERC) often require amendments to system functionality and business processes, such as new standards for calculating customer tariffs and distribution charges.
Across the regulatory arena, the ability of cloud platforms to implement system changes and refinements faster and in a more cost-effective manner than traditional infrastructures helps to accelerate compliance and reduce disruption. And the role of cloud in managing regulation could escalate in the future. With regulations ranging from recent tariff design in Nigeria and also Sarbanes-Oxley in the United States, to a call for increased carbon emissions controls and reporting, it is not uncommon for a regulatory mandate to apply across a large region. In these circumstances, multiple utilities could benefit from a single SaaS solution that deals with changing industry regulations, rather than each company having to implement them separately using costly custom builds.

Accenture deploys Private Cloud
We are strong advocate that Utilities in Nigeria can creatively own leading Advanced Metering Infrastructure (AMI) & Billing solution at very affordable rate by jointly adopting a cloud Billing or AMI solution. A good example is the services that we help run in Australia and Taiwan with multiple clients of ours co-existing on the same Infrastructure, same Application, same Help-desk, same Operating System, with strict data isolation and licenses on a SaaS pricing model for clients including Utilities with no upfront infrastructure CAPEX within a secure data centres.

Factor 3: Data-rich, social and analytics-enabled Cloud brings scalability and leading capabilities
Across their T&D, Trading and Risk Management and Retail businesses, utilities are dealing with increasingly large volumes of data generated by smart meters and other devices. This flood of data is expanded still further by big data from sources such as social networks. Cloud computing provides utilities with effectively infinite capacity and processing power “on tap” to manage and perform advanced analytics on this mass of data, using new solutions and technologies specifically designed to deal with enormous data volumes.

Sophisticated cloud-based analytics can produce actionable business insight that can drive significant value from the wealth of big and smart data, through benefits including enhanced customer segmentation and improved demand forecasting. To further increase these benefits, cloud enables utilities to access the latest capabilities on a pay-peruse basis, and to use cloud’s flexible scalability to deal cost-effectively with peak workloads caused by the periodic need for hard-core number crunching.

Massive opportunities in social media
Internal collaboration software mirrors many of the solutions and technologies that drive take-up of social media among consumers and businesses. Utilities have huge opportunities to harness cloud computing to become social media-enabled organizations, using online networks to drive collaboration, innovation and relationship management across and beyond the business. Many utilities are now seizing these opportunities in their retail business, successfully engaging with individual and business customers to offer them “energy services” over social media.

As these social media initiatives gain momentum and traction with customers, utilities will increasingly use powerful cloud-driven analytics on a blend of big data and their own smart meter data to forge deeper relationships with customers, help manage their energy footprints, and provide other value added products and services. Data from social media interactions can also enable utilities to respond quickly and flexibly to customers’ needs with offerings that treat them as individuals —including personalized bundles, rates/ tariffs and incentives that suit their specific tastes, values and lifestyles.

These social impacts mean cloud computing can radically change the game by enabling utilities to become more customer-centric than ever before. Some companies in the utility ecosystem are already moving in this direction, such as the energy management solutions provider Schneider Electric, which has worked with Accenture to implement cloud-based CRM based on salesforce.com

Factor 4: Collaborative and suffused with M&A Cloud is readily transferable, with transparent costs
In tandem with utilities’ expansion into social media, a further accelerating trend is collaboration with complementary partners beyond the industry to engage customers, and create differentiated and bundled offerings. For example, utilities in the future will share cloud-based applications and processes collaboratively with retailers to boost sales and deepen customer relationships. This sharing will enable faster, more cost-effective and flexible creation and marketing of next generation offerings, such as co-branded energy plans sold in combination with energy-efficient devices.

For many utilities, the capabilities to create value from M&A and to collaborate with partners within and beyond the utilities industry will be key to future success. Cloud services can help to boost the value realized from M&A, and increase the pace and certainty of post-merger integration by enabling new entities to be plugged in to cloud platforms. Similarly, divestments can be easier and quicker to execute by being unplugged. And, going forward, common usage of cloud platforms will help to maintain standardization and IT governance across a merged utility business’ various operations.

CEMIG in Brazil: Migrating to cloud-based capabilities
CEMIG, one of Brazil’s largest power generators and distributors, has upgraded its IT infrastructure and data center solutions by adopting virtualization and cloud-based capabilities. The solution is designed to meet the company’s need for an integrated environment across its operations and 10,000-point network in Brazil.

In closing
Starting your cloud journey in our view, the message is clear: The utilities industry will continue to change, and cloud computing will help shape the new rules.

• Aina, a Senior Manager in Accenture