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Utilities: An industry facing pervasive and profound change Cloud computing: A quick primer How cloud can change the game for utilities
Factor 1: Capital-intensive and cost-constrained Cloud reduces costs and lowers capital expenditure
Targeted SaaS offerings are launched for utilities Early moves into the cloud: SaaS and virtualization
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Factor 2: Uncertain and marked by change Cloud is flexible and agile, with reduced sunk investment
Enabling investment in new technologies Managing regulatory impacts
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Factor 3: Data-rich, social and analytics-enabled Cloud brings scalability and leading capabilities
Vindicating cloud in smart grid Accenture Technology Labs: Testing the benefits of cloud analytics in an advanced metering infrastructure (AMI) environment Massive opportunities in social media The social media-enabled utility becomes reality
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Factor 4: Collaborative and suffused with M&A Cloud is readily transferable, with transparent costs
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Factor 1
Capital-intensive and cost-constrained
In Generation, utilities are facing an urgent need to replace aging assets and decarbonize the fleet, using capitalintensive, low-carbon technologies. These projects involve a high degree of construction risk and a time lag on positive cash flows. In T&D, utilities need to connect new generation sourcesincluding offshore networksand reinforce their network infrastructure to handle increased power flows sufficient to meet rising demand. Yet cost regulation is continuing to tighten, with multiple regulatory settlements requiring progressively more transformational cost reduction. Within Transmission, interconnection is a key priority, while in Distribution there is a focus on investment in low-voltage (LV) visibility.
In Trading and Risk Management, risk capital is reflecting increased market volatility and the rising complexity of business-to-business (B2B) contracts. At the same time, rising energy prices are driving greater scrutiny by the public, policymakers and regulators of utilities cost base and margins, including the relationship to the wholesale costs of energy. And in Retail, costs are under intensifying pressure due to mandated competition in the smart metering arena, including new entrants with deep retail capabilities and structural cost advantages, and the regulatory environment. Again, rising energy prices are intensifying external scrutiny of costs and pricing.
Factor 2
Uncertain and riven with change
Across the entire value chain, utilities have to manage regulatory intervention at multiple levelslocal, national and supra-national. They are also facing the displacement of centralized generation by distributed generation and the growth of distributed energy resources (DER), including storage, demand response, dispatchable/controllable generation and voltage control as an ancillary service. Other trends include long-run growth in loads and the displacement of gas with electrification (related to energy efficiency), and changing load shapes, reflected in a move toward granular settlement. In Generation, there are major uncertainties around natural gas, given unconventional sources and its role as a transition fuel. The future of nuclear also is unclear. Other areas where clarity is lacking include the levels of renewable subsidy and carbon price, and the issue of renewable generation grid parity for different technologies.
In T&D, change and uncertainty surround the emergence of new, lowcarbon power flows, the competition for new connections, and many aspects of smart gridincluding regulatory support, and technology evolution and cost. In Trading and Risk Management, utilities are facing fundamental changes in energy marketse.g., liberalization versus market retreattogether with rising market integration and physical interconnection. The carbon market is evolving, and markets for DER are emerging. Uncertainty is being further increased by market volatility and a lack of visibility over future spreads, while B2B risk management products and services are developing rapidly. And in Retail, end customers are demanding new products and services, fueling service convergence and the entry of new market competitors. In addition, regulators are looking increasingly to drive greater energy efficiency.
Factor 3
Data-rich, social and analytics-enabled
For utilities, the ability to manage and exploit data at every stage of the value chain is becoming ever more important. The drivers include increased regulatory reporting and compliance requirements, and the advent of the social media-enabled corporation. In particular, social media is driving internal and external online collaboration, innovation through techniques such as crowdsourcing, and more active and sophisticated stakeholder management. In Generation and T&D, utilities are driving the simultaneous integration of information technology (IT) and operational technology (OT), and are focused on distributed intelligence, and temporal and spacial visualization and decision support. Further imperatives include implementing condition-based asset management and predictive maintenance, alongside field force optimization and effective management of increasingly complex contracts. The data-rich, social world brings specific impacts in each segment of the value chain. - Generationthese include crossmarket fleet management and maintenance. - Transmissionthere is the need to manage interconnection between systems and markets.
- Distribution: there are multiple impacts, such as the advent of smart meter-led visibility of the LV network, active network management (including new forms of control and protection), and new developments around the management of major outage events. The growing application of social media is a further consideration. Across both Trading and Risk Management and Retail, utilities are gaining a more granular and end-to-end view of customer/segment lifetime value both wholesale and retailand are embedding this into their strategic and operational decision making. - In Trading and Risk Management specifically, the data-rich environment is ushering in new capabilities, including integrated risk-adjusted gross margin management, customer-level risk premiums, and enhanced demand forecasting and market modeling. - And in Retail, consumers rapid uptake of mobile and social networking is driving utilities to adopt multi-channel contact strategies encompassing social mediaenhanced and supported by consumption presentment and analytics, enhanced segmentation and treatments, and increasing product and service differentiation.
Factor 4
Collaborative and suffused with M&A
Utilities are reshaping their portfolios for the new environment throughout the value chain by divesting noncore assets and businesses, and engaging in increasing collaboration with other players within and beyond the utilities industry. In Generation and T&D, utilities strategies include the subcontracting of build and maintenance activities to third parties, and forging joint ventures and alliance partnerships for new and existing assets. In Trading and Risk Management, utilities are moving into the provision of trading and risk management services to third parties.
And in Retail, utilities are entering smart metering and energy analytics managed services, driving alliances and acquisitions for energy services, and moving into white labeling of offerings for branding by other types of providers.
Cloud characteristics Reduced cost and avoid capital expenditures Flexible and agile with reduced sunk investment Gives access to scalability and leading capabilities Readily transferable with transparent costs
Benefit from economies of scale that reduce total cost of ownership (TCO) Move capital expenditure (capex) to operational expenditure (opex) Can trial without material sunk investment Changes can be implemented faster and cheaper
Extremely scalable and able to handle volatile levels of demand Able to access the latest technology and innovations including: - Big data management and analytics - Social media (internal for employees, and external for customers and other stakeholders) Makes it easier to separate or bring in-house Costs are transparentsupporting contracting, joint venture and alliance arrangements
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.
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Many utilities already have recognized the benefits of cloud through IT infrastructure virtualization, effectively creating private clouds offering IaaS (see below for information on KEPCO). According to IDC Energy Insights latest annual survey of utilities in Western Europe, more than 50 percent of utilities are currently investing in server/storage virtualization and IP telephony technologies, making them the most popular technologies for utilities.1 Virtualizing IT infrastructure can be a stepping stone to building out the technology infrastructure that enables the transition to cloud. As the sidebar on KEPCO highlights, moving infrastructure to the cloud and leveraging SaaS solutions are among the biggest near-term opportunities that cloud offers to utilities.
1 Copyright IDC. Source: CIOs Priorities: New Technologies Western European Utilities Survey 2011. By Roberta Bigliani, et. al. Doc# EIOS58T, December 2011. 2 KEPCO First to Adopt Cloud Computing Among State-run Enterprises, by Jang Ji-young, September 1, 2010. http://english.etnews.com/
Cloud-based PaaS environments enable utilities to rapidly and flexibly test, pilot and trial new offerings and capabilities across their business, without significant up-front investment. This combination of agility and lower investment expands the range of experimentation and innovation, enabling winning ideas to be scaled up quickly for launch, while those that fail can be more simply tested and rejected. Also, cloud platforms mean system changes and refinements can be implemented faster and at a reduced cost.
3 Source: Ofgem awards 62 Million across four projects in first low carbon networks fund competition, Ofgem press release, 28 November 2010, www.ofgem.gov.uk/Media/PressRel/ Documents1/LCN%20Fund%20Press%20Release%20FINAL.pdf
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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 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.
State Grid Corporation of China: Integrated data center consolidation and virtualization
State Grid Corporation of China has decided to migrate from a traditional and multiprovincial data center infrastructure to consolidation and virtualization solutions, in order to meet its business transformation and IT needs, and its future cloud computing requirements. The potential benefits include increased hardware utilization and flexibility, lower operating and maintenance costs, and simpler back-up and disaster recovery processes. This solution will expand the infrastructure bandwidth of State Grids existing IT infrastructure, allowing its systems to become compatible with future cloud computing implementations.4
4 China Intelligence Signs Contracts with the State Grid Corporation of China. PR Newswire. January 5, 2012. http://en.prnasia.com/
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The scalability of cloud in terms of storage capacity and processing power, together with its ability to handle volatile levels of demand on a pay-per-use basis, can bring huge benefits to utilities. These attributes enable them to cost-effectively access the latest technology and innovations as and when needed, including big data management and analytics, and social media capabilities both internally for employees, and externally for customers and other stakeholders.
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 clouds flexible scalability to deal cost-effectively with peak workloads caused by the periodic need for hard-core number crunching.
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Accenture Technology Labs: Testing the benefits of cloud analytics in an advanced metering infrastructure (AMI) environment
Accenture Technology Labs set out to solve a key IT challenge facing many utilities: how to develop a platform for getting value quickly and cost-effectively out of all of the historical meter data now available. As smart meter deployments grow, so does the opportunity to generate value and competitive advantage from analytics. Yet the ability of traditional databases and historical systems to capitalize on this opportunity is often limited by high costs, restricted scalability and poor suitability to analytics. To address this issue, a specialized Accenture Technology Labs testing team conducted an experiment to show whether a cloud-style platform open, distributed and highly-scalablecould serve smart grid analytics requirements more effectively than traditional systems. Using an innovative combination of calendar-based systems and commoditytype servers, the team evaluated 16 processes involving enterprise-wide analytics in various business functions across a utility. These processes were tested on a series of more than one million meters, involving about 10 terabytes of data. The results showed that the solution based on cloud-style platforms, implemented on commercially available commodity-type servers, was able to perform queries and analytics on large data sets with an acceptable degree of latency, greatly increased scalability, and at much lower costs. Equally significant, the cloud platform consistently equaled or outperformed a traditional relational database platform based on specialized hardware.
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data to forge deeper relationships with customers, help manage their energy footprints, and provide other valueadded 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 (see page 17).
are many examples. BC Hydros Facebook page includes discussions on issues such as smart metering, advice on what to do during an outage, and a Save like Steve challenge for conservation-conscious consumers. TXU Energy factors TXU Energy in Your Community,
links to donate to TXU Energy Aid, and videos of donors. And Dominion Virginia Power has more than 16,500 followers on Twitter for its latest news, notices and community events. These utilities are leading the way where others will follow.
Source. Using Social Media for Effective Customer Communications. Chartwell. May 2011.
Case study: Helping Schneider Electric move to a customer-centric model in the cloud
Schneider Electric is a $20-billion worldwide leader in energy management solutions with a presence in 120 countries and more than 100,000 employees. In recent years it has grown strongly through international M&A. To sustain its expansion plans, Schneider Electric decided to align its business units on the same front-office processes, and enhance collaboration across its business by deploying a single CRM solution worldwide. Salesforce.coms suite of cloud-based CRM applications was selected as the platform, and Accenture was asked to manage the implementation. Schneider Electric set Accenture an ambitious goal: to design, implement and deploy the salesforce.com-based solution to more than 17,500 users
in 80 countries within an 18-month time frame. A global Accenture team worked with salesforce.com to design, build and deliver a unique solution focused specifically on Schneider Electrics business requirements, deploying a core light CRM solution to support the main functions, with the capability to plug in additional processes as required. The salesforce.com cloud-based solution has given Schneider Electric a 360-degree view of its customers and a high level of collaboration between its business teams. Philippe Trichet, senior VP, Customer Experience & CRM at Schneider Electric, commented: This project, led together with our partners Accenture and salesforce.com, has already demonstrated a valuable return on investment: more than 20 percent of cross-selling, more than 20 percent of account coverage and an impressive 70 percent adoption rate.
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Cloud services provide utilities with a new level of flexibility in how they manage and organize their IT capabilities, making it easier to separate or consolidate capabilities, or to bring them in-house if that is the chosen option. At the same time, clouds pay-per-use cost transparency results in greater clarity and accountability in multipartner collaborations, providing a strong basis for contracting, joint venture and alliance arrangements, and smoothing post-merger integration or carve-out in M&A deals.
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.
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Leveraging cloud to boost collaboration through enhanced transferability and cost transparency
In Generation, utilities can implement cloud-based asset management systems for offshore wind joint ventures to simplify the allocation of IT costs between the partners. And in Transmission, there is a clear early opportunity to implement cloud-based scheduling and mobility for the internal and subcontracted field force.
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Examples
CRM and billing Position management Asset management External use of social media Core business applications
Extent to which cloud is a source of competitive advantage
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BI and reporting Procurement, HR and finance Internal use of social media Storage and compute Email Collaboration tools Functional applications
Scope
Commodity IT
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Integral part of strategy development and execution
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Additional contributors
Jason A. Allen Accenture Research - Global Lead for Utilities Laurie A. Henneborn Accenture Research - Global Lead for Technology Growth Platform Team; Cloud Research Lead
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About Accenture
Accenture is a global management consulting, technology services and outsourcing company, with 257,000 people serving clients in more than 120 countries. Combining unparalleled experience, comprehensive capabilities across all industries and business functions, and extensive research on the worlds most successful companies, Accenture collaborates with clients to help them become high-performance businesses and governments. The company generated net revenues of US$27.9 billion for the fiscal year ended Aug. 31, 2012. Its home page is www.accenture.com.
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