Navigant Research Blog

The Future of Analytics in the Utilities Industry Lies in Strong Partnerships

— July 18, 2017

The utilities industry presents some unique issues for analytics specialist SAS, as I witnessed during a recent analyst event. The industry is no stranger to large volumes of data or analytics, and as it undergoes a digital transformation, it should present a huge opportunity. However, the industry’s approach to the procurement of analytics means that there are few low hanging fruit, and SAS must work hard if it is to dominate utility-focused analytics.

In its favor, SAS is unquestionably a market leader and continues to remain one step ahead of its competition. It is investing heavily in four areas, all of which will resonate with utilities’ changing requirements:

  • Platforms: In a similar vein to virtually every other enterprise data vendor, SAS is making a big bet on data platforms. While many will struggle to differentiate, SAS’ strength comes from its experience in data preparation, an area that many fail to discuss in detail. SAS’ strategy for its Viya product is to provide different types of user access to any type of data, from any source, using the most appropriate user interface.
  • Harness artificial intelligence (AI) and machine learning: Over the last couple of years, during which AI hype has hit peak volume, SAS has been relatively conservative. It is focusing more on machine learning and the benefits of massive compute—how analysts can interface with SAS in new ways, on new devices, using the most up-to-date algorithms.
  • Internet of Things (IoT). SAS wants companies to be smarter about their IoT data analytics. It discussed at length its partnership with Cisco—to embed SAS analytics within smart routers—which will take analytics to “the edge” much closer to the devices where the data is stored. It also promoted its event stream processing tool and announced the recent addition of Event Stream Manager.
  • Cloud analytics: Finally, SAS is investing heavily in cloud-based analytics, which will be increasingly important for utilities as their digital journeys mature. It is also important to note that SAS wants to offer a flexible approach to where analytics is performed. Cloud is just one option, among on-premise, in-database, in-stream, or in Hadoop.

SAS has a market-leading set of analytics products, it is investing in all of the areas utilities would want, and is not shy about discussing the issue of data governance. These are all messages that should resonate well with utilities. But should it expect a rich harvest of low hanging fruit in the utility orchard? In short, no. The biggest barrier SAS will face is utilities’ historic approach to analytics procurement, which is heavily siloed and task-specific.

Future Opportunities Lie in Partnerships

Many of the future opportunities for analytics within utilities lie in operations, where SAS has not historically had a strength. Operations typically procure analytics for a specific task, from a vendor with deep knowledge of the technical issues, but lacking the robust analytics engine SAS brings.

The answer for SAS lies in partnerships. SAS will never compete with large engineering companies for industry knowledge; likewise, these companies will never compete with SAS in terms of analytic capability. Unsurprisingly, SAS has begun conversations with all the global engineering companies. However, these conversations are at an early stage. Digitization and analytics will help utilities address their most pressing concerns: to improve operational efficiency, maximize customer experience and develop new products. The market needs a robust analytics platforms and algorithms designed by industry specialists. The market needs these partnerships sooner rather than later.

 

Transactive Future of 2030

— May 2, 2017

The power industry is just a couple of years into the most disruptive decade in its history. Industry transformation is a topic Navigant Research returns to on a regular basis in blogs. We often discuss the current issues regarding a particular technology, but we also discuss what the industry will look like at the end of this transformation.

The recently published report Defining the Digital Future of Utilities takes a look into the future and discusses how the utility industry might operate under an aggressive Energy Cloud scenario in 2030. In that scenario, there are ubiquitous distributed energy resources (DER)—in particular, solar PV, electricity storage, and EVs. In addition, residential prosumers are able to sell their excess generation on an open platform at market prices.

Transactive Energy Is Customer Centric

A fully transactive energy system could not look more different compared to the utility business model of just a few years ago. The biggest difference is that the balance of power in the energy value chain shifts to the point of consumption. By 2030, customers will sit at the heart of the electricity value chain. The old supply model is likely to be replaced by a combination of services developed to aid self-consumption and maximize returns on DER investments. While grid-sourced electricity supply is still required, customers’ electricity requirements are mostly met via their own PV and storage. Demand for grid-sourced power is significantly reduced (though it still increases dramatically when solar production stops in evenings).

Today’s supply-based business model is significantly disrupted: with every PV installation, the need for grid-sourced power diminishes. And when prosumers can sell their self-generated power onto open markets, they will compete against large-scale generators. Not every customer will want every kind of technology, service, or tariff. Consequently, the 2030 business model will be based on service offerings that meet each customer’s specific needs.

New competitive energy service providers will compete for customers with transactive energy services that optimize a customer’s returns from their DER investments. There will be significant areas for differentiation and a variety of service offerings. Many of these will be offered in regions where incumbent utilities currently enjoy the protection from a monopoly market. Only a small proportion of potential revenue will come from grid-sourced power supply; all the rest is up for grabs.

Adaptation Grows Ever More Crucial for Utilities

Incumbent utilities really are facing an adapt-or-die decision. Whoever owns the customer relationship will lay claim to the majority of value on offer. Some utilities are already investigating new service-based business models and trialing transactive energy platforms, although many are not. Those incumbents that resist the current transformation or complacently believe it will not affect their current business models could be in for a shock. Falling solar and storage prices strengthen the economic case for residential DER; the ability to sell electricity at market prices could replace existing feed-in tariffs. These are compelling arguments for transactive energy. A refusal to react to the requirements of the 21st century energy industry will see at least some utilities vacillate their way into extinction.

 

SAP to Resell Siemens’ MDM on Its HANA Platform

— April 14, 2017

The Announcement Is a Change in Direction for SAP

SAP has historically maintained an arm’s length distance from meter data management (MDM), which is responsible for the collection, storage, and processing of smart meter data. I have always been puzzled by SAP’s approach. The company’s IS-U product set is the undisputed leader in the utility billing software market, so its lack of enthusiasm for a complementary MDM system was surprising. A SAP MDM would allow for seamless integration from the communications headend system to the bill.

SAP has historically preferred a partnership strategy with various MDM vendors, working to ensure integration between its MDM systems and IS-U via its SAP AMI Integration for Utilities module. However, at its 2017 International Conference for Utilities, SAP announced SAP Meter Data Management by Siemens. Launching in 2Q 2017, the deal effectively makes SAP a reseller of Siemens’ EnergyIP MDM system. SAP and Siemens said they will align roadmaps to ensure the product evolves with utilities’ changing requirements.

SAP’s Drive to Sell HANA Is Behind This Change in Strategy

There are numerous drivers for this strategy. First, there is a convincing commercial argument. SAP’s reticence came at a time where it had no database product in its portfolio. Fast forward 7 years and SAP is now heavily promoting its in-memory database, HANA. MDM running on HANA is a compelling proposition for SAP.

SAP and Siemens also share similar visions for their go-to-market strategies. Both companies see a future with greater IT/OT convergence, where cloud-based integration of data from multiple sources allows for access across an organization.

A Match Made in Heaven?

SAP’s dominance in IT makes it an attractive partner for Siemens. Conversely, Siemens’ strategy to expand the functional scope of its EnergyIP MDM aligns with SAP’s HANA Cloud Platform (HCP) vision. Siemens intends to develop a highly scalable platform that collects and stores time series data from multiple types of connected devices, including wind turbines, EVs, solar PV, submeters, and other Internet of Things (IoT) devices. SAP wants HCP to be the platform of choice for this type of data.

At launch, SAP Meter Data Management by Siemens will be an on-premise solution. Yet, the roadmap includes integration with SAP’s Cloud for Energy to make EnergyIP fully compatible with HANA and a cloud-based MDM solution.

The choice of Siemens as SAP’s MDM partner is a no brainer. There is enormous potential to add value by creating non-conflicting use cases for its products—and the potential to reduce costs and complexity for clients.

Jemena Plots MDM’s Inexorable Path to the Cloud

Midsize Australian utility Jemena has been working with SAP as a development partner for MDM in HCP, and it has been running a project since 2016. With limited funds and no internal data scientists, Jemena historically struggled to open up its smart meter data across its business. As a result, users exported data from its MDM system into Excel for analysis.

The company wants to become more customer-focused and needed a way to use existing company data to create new business cases. For example, Jemena lacked the tools for marketing to create customer segmentations from consumption profiles or for engineers to profile transformer loads.

Now Jemena’s advanced metering infrastructure (AMI) data is uploaded to HCP from its MDM, allowing access across its business. As a cloud-based model, it offered what Jemena called a very low cost of entry into the world of meter analytics. Eventually, Jemena wants to intake AMI data directly into HCP, where it will perform data validation.

Jemena’s use of HCP for MDM is separate from the SAP/Siemens announcement. However, it provides insight into MDM’s seemingly inexorable move to the cloud.

 

Not Interested When Telcos Acquire Tech Companies? You Should Be

— April 12, 2017

A recent post on my LinkedIn news feed demonstrates how an emerging trend in the technology industry will affect the pace of utilities’ digital transformation. Crucially, it had little to do with utilities: it was the acquisition of data startup Statiq by Telefonica. Statiq’s specialty is the analysis of geo-locational and other consumer data to assist with online marketing. Telefonica has 300 million customers worldwide and is rapidly building up its advertising business.

On first reading, it seems to have very little impact on the industry: “telco giant buys advertising data business” doesn’t sound like the kind of headline that will grab the attention of many utility CEOs. However, “a network operator—as part of its digitization strategy—has acquired a data and analytics business to help it develop products and services beyond its core supply-based business model” sounds a lot closer to home.

Historically, the growth curve of analytics companies would follow a similar path: each company starts with a great idea to tackle a gap in the market, gains initial funding, grows a significant client base, then gets acquired by a tech giant. IBM, SAP, and Oracle have all made analytics-focused acquisitions over the past decade, and the trend shows little sign of abating. But one tech company buying another tech company should have little impact on end users. The technology remains commercially available and, one would hope, being part of a larger organization means that there will be sufficient development resources to improve the product.

Utilities Are Steadily Becoming Tech Companies

However, there has been a significant shift in the types of companies investing in technology startups. Rather than tech giants swallowing up successful startups, utilities are getting in on the act. As we’ve said many times before, utilities are becoming technology companies. My colleague Alexandre Metz has analyzed different utilities’ digitization strategies, and both equity investments in and outright acquisitions of technology companies by utilities are becoming commonplace.

There will be significant implications for the industry should this trend continue: there are finite resources in terms of the number of successful startups, robust technologies, and excellent staff—particularly in the field of data and analytics. As a result, some technology-focused utilities will emerge with significant competitive strength. They will either sell these technologies to other utilities or, if it is to their advantage, keep the technologies for themselves. Does anyone expect Telefonica to share the market insights its Statiq acquisition will bring with its competitors?

Risks Abound When Utilities’ Digitization Strategies Involve Mergers and Acquisitions

So why refer to a telco-based acquisition at all? Telefonica brings into focus the fact that utilities are not the only companies undergoing a digital transformation. The competition for limited investment opportunities is heating up, and it will not be restricted to the utility industry. Utilities will have to compete against tech vendors and other industries to acquire at least some technology companies.

The main challenge for utilities is that they are not used to rapid change, and acquisitions have largely been restricted to other utility companies. There are significant risks involved in technology company acquisitions, to which most utilities have no previous exposure. Thus, technology acquisition will not be for every utility. However, those utilities that want to acquire technology companies must recognize the risks involved, understand how the target acquisition supports their corporate strategy, and ensure they have the requisite skills to succeed. Utilities must choose trusted advisors who understand their overall corporate strategy; have deep knowledge of target markets, companies, and technologies; can help identify important targets; have experience in technology-specific due diligence; and can support the successful integration of the acquisitions within their corporate structure.

 

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