Skip to Content
Author's profile photo Former Member

Utility Industry engaging in the Cloud…Has an inflection point been reached?

This writer has no doubt SAP will be The Cloud Company.  Very smart planning coupled with funding and incredible top to bottom energy is working efficiently to position SAP as the leader of the Global Cloud.  In my opinion, it is a brilliant strategy and SAP leadership knows how to manage the transition risks.  The installed base of SAP across multiple industries is a tremendous moat protecting SAP technology and IP.  Moving to the Cloud will only increase the size and depth of the moat.  My home town hero, Warren Buffet CEO of Berkshire Hathaway, would be proud of the strategy and if he purchased technology companies (sadly, he mostly does not), SAP would be in play.

As a life-long “Utility Guy,“  I admit at times to a certain amount of head-scratching as I contemplate Cloud-based conversions in an uber-regulated industry like Utilities. I am not alone.  Our SAP Utility clients have been doing the same pondering.

This contemplation however is changing quickly to action.

Here’s the thing…Utility C-suites are populated with no-nonsense engineers, lawyers and financial folks; very smart, numbers-driven, and wisely skeptical of technology transitions.  The debits in the regulated model generally favor balance sheet capital expenditures (asset acquisition based) versus expense items (subscription or transaction based) on the income statement. This is another blog entry altogether as there are numerous exceptions, but utilities do not feel the hot breath of competition in the same manner as other industries.

All that being said, once the value of a new technology is fully grasped, rapid acceptance usually occurs, resulting in a rush to the on-ramp by numerous utilities racing to line up resources necessary to deliver the benefits.  I won’t presume to tell you precisely when the inflection point is reached, but as Utilities Industry Consultant we usually know because our phones are ringing…frequently.

So, are we at the inflection point with Cloud technologies for Utilities?

I think we are tantalizingly close to that inflection point and here are six reasons why:

  • Multiple Industry Leaders have emerged:  US-based SAP Utility clients are embracing HEC, Ariba and Success Factors almost daily. Electric and Water Utilities are leading the way.  The phones are ringing and SAP’s industry leading consulting bench is engaged. (Note to readers:  See Rob Girvan’s recent posts for some great examples.)
  • AMI and Smart Grid technologies:   Most US-based electric utilities or combination utilities have Smart Grid projects operational, planned or in development.  These systems are dumping unprecedented amounts of data on Electric Utility infrastructures.  These same Utilities are realizing SAP Cloud technologies (especially HANA Enterprise Cloud with Predictive Analytics) provide highly efficient services to manage, store and glean inferences from the data.  Utilities also expect the amount of data will exponentially increase as the number of devices passing data to the Smart Grids will significantly increase in the near future.
  • Large Scale Virtualization:  Utilities are recognizing that Cloud Services can work to remove major resiliency risks by offering virtualized servers, allowing operators to quickly restore and replace lost functionality. Is Cloud more reliable than on Premise? Just might be, particularly at the scale SAP
    envisions.  At the very least, Utilities can count on a set of contracted service levels for resiliency, which can be better than what they have today.
  • Cyber Security:  For US-based Utilities, NERC Critical Infrastructure Protection (CIP) is the law of the land.  Utilities must comply with new broadly-based cybersecurity requirements.  These requirements are absolutely necessary, but not easily accomplished by many utilities.   A Cloud-based provider like SAP, with security processes and infrastructure in place at the highest possible levels is attractive to Utilities seeking to reduce costs, comply with the requirements while actively managing NERC CIP Cyber Security requirements.
  • Other Industry Segments are in play:  SAP software and services have traditionally appealed to larger (top 200) Utilities in North America.  As Cloud concepts and offerings mature, including the Utility in a Box (UIB) concept and RDS services, the 2500 or so North American utilities in the small and medium-size range are in play for SAP.  These include municipals, rural electric Co-ops and public service entities seeking badly needed contemporary technology and data security, but generally without budget to fund traditional end to end
    on premise implementations.
  • SustainabilityIn the US, Electric Load growth rates are declining and expected to decline even faster as Commercial and Industrial customers shift load toward alternate fuels and sustainable customer premise-based energy such as solar, wind and CHP.  Net generation from Microgrids and (coming soon to a town near you!) diffuse and prevalent in-home wind and solar production means problems on the horizon to utility load planners.   Demand response is shaving peak loads.  So, the question becomes one of managing capital limits—On-premise technology or new wind farms?  In the past, it might have been both, but in the face of declining revenue, maybe not.  Cloud models have traction in this environment.   Utilities will get out ahead of this issue as their customers are demanding sustainability along with reliability.  A head in the sand approach to Sustainability is potentially a death sentence.   Another blog sometime in the future.

Ahh…so close, but close only counts in a game of horseshoes or delivered hand grenades…

This is a hard time to pick winners and losers as so much change is coming to this Industry.  At this point to this writer, the mid-market Utilities are the bell weather.  If Cloud offerings are downwardly scalable with strong value to price ratio, the mid–market utilities will find them very attractive, offering a clear path improve their technology and data security within increasingly limited budgets.  That’s not  to say Cloud has no appeal to the large utilities.  Cloud is appealing to the “Bigs” for all of the same reasons multiplied by several orders of magnitude.   I just think scrappy, technology savvy utility execs will emerge from the ranks of the well run utilities in the mid-sized sector to embrace all the Cloud has to offer.  That embrace is more urgent because it will be born out of necessity.

I’ll be looking for these folks.

Assigned Tags

      You must be Logged on to comment or reply to a post.
      Author's profile photo Barry Hughes
      Barry Hughes

      Thanks Bruce, excellent article!

      Very interesting to read about the Cloud in relation to Utilities.

      And a few well chosen quips as well, always good! 😉

      Author's profile photo Jelena Perfiljeva
      Jelena Perfiljeva

      Thank you, Bruce, really enjoyed the blog. This is exactly the kind of content the SCN members could benefit from - the words of a true industry insider, not some generic marketing blah-blah.

      One might be surprised but people still mostly associate "cloud" with the stolen naked celebrity pictures. It's the whole lot of bad rep to shake off. 🙂