THE ENERGY INDUSTRY TIMES - JULY 2017
Industry Perspective 13
Down to earth utilities put
their heads in the Cloud
There was a time when the technical
challenges faced by utilities
were predominantly engineering
ones – how to transmit
power, regulate voltage or produce
the stuff in the first place. Some engineers
probably look back wistfully
for what seems, in hindsight, like a
simpler time.
Now the biggest hurdles are digital,
and the difficulties in managing voltage
have given way to those around
managing data. The nascent smart
grid has data at its heart, but other
changes such as renewable energy,
an increasingly unified European energy
market and changing customer
demands all add to the weight of IT
burden faced by a modern utility.
But while IT infrastructure is a
growing cost centre for utilities it is
also a growing opportunity for differentiation.
Using legacy IT infrastructure,
however, means costs are
only likely to spiral and possibilities
go unrealised. That’s why utilities
are looking at cloud computing as a
genuine technological gear-shift.
Microsoft defines cloud computing
as ‘the delivery of computing
services – servers, storage, databases,
networking, software, analytics
and more – over the Internet (“the
Cloud”).’ This removes the need to
install and host such services on
your own IT infrastructure, liberating
companies to spend less on their
IT estate, or free up resources for
other uses.
For utilities, it’s also an answer to
the perennial issue of running various
different IT systems of various
ages and levels of sophistication
across the business. Some of these
may be the latest and greatest, others
20 years old with lengthy and
fiddly workarounds needed to get
the right data flowing between them.
Cloud removes that issue; companies
will always have access to the
most up-to-date versions of systems.
And they won’t need to retain their
own large IT teams to maintain inhouse
systems.
This is important for updating existing
systems and becomes crucial
when considering how many new
ones utilities are likely to need in the
next few years.
But there’s more to the story than
general tech improvements. Why
specifically, are utilities so well
placed to benefit from the Cloud?
In terms of existing systems, two of
the biggest areas utilities stand to
gain in are ETRM (Energy trading,
transaction and risk management)
and treasury systems.
Trading and risk management has
always been a tricky area for utilities,
especially those with generation and
retail arms. On the one hand, there
are inbound trades featuring any input
commodities used for power
generation. A single large utility
might have to buy-in coal, natural
gas and potentially oil, no doubt
from a variety of suppliers and geographies
with a range of different contract
options, prices and timescales.
On the other, there are a variety of
already bought and sold forward
contracts to hedge positions and meet
contractual obligations. This might
be managed across a number of different
systems across different desks
which may or may not talk to each
other. That makes it quite the task for
a head of trading or risk to keep
abreast of all their exposures across
the business.
This only becomes more complicated
as renewables push utilities towards
the intraday market, greatly
increasing the number of transactions
to keep an eye on.
Then pity the poor treasurer, who
has to keep an eye on all of these
contracts while also assessing additional
business risks such as credit
and foreign exchange. Think that the
large Angolan LNG shipment is all
covered from a risk perspective?
Well, what if there’s a large shift in
the value of the Angolan kwanza?
Suddenly prices change considerably
and the risk with it.
Again, it’s a story of disparate data
sources, complex IT systems and the
challenge of maintaining them.
But, important as those data burdens
are, they arguably pale into insignificance
compared to what’s on
the horizon.
First, let’s look at the obvious: the
smart grid revolution. Smart meters
are the start of an industry and society
wide shift to data-centric systems
that look to maximise efficiency
and value based on the insights
that only swathes of information can
give. In the future, smart technology
will crowd out the dumb in every
sphere, but for now just look at
smart meters.
The European Commission expects
around 200 million smart electricity
meters to be installed in Europe by
2020 (and around 45 million for
gas). If they provide customer data
every 30 minutes (though they’re
technically capable of much more),
that’s up to 9,600,000,000 electricity
data readings per day.
That data needs storing somewhere,
and it needs to feed seamlessly into
analytics engines designed to more
responsively match supply and demand.
That data also forms the basis
of a raft of new services expected to
characterise next generation utility
offerings. For example, if a utility
can break down customer data to a
granular level, they may be able to
offer more appropriate time-of-use
tariffs, or energy saving services.
Many are already partnering with
smart home providers to offer customers
a more holistic homecare
package.
The data must also be balanced
against generation data, weather data
(to forecast near-term renewable
yields) and system data in order for
utilities to dynamically plan which
assets should be used to fulfil their
supply obligations. Do the renewable
assets in the portfolio cover current
supply obligations, or do they need
to ramp up a combined cycle gas turbine
(CCGT) plant? Should they call
on DSR aggregators, or are high
winds pushing intraday spot prices
low enough that it’s cheaper to just
buy to cover any shortfall?
To be clear, these are good problems
to have. They enable utilities to
become more efficient entities and
higher value service providers for
customers but they create IT headaches
all the same.
There are two main concerns when
it comes to the Cloud, which have
until recently held it back from delivering
its potential value.
First, as with anything new, there is
a cost. Cloud technology is not particularly
expensive upfront, but for
utilities that have invested millions
into IT estates and legacy systems
there’s an understandable reluctance
to go a different route and start again
from scratch.
However it’s entirely possible to
start with some services in the Cloud
while continuing to run others inhouse.
Then, piecemeal shifts can
happen in future when it would come
time to upgrade them anyway. Existing
investments are protected as
there’s not necessarily a need to rip
and replace.
Perhaps the biggest worry for the
Cloud though, is security. It’s easy to
see why the idea might make the
CIO uneasy. By accessing services
via the Cloud, you become dependent
on another organisation – if they
are compromised, so are you. That’s
uncomfortable. To make use of the
services you also need to send
swathes of your sensitive customer
and operational data to this external,
shared network – what happens if it’s
intercepted? It feels much safer to
keep things within your own four
walls.
However, in reality the major
Cloud service providers are some of
the biggest tech companies in the
world. The resources and talent
poured into Cloud security by a company
such as Microsoft Azure will
likely be costed in the billions,
dwarfing the cyber security budgets
of even the biggest utilities.
In all likelihood, utilities and their
customers are probably safer when
working with the Cloud than on their
own. After all, it’s true that hiding
your money under the mattress
avoids certain risks, but most would
agree it’s safer in the bank.
For a modern utility trying to keep
up with the pace of change (and potential
agile new competitors), it’s
nigh on impossible if relying on an
extensive, ageing in-house IT estate
that’s costly to maintain and extortionately
expensive to expand for
the sake of new data storage and
services.
Instead, utilities can look to the
Cloud to liberate them from trying to
be tech companies, allowing them to
maintain focus on their core mission:
to deliver ever better power and gas
services to their customers profitably
while Europe’s grids become ever
more international, smart and dataintensive.
Harry Nota is Head of Energy,
EMEA, OpenLink
While IT infrastructure
is a growing cost
centre for utilities,
it is also a growing
opportunity for
differentiation.
Using legacy IT
infrastructure,
however, means costs
are only likely to spiral
and possibilities go
unrealised. Utilities
are looking at cloud
computing as a
genuine technological
gearshift. Harry Nota
Nota: as important as data
burdens are, they arguably
pale into insignificance
compared to what’s on the
horizon