European Utilities Top 10 predictions 2008final - IDC: The premier … · 2008. 2. 19. ·...

European Utility Industry 2008 Top 10 PredictionsThe ramp up of carbon-neutrality

Roberta Bigliani – January 2008

© 2008 Energy Insights, an IDC company Page 2

Energy Insights

� A premier global provider of research-based advisory and consulting services focused on market and technology developments impacting

the energy industry.

� Part of IDC – a leader in market intelligence,

advisory services, and events for the

information technology, telecommunications,

and consumer technology markets.

� Research led by team of senior analysts with

decades of direct energy-industry experience

� Serving more than 125 clients – utilities, IT

vendors, oil and gas companies, equipment

manufacturers, and other organizations


Why predictions?

Goal� Identify trends and developments that impact European utility industry business and

technology investment decisions

Process� Drawn from IDC and Energy Insights research, industry contacts and discussions, and

our own industry experience

Bias� We focus on the transformation of major utility industry business processes and how

technology enables that transformation

Timeframe� Predictions are focused on 2008, but will have an impact over the next 5 years


Energy Insights Predictions 2008

Energy Insights published

Top 10 Predictionsfor each of these markets:

European Utility Industry 2008 Top 10 Predictions

North America Utility Industry 2008 Top 10 Predictions

Worldwide Oil & Gas industry 2008 Top 10 Predictions

Worldwide Energy Industry 2008 Top 10 Predictions


Agenda

The Utilitity of the Future2

1 Business and regulatory environment

Top 10 Predictions3


Business and Regulatory Environment

Energy prices volatile and rising…

Gas Prices: Household and Industrial

0

2

4

6

8

10

12

14

2000 2001 2002 2003 2004 2005 2006 2007

Eu

ro p

er

Gig

ajo

ule

Electricity Prices: Household and Industrial

0

0.02

0.04

0.06

0.08

0.1

0.12

0.14

2000 2001 2002 2003 2004 2005 2006 2007

Eu

ro p

er

kW

h

Industrial EU 27 Industrial EU 15

Household EU 27 Household EU 15

40.0

50.0

60.0

70.0

80.0

90.0

100.0

jan

-06

feb-0

6m

ar-06

apr-

06m

ay-06

jun

-06

jul-0

6au

g-0

6sep

-06

oct-0

6n

ov-06

dec-

06ja

n-07

feb-0

7m

ar-0

7apr-

07m

ay-0

7ju

n-0

7ju

l-07

aug

-07

sep-0

7o

ct-0

7n

ov-07

dec

-07

54.62

91.94

40.0

50.0

60.0

70.0

80.0

90.0

100.0

jan

-06

feb-0

6m

ar-06

apr-

06m

ay-06

jun

-06

jul-0

6au

g-0

6sep

-06

oct-0

6n

ov-06

dec-

06ja

n-07

feb-0

7m

ar-0

7apr-

07m

ay-0

7ju

n-0

7ju

l-07

aug

-07

sep-0

7o

ct-0

7n

ov-07

dec

-07

54.62

91.94

Source: Eurostat, EEX, 2007, GME

Oil Prices: Brent Cur. Month FOB European Power Exchange Prices, 2007 (€/MWh)

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

100.0

Janu

ary

Febr

uary

Mar

ch

April

May

June

July

A

ugus

tSep

tem

ber

Oct

ober

Novem

ber

Decem

ber

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

100.0

Janu

ary

Febr

uary

Mar

ch

April

May

June

July

A

ugus

tSep

tem

ber

Oct

ober

Novem

ber

Decem

ber



European energy demand and imports dependency is growing

� Energy consumptions in Europe are rising

� European import dependency is rising.

� Reserves are concentrated in a few countries.

Source: European Commission DG TREN, PRIMES

European Import Dependency (%) – EU27



European utilities are financially in good shape but the need for future investments is huge

RES-H,T

5%

Generation

65%

Transmission

8%

Distribution

27%

Electricity

77%

Oil

5%

Gas

12%

Coal

1%

Source: European Commission DG TREN

EU-27 Cumulative Energy Investments (2005-2030): €1 800 billion

Dow Jones Euro STOXX Utilities Index

Source: Energy Insights on Dow Jones STOXX data

500

600

700

800

900

1000

02/01/2007 02/03/2007 02/05/2007 02/07/2007 02/09/2007 02/11/2007

DJES TMI Util Rt DJS 600 Rt



The three pillar of EU Energy Policy

�Security of supply

�Sustainability & the fight against climate change;

�Competitiveness & functioning internal markets


Agenda



Top 10 Predictions3


The Utility of the future

Tomorrow

•Digital

• Enhanced communication, collaboration, and decision making

• Integrated processes linked to metrics• Optimization of key competencies andskilled resources

• Increase of RES and DG

Today

• Electro-mechanical

• Major CO2 contributors

• Heavily dependant on human interaction• Lack of visibility in the field• Limited integration of processes

• No integration between technical and enterprise systems

• Integrated technologies, (OMS/DMS/EMS), SOA/Web services

• Self healing networks, automated and multi-level control

• Limited automation of distribution network, few sensors, centralized control

• Fewer (and shorter) outages and leaks• Demand Response and customer choice• No billing estimates• Appointments on time, Customer service excellence, Self service

• Limited price signal and customer choice• Stop at the meter• Billing based on estimates• Appointments not timely


From today traditional electric grid ......

Houses

Power station

Factory

Office building


Power station

Control centre

Solar power

Energy Storage

Apartment buildings

Hospital (with own generator)

Smart-office building (with own generator)

Wind power

Houses

Smart house(with hydrogen-car generator)

Factory

... To the future landscape


What is the “Intelligent Utility”

The two-way flow of energy and information all along the value chain from plants to transmission networks to distribution networks to consumers.

Initiatives such as smart metering and the intelligent grid are components necessary to create the intelligent utility.

Energy Insights


Agenda



Top 10 Predictions3


Drivers� EU 20-20-20% target (March 2007) and Climate-focused energy

policies and regulations

� Consumer and business awareness and concern with climate change issues

� Increased venture capital investment in clean/green/zero emission technologies

� Climate change/sustainability attention by investors and credit rating agencies

Predictions� Retailers will update their customer strategy and offering portfolio to promote Carbon-free or Green

energy as an additional lever to compete in liberalized markets

� Utilities will ramp up the development of programs and/or partnerships to promote energy efficient industrial and consumer technologies, such as smart building controls and smart appliances

� Renewable energy technologies, Cogeneration, Zero Emission Fossil Fuel Power Plants (ZEP). Nuclear will attract investments for realization and additional R&D

� Climate change benefits will increasingly be used to help justify investments in other pre-existing programs (smart metering, intelligent grid)

� Utility companies will increase their investments in IT systems to measure and manage their carbon footprint – especially emissions/compliance reporting, verification and trading

� Competent authorities are proactively automating emissions registry and data reporting

#1 – Climate change will drive investment in energy and information technologies


More sensors

Improved analytics

Better communication

networks

#2 – Security of supply and aging asset concerns will drive intelligent grid technology investments

Drivers� Aging T&D assets causing reliability problems

and requiring increased capital investment

� Need for a higher level of grids interconnection

� Climate change issues driving grid interconnection of renewable resources and need for demand response programs

� Aging workforce causing a shortage of skilled labor and increasing the need for automation

Predictions� Utilities will invest in technologies to enable greater visibility into the grid, automated analyses

and decision making, and improved reaction time to events

� Near-term investments will focus on building the communications backbone, initially justified by smart metering requirements. Important to carefully select network type, but key question is who will provide these communications networks

� Additional sensors will be targeted at problem areas of the distribution network to better measure asset life-cycle

� Pilots on Microgrids and Virtual Power Plants are on-going across Europe

� The vision of very quick decisions (VeQuiDs) made in milliseconds by computers and intelligent devices analyzing complex real-time data is still a ways off for most utilities


Predictions� Effectively managing the exponential increase of data and effectively using them will emerge as the

most critical success factor for smart metering projects

� Most utilities doing any smart metering pilots plan to increase significantly their spending over the next five years and are looking for solutions to mitigate the risk of adoption

� Smart metering will be the typical first step toward an intelligent grid for most utilities

� Pricing Signals will push deployment of energy efficient consumer technologies

� In-home displays will increasingly provide more information and smart-appliance control capabilities

Drivers� Regulatory pressure/mandates from EU and national

legislations

� Support for climate change programs (energy efficiency)

� Increase operational efficiency (cost to read meters, remote connect/disconnect)

� Support for intelligent grid initiatives (reliability)

� Improve customer satisfaction (outage mgmt, choice of rates)

# 3– Energy efficiency EU regulation will accelerate Smart Metering adoption

Consultation/Planning phase

Increase share of smart meters

Full implementation


#4 – Renewable Energy and Distributed Generation will continue to challenge grid management

Drivers� EU objectives to reach 20% of Renewable

Energy in the generation mix by 2020

� EU Biomass Action Plan

� National Climate change policy encouraging efficiency, including CHP

� Advances in control and communication enabling distributed energy operations

� Investments to enhance energy security and reliability

Predictions� RES represent about 14% of total electricity consumptions in EU (about 6.5% on primary energy

consumption). Among non-hydro, Biomass for electricity and Wind are in the lead, followed by geo-thermal, and solar. By 2010 Wind will significantly overcome Biomass for electricity generation and PV the geo-thermal. Also the role of Solar Thermal will increase.

� Germany is leading in distributed PV followed by Spain. PV will expand rapidly sustained by a feed-in tariffs incentive mechanism

� Vehicle-to-grid (V2G) will progress over decades - not years - as incremental infrastructure development will be slow to materialize

� Additional IT solutions and systems will be required to manage renewable energy (weather forecasting and modeling for production scheduling, trading on green certificates markets, …)

Source: EU 2007 – Renewables Roadmap


#5 – Web self-service and on-line capabilities will increase to address retailers’ shrinking margins

Predictions

� In Western Europe, Utilities are expecting to increase by over18% the IT budget dedicated to web-enablement initiatives

� Utilities will offer more rate choices and will enable customers to run on-line “what if” scenarios

� Service call scheduling and appointment notification through web self-service and text messaging will continue to be adopted by utilities

� The web will become an increasingly important channel for outage communication

� Utilities will begin to implement specialized portals on their websites, such as those that focus on green energy or specific business segments

Drivers� The number of customers with Internet access is

growing and becoming more diverse

� Customers want self-service options and increased choice

� With smart metering, there will be pressure for more in-home displays and advanced communications with smart appliances and environmental systems

� Regulatory and internal utility pressure to expose customers to costs

0 5 10 15 20 25

WE

Germany

France

Italy

UK

Spain

WE Utilities, % of IS budget devoted to Web-enablement initiatives

Source: Energy Insights Nov. 2007 Survey

Past 12 monthNext 12 month


#6 – Utilities will invest on mobile and spatial Work and Asset Management to optimize operations, reliability and address the lack of a Skilled Workforce

Drivers� Utilities are increasing investment in assets: generation

followed by distribution and then transport/transmission

� Regulatory pressure and shareholders expectations (standards, capital and cost efficiency)

� Large number of employees leaving the workforce in 5-10 years. Utilities are still facing issue of attracting talented young resources in addition to having a slow learning curve

� Utilities highly reliant on craft labor (field crews, plant operators, etc.)

Predictions� Western and Eastern Europe will both invest in work and asset management applications: share of

spending on total SW is about 6% with a CAGR (2007-11) across Europe over 7% (WE more mature and growing with a slower pace than EE)

� The ramp up of investments in assets will require additional project-reporting and project-management capabilities as well as asset management systems able to manage total cost of ownership of asset over their life-cycle

� Leading utilities will integrate spatial references in their work and asset management solutions

� Mobile devices are increasingly adopted at all level of the utilities workforce, including senior executives

� Utility companies will also focus more on non-IT solutions, such as long-term staffing plans, training, and outsourcing


#7 – Utilities will increasingly centralize Multi-Commodities Trading (including emissions) even with a slow coupling of trading markets

Drivers� EU ETS - NAPs II (2008-2012), Kyoto

(CDM, JI), raising of carbon voluntary markets

� Several markets for trading Electricity (11+4), Gas, Emissions (7), Green Certificates and Energy Efficiency Certificates

� Financial institutions increasingly focused on commodity trading

Predictions

� Utility companies still underestimate the level of effort required to support carbon trading – business process changes, deal capture, verification, confirmation, settlement, analytics on generation dispatch

� Utilities will continue to look for applications to handle nominations, scheduling and logistics that are user friendly and easily integrated with the trading desk

� Beyond transactions there will be increased attention to analytics

� Generators need to accommodate emissions in dispatching generation fleet

� Security of supply will focus energy trading also on delivery risk

Trading liquidity in electricity and gas markets

Legend

0

1

2

3

4

5

Low Liquidity

High Liquidity


#8 – Compliance, Security and M&A activities continue to require IT investments

Drivers

� EU Directives, the 3rd legislative package on EU Electricity & Gas markets (Sept. 2007) and other regulations

� Compelling Standards on Service quality and reliability

� Pan-European M&A activities and post-merger optimization

� Companies Privatization, Unbundling, Restructuring and Repositioning along the value chain

Predictions

� Compliance with various regulations will drive investments in security software (identity and access management), content applications (document management, auditing and reporting) and storage software (data protection and recovery software)

� Company headquarters will struggle in systems roll out on acquired or merged companies: major success will be on financial/enterprise applications, a centralization will happen on trading, a sort of coordination will emerge on CRM/Billing but major freedom will be on technical/asset applications portfolio

� Utilities restructuring still on-going, especially in the CEE (and Russia), will create a greater degree of deployment and updating of IT across the whole organization, as well as new outsourcing opportunities


#9 – Integration is a key word in CIO minds

Drivers

� Process Centric IT

� Collaboration and Web 2.0

� Need to improve integrated access to relevant information

� Need to optimize decreasing availability of skilled resources

� Creation of centralized core competence centers

Predictions

� Utilities will invest to integrate their ERP systems with additional solutions to improve enterprise visibility and performance, and to extensively allow availability of applications to remote and mobile users.

� More integration will be pursued among technical area systems and between enterprise and technical systems in order to support decision making processes, planning and operations: for example integration of GIS with SCADA, with call center applications (for incident management), and other utilities back offices applications

� Analytics and simulation tools will improve utilities decision making and effectiveness

Western Europe, Utilities, Main Areas of Organization's IT Focus during the Next 12 Months (% of Respondents) Q. Which one of the following will best represent your organization's main area of IT

focus during the next 12 months?

Integrating central

and end-user

resources

(52.4%)

Controlling costs

for continued IT

investment

(18.0%)

Developing and/or

implementing new

strategic

applications to

improve our

organization

competitiveness

(17.4%)

Contracting out

software

development

activities (4.8%)

Implementing new

strategies for

communications

services (4.8%)

Migration from

older technologies

to more modern

platforms (2.6%)

Source: Energy Insights Nov. 2007 Survey


#10 – Different IT market spending growth in Western and Eastern Europe

Predictions

� IT Spending in Western and Eastern Europe Will Reach $11.5 Billion by 2008

� Highest Growth Segment in WE (07-08):

– Smart handheld devices/RFID (22.8%)

– Security software (11.9%)

– Business Performance Management (10.4%)

– Procurement (9.5%)

� Highest Growth Segment in EE (07-08):

– IT Consulting (24.3%)

– Security software (21.9%)

– Storage (21.7%)

– Procurement (20%)

� Initiatives like smart metering and intelligent grid will blur the line between corporate and line-of-business IT spending, making budgeting and management more difficult

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

2006 2007 2008 2009 2010 2011

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

2006 2007 2008 2009 2010 2011

Software CAGR 2007-2011 = 13.2%

IT Services CAGR 2007-2011 = 16.3%

Hardware CAGR 2007-2011 = 9.9%

Software CAGR 2007-2011 = 6.3%

IT Services CAGR 2007-2011 = 4.8%

Hardware CAGR 2007-2011 = 4.6%

WE Utility IT Spending

EE Utility IT Spending


More information

Roberta BiglianiResearch Director, EMEA

[email protected]

www.energy-insights.com

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