Cloud computing has been identified as one of the Top 10 transformation technologies in the utilities sector. It was a key topic of interest at this week’s Utility Week Live.
However, Utility Week’s own research has shown that, while the utility sector is embracing the cloud, across the industry, levels and reasons for take-up vary significantly. While 83 per cent of utilities reported at least some use of cloud technology, 17 per cent reported no use, 26 per cent see complete cloud migration being at least five years away and 28 per cent reported that cloud migration “will never be complete” in their organisations.
While complete cloud migration may be a way off, take-up of cloud-based solutions for some business functions is increasing significantly, with one of them being energy trading and risk management (ETRM). At Contigo, for example, over the past two years we have seen 65 per cent of new customers choosing our cloud-based, rather than our on-premises, service.
The reason for this take-up has perhaps come about through necessity. With increased competition, costs rising and new regulations coming into force, margins have been squeezed and profit has become harder to find. Market changes have meant that companies’ energy trading and risk management processes have become outdated and they have been compelled to find more cost-effective ways to procure a more up-to-date and flexible ETRM solution that enables them to respond to change and streamline business processes.
ETRM in the cloud provides a number of business benefits. The initial cost of procurement is lower, as there are no upfront licence fees and no hardware, third-party software, or infrastructure services required. Instead, the buyer pays a monthly fee that includes usage of software and hardware infrastructure, upgrades, and support. The speed of deployment is usually faster, and upgrades and new functionality can be provided by the vendor and automatically applied to the software. This ensures users stay up to date with industry changes, security updates and performance requirements, providing greater business agility. It also means that there is a lower demand for IT resources in-house and usually a lower total cost of ownership.
With a shifting market there will be a requirement to make changes, so organisations need to ensure they have systems that can cope, quickly and inexpensively. It is perhaps the flexibility and future-proofing of cloud deployment that brings the biggest benefits for business. It enables users to keep up to speed with new developments and effectively change their hardware as technology advances.
Regulation has made its mark, and is set to bring more change. Perhaps the largest changes in the energy industry for decades are well underway: the changing generation mix; the move away from legacy assets; and dramatic changes in trading patterns. This all means systems will have to cope differently.
Companies running legacy systems are likely to have to draft in expensive consultants or pay for upgrades to deal with these changes. A move to a more modern system supporting fast upgrades can enable organisations to protect themselves from this risk.
The era of the cloud has arrived for trading and risk management because it offers a cost-effective and agile approach at a time when the industry demand for such solutions has risen.
Not all cloud is cloud
Purchasers should be aware, though, that not everything that looks like cloud is actually cloud deployed.
Only a small number of next generation vendors have developed ETRM solutions based on the most modern technologies with cloud deployment in mind. Companies should be aware that, while most ETRM vendors will claim to offer a cloud approach, many will simply use screen-scraping software like Citrix to provide cloud access to their legacy application. Unfortunately, the benefits of cloud deployment are often lost using a screen-scraping approach, because the underlying software was never designed for the cloud.
To obtain the cost and agility benefits offered by the cloud model, users must scrutinise ETRM solutions to ensure they are truly built for the cloud, with browser-based front-ends accessible via a secure web connection. They must ensure that the vendor has the ability to provide secure hosting services complete with back-up and recovery. And they must ensure that the vendor can offer a flexible services model both in terms of pricing and delivery of both software and services.
Contigo’s software, for example, is available hosted in the cloud in a single tenanted environment, allowing it to offer a customised version of its software, while still delivering significant cost-savings and other cloud benefits.
Energy markets have changed rapidly over recent years, and this change looks set to continue. Organisations will have to be flexible and efficient in order to adapt, which in turn will allow them to benefit from new opportunities. Taking advantage of the opportunities brought by cloud hosting will be key to achieving the flexibility and speed required.