This applications market sizing report analyzes the 2009 performance of the leading 10 applications vendors in the utilities vertical, which has benefited from massive investments from government entities and the public at large to create a smart grid infrastructure.
Utilities are at the forefront of a new paradigm shift when it comes to power distribution and consumption. As smart grid projects are being rolled out around the world, applicat ions vendors have become the power brokers that stand to benefit the most from the shift away from the conventional way of distributing power, water, gas and other energy sources to a sustainable environment where consumers are jettisoning their old habits as a result. The net effect could be a total remake of the global economy based on how people choose to live their daily lives. Applications, once again, could become one of the major enablers behind this lifestyle revolution.
Top Line and Bottom Line
On the top line, utilities are ratcheting their spending in order to better position themselves in the new world order as energy resources are becoming scarce. In addition to their planned smart grid projects, urban and rural utilities have been overhauling their front-to-back office systems as a part of their enterprise-wide initiatives to reduce costs and boost efficiency. Another major catalyst for applications vendors is the buildup of hydroelectric and coal-burning power plants in countries such as Brazil, China, Chile, and India, resulting in more technology spending to manage such production, transmission and distribution facilities.
The bottom line is that the utilities vertical has morphed from a perennially dependable holding for investors to a growth story because of increased demand and scarce supply and applications vendors will be instrumental in the transformation, which could play out in many years, if not decades.
The market for applications for the utilities vertical rose 5% in 2009 as smart grid infrastructure projects dominated the agenda of utilities in their efforts to transform the marketplace, an occurrence that mixed government funding and active involvement of many private-sector organizations.
Few companies have done it more adroitly than IBM, which has helped spark public imagination on the future of energy with its powerful Smarter Planet campaign. A Smarter Planet is a manifestation of that power by linking IBM software with best of breed billing, customer service, meter data management as well as other critical components to make such Advanced Meter Infrastructure projects possible at more than 100 major utilities, which are at various stages of completing these implementations with the help of the IBM Global Services organization.
Through system upgrades and replacements, utilities have generated considerable savings. For instance, ConEd started using Ventyx Generation Operations applications to reduce the cost to serve customer load in Long Island, a suburb of New York. The utility was able to yield $14.4 million in minimum avoided monthly operating cost by using optimized cable schedules.
In August 2009, Huntsville Utilities became operational with a full enterprise resource planning suite from SAP. The deployment replaced the utility provider’s 30-year-old legacy COBOL applications for financials, procurement, inventory management, work management, human resources, payroll and reporting, paving the way for improved visibility and productivity across its gas, water and electric services.
Such examples demonstrate that the utilities industry is bracing for wholesale changes that promise to have lasting impact on the role of IT in every aspect of their operations, not to mention how essential services will be rendered to consumers in the future.
Then there is the regular drumbeat of smart grid infrastructure projects reverberating around the world. Fortum, the largest utility in Finland, last year selected Telvent to implement smart meters connecting 550,000 customers in a nine-year project totaling €170 million. With two-way communication capability, smart meters serve as the intelligent device that allows utilities and consumers to monitor actual electricity demand and usage with the potential of altering people’s behavior and ultimately prevent system overload and power outage.
Implications Of The Great Recession of 2008-2009
Unlike other verticals, the recession barely registered in the utilities industry. Even though some utilities decided to tighten their belts in their continuous drive toward cost containment, the impact of the recession on their operations has been negligible.
On the other hand, there were IT projects being put on hold because of the lengthy amount of time needed to apply and receive government grants to help usher in next-generation utilities, especially those that integrate the latest smart grid and distributed generation technologies for the so-called green and sustainable communities.
Still, the momentum is on the side of the utilities as well as the investor community, which has been throwing their weight behind many of these green projects in anticipation of outsized returns.
Silver Spring Networks, which has become one of the biggest players in the smart grid movement, pocketed $100 million in new funding in December 2009. Such show of support buttressed the growing conviction that the utilities vertical might well become one of the few remaining industries that could stay recession-proof.
The utilities vertical is made of a number of huge companies and many more small and mid-sized utilities owned and operated by municipalities and private entities that dot the landscape in different parts of the world. The number of power plants is also rising to meet surging demand.
In the United States alone, there are more than 2,400 power plants generating 50MW and above and more than 900 proposed power plants and nearly 200 plant expansions are at different stages of being approved and built.
Because of its regulatory nature, the utilities vertical will remain highly fragmented and that may result in mixed blessing for applications vendors.
Increasingly the big utilities have decided to standardize their applications roadmap as part of their infrastructure development, which may prevent niche vendors from making inroads into these giant utilities. The challenge for applications vendors is to start developing an ecosystem that allows them to sell into large and small utilities alike with the help of trusted ISV and channel partners.
On the other hand, the rise of smart grid infrastructure will kick off a new era for power production, transmission, and distribution. A good example is the nascent electric vehicle industry, which could spawn many new applications that have yet to be written.
For instance, e-Meter, a promising startup, continues to win mind and market shares with its innovative approach to helping utilities pursue their smart grid vision.
Top 10 Applications Vendors In Vertical
The following table lists the 2009 shares of the top 14 applications vendors in the utilities vertical and their 2008 to 2009 applications revenues(license, maintenance and subscription) from the vertical.
|Vendor||2009 Share(%)||2009 Applications Revenues From Utilities($M)||2008 Applications Revenues From Utilities($M)|
|Silver Spring Networks||0.7%||12||6|
Vendors To Watch
All eyes will be on ABB, the world’s biggest equipment provider for utilities, following its acquisition of Ventyx to become one of the major contenders for the top spot in the applications market for utilities. Because of its wealth of experience in selling into utilities as well as the enormous resources of its Power Systems division, a $5-billion division of the $32-billion conglomerate, the acquisition could drive substantial cross-selling and up-selling opportunities for Ventyx.
Another possibility is whether the acquisition will spark ABB competitors such as Emerson, GE and Siemens to follow suit by picking up complementary utilities applications vendors that deliver near-term synergistic benefits. For example, Siemens and eMeter have already established a long-term relationship that could grow even tighter.
That could also spark a wave of consolidation in the utilities applications market with fast-growing vendors such as AMX International, BPL Global, and Ecological Analytics leading the parade for potential buyers eager to expand into the space.
As applications for utilities become one of the hotly-contested areas for vendors and investors because of the frenzy over smart-grid movement, the future will depend on how expectations are being met.
On the upside, the confluence of factors from public awareness and acceptance of the sustainability message to the actual cost benefits of overhauling the legacy power system infrastructure will give applications vendors plenty of opportunities to win major deals. The issue is whether they can focus on a defensible segment for massive buildup of customer installations covering everything from smart meters to demand response management systems.
On the downside, utilities are still taking their time when doling out large IT projects, a typical practice that elongates the investment cycle. Furthermore public outcry over the actual benefits of smart meter projects has forced some utilities such as PG&E to lay blame on underlying technologies for producing erroneous and often higher than actual consumption bills for consumers. Before applications vendors can claim their central role in helping make smart grids possible, flawless execution will be the gating factor for them to claim final victory.
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Utilities Market Report 2009-2014