Dan Pegan, Itron
Increasingly, utilities are turning to smart metering vendors and other third parties to manage and operate their advanced metering infrastructure (AMI) and smart grid deployments.
Known as managed services, the popularity of this offering only seems to be growing with various motivations’ supporting the move to a managed solution.
Navigant Research recently estimated that the managed services market for smart grid is at $1.7 billion and is expected to reach $7 billion worldwide by 2020.
Whether outsourcing parts and pieces of a system or soliciting a partner to manage and operate an end-to-end solution, utilities can operate more effectively and efficiently and reduce risk as a result of this growing trend.
Defining the Offering
Not long ago it was called outsourcing, hosting and application services provider (ASP).
Today, terms such as Infrastructure as a Service (IaaS), Software as a Service (SaaS) and managed services are common.
None of these business models are new, but what is new is that technology and economies of scale have made the model more efficient from a cost, risk and resource perspective.
Cloud infrastructure has made hardware many times more efficient with virtualization, where the sharing of pooled resources achieves four times the gain in resource utilization, such as RAM and CPU performance, compared with previous physical-only environments.
In today’s virtual environment, IaaS has taken the place of hosting. SaaS, managed services or both have replaced ASP.
The current SaaS model includes software supported by the provider’s data center, infrastructure (e.g., network, servers and storage) and information technology (IT) operations (e.g., network, servers and database administration), where the administrators are addressing day-to-day system performance and security.
Managed services are composed of the SaaS components plus operation and exception management of the data collection and management solutions.
Not a New Concept
Although AMI as a service or smart metering as a service might seem new to many utilities, the “as a service” component is not new.
For many years, “as a service” offerings for financial and customer information systems have been available to utilities, and many providers have been successful for many years using this model. So why do utilities think it is new?
Solution providers are creating new acronyms, brands and technology to deliver the solution.
AMI is relatively new, and it’s natural with new solutions that utilities want to understand the details and feel in control of the outcome or deliverable.
This is especially the case when the solution is part of their revenue streams, such as meter-to-cash processes.
Now that many investor-owned utilities (IOUs) have implemented AMI or smart grid systems, utilities can take advantage of the business as a service model.
At Itron, this trend has been apparent with an increase of nearly 60 percent in network managed services customers during the past three years.
Interest in managed services is expected to continue for the next several years as medium to small utilities upgrade their systems to AMI technology.
This growth is driven by the ability to achieve AMI and smart grid benefits in a pay-as-you-go manner.
The Utility Value
Cost. Utilities are embracing SaaS and managed services in increasing numbers to take advantage of lower and predictable operating costs, reduced executions and operating risk.
Economies of scale, in both infrastructure and subject matter expert resources, result in significantly lower operating costs.
When evaluating the benefits of SaaS and managed services, utilities should look at the operating expenses (opex) for the AMI solution behind the utility firewall vs. an SaaS and managed services operated solution.
Typically, results of such a comparison show that the SaaS and managed services offering can provide the customer with a 20 to 50 percent opex saving.
The comparisons assume both systems are installed, supported and operated on an enterprise level-an apples-to-apples comparison.
SaaS and managed services providers usually are willing to offer flat, fixed-price annual payments with a cap on pricing escalation for long-term contracts.
This is attractive to the providers because it ensures a fixed cash flow and to the utility because it ensures predicable expenses.
Risk aversion. Utilities also see SaaS and managed services as a way to reduce AMI solution execution and operating risk.
AMI solutions require added data center space, infrastructure and personnel with new skill sets.
All of these components are then required to be assembled and coordinated into operational processes that are completely new to utilities.
By using existing, proven infrastructure and operational policies and procedures, along with a seasoned staff, utilities can enjoy a faster and less error-prone implementation with SaaS and managed services offerings.
Faster implementation has the added advantage of leading to faster realization of benefits defined in the business plan, thus justifying the AMI solution purchase.
|Offloading day-to-day management tasks and managed services enables utilities to gain more benefits from their AMI and smart grid systems.|
Lower operations risk is also a byproduct of SaaS and managed services offerings.
Service providers typically refresh their IT infrastructure more often than utilities can, which results in lower risk of equipment failure.
The operating teams work closely with the software development team, leading to quick workarounds and resolution of issues.
Further, upgrades are less prone to incident because of the intimate application and operations knowledge.
Security. In the recent past, security concerns were an inhibitor for utilities to move to an SaaS or managed service solution.
With time, this issue has become less of an inhibitor and more of an enabler.
SaaS and managed services processes are designed to operate at an enterprise level and have equal or better security certification, policies and procedures than most utility IT organizations.
Try before you buy. One valuable option offered with SaaS and managed services solutions is the “try before you buy” concept.
This often takes the place of a costly on-premise pilot where the company would be required to buy infrastructure and take valuable internal IT resources off existing responsibilities to extend them to work on such a pilot system.
Instead, utilities can use a provider’s existing and proven AMI environment and managed services to operate and manage the day-to-day management tasks of the system.
By using the managed services options, the utility can verify the solution quicker and forgo the risk of having stranded assets if the pilot is not successful.
It’s easy to see the economical and operational benefits, but the utility industry is beginning to see real numbers to support the continued expansion of SaaS and managed services for all types of utilities big and small.
As advanced metering solutions for electricity, water and gas become more widely installed, utilities will continue to add more complex, feature-rich options, resulting in increasingly high-functioning systems.
And to operate these increasing complex systems, utilities will need the support of service providers and will see clearly the value of SaaS and managed services.
Dan Pegan is a licensed professional engineer who has more than 30 years of experience in the utility industry. He manages cloud computing and managed services operations for Itron in North America.
PowerGrid International Articles Archives
View Power Generation Articles on PennEnergy.com