Peter Weigand, Skipping Stone
Just a few short years ago, power transaction and scheduling systems were but a pipe dream as markets deregulated and software vendors attempted to modify natural gas systems to adapt to the new power markets’ requirements. In our first annual transaction software survey in 1999, only 17 vendors participated and, although most claimed extensive power trading functionality, few could deliver on those claims. The gas transaction software vendors’ presentations echoed each other with enthusiasm and promises that they were on the brink of a new power system launch that would solve the industry’s problems.
By 2002, the reality of the difficulty of converting gas systems for power trading had settled in and, of the 28 vendors surveyed that year, only 46 percent claimed extensive power functionality. For those early-adopter customers who went through the pain and agony of a failed implementation or who paid stiff premiums to reconfigure software to actually do the job promised, satisfaction levels with software vendors were not particularly high. This, among other things, led to consolidation among software vendors, as well as to the entrance of new vendors whose platforms were specifically built with power markets in mind.
This year, Skipping Stone conducted its Sixth Annual Energy Transaction Software Report covering modules that include: deal capture, credit, scheduling, risk management and billing. We see at last that 78 percent of the 42 vendors surveyed appear to have crossed the chasm into streamlined power functionality. It is also gratifying to see the steady growth in the number of participants over the past five years. Despite market compression among customers, the number of software vendor participants has steadily increased by an average 20 percent per year. Even with this increase in vendor count, there are strong signals that many of those vendors are financially stable and are projecting growth within the merchant-trading sector. Much of this stability can be attributed to increasing demand from the sector due to higher levels of reporting standards both internally and from regulations such as Sarbanes Oxley. With software product demand up, most vendors are also stabilizing their resources-with more projecting staff increases in 2004 than are projecting reductions.
There has also been a significant shift in software vendor strategy over the past five years. Where once vendors touted the soup-to-nuts approach and attempted to sell end-to-end solutions, today’s vendors are focusing their development teams on offering a best of breed modular approach that can be plugged into gaps in an established platform. In this year’s survey, only 15 percent of the vendors indicated a focus on providing an end-to-end solution. The move toward componentization is a significant departure for most vendors and is indicative of an important shift away from one-stop shopping solutions as a primary strategic goal.
With the advances in transaction software vendor technologies, and the maturing of transmission and distribution communication and operations technologies, the next wave of innovation is likely to be tighter integration between regulated and deregulated market participants. We are already seeing early stage progress in this area as ISO technologies mature and more openly communicate with market participants’ software. Eventually these software technology and data communications improvements should lead the power industry to data processing efficiencies and information arbitration opportunities that will better serve both the customer and the bottom line.
Weigand is president of Skipping Stone. He can be reached at firstname.lastname@example.org. For more information about the Sixth Annual Transaction Software Report, visit www.skippingstone.com.