Economic Downturn Impacts IT
As the economy attempts to emerge from one of the worst downturns in recent memory the harsh economic climate is shaping utility projects and initiatives. However, the news may not be as bad as expected.
Energy Central recently conducted a brief interview with more than 1,100 of our readers. When asked how the current economic situation is affecting the projects and initiatives that they are were working on, 17.4 percent actually said they felt positively, and that they were through the worst and now have the opportunity to grow. An additional 20.2 percent of the respondents had a neutral opinion. While nearly half of the respondents indicated that the current economic situation was having a moderately negative impact with a moderate hit to their budgets, only 16.8 percent communicated that the economy was having a huge negative impact on their projects.
One thing the economic slowdown has done that may be beneficial to our industry is that it seems to have created an atmosphere in which utilities are making informed decisions regarding IT investments. Increasingly, utilities are setting measurable goals as to the benefit the replacement or change would bring to the bottom line, analyzing whether an IT purchase or change would cause the utility to expend more effort to integrate it than the potential benefit would justify, and examining whether certain technologies are progressing at a rate with which the utility can keep pace. With many utilities being driven to curtail major spending, more utilities are electing to pursue cost-sensitive strategies that extend the life of their current assets versus making whole-system replacements.
The sluggish economy has also led to what many consider to be a positive development in the IT vendor community. Increasingly, vendors are moving away from large, expensive, monolithic applications that can take years to implement. Instead, they are moving toward multipurpose components that will handle a single function for a large number of processes.
The cost advantage for utilities is clear - utilities will not need to duplicate functionality. Likewise, vendors will be able to offer robust components to every business process.
Although the industry appears to be concerned about the economy, considerable IT spending remains in the utilities sector today. Much of that investment is focused on smart grid initiatives. With the federal government contributing more than $3.4 billion in stimulus funding toward smart grid projects and continued interest in smart grid initiatives and associated cyber security remaining high, expect the purse strings to begin to loosen in the second half of the year.
The biggest segment of IT spending is likely to involve advanced metering infrastructure. A lack of firm, documented standards combined with access to grant and stimulus funds seems to be making spending on hard infrastructure the primary focus, while building applications in the smart grid area is a secondary focus.
The challenges that utilities will face with the new smart grid endeavors are many. Utilities will need to develop new products and successfully market these new products to their customers.
Utilities will also need to replace legacy systems that reflect a historically stable and static business environment and that lack the flexibility required for smart grid initiatives.
Additionally, utilities will need to more effectively manage customer communication and education.
These challenges are all driving utilities to look at their systems and the development of a strategy that effectively manages the data and transforms it into valuable information related to customer interactions.
Stimulus spending has just started to flow and it should pick up in the coming months and into 2011. Most utilities that previously justified advance metering infrastructure and smart grid projects will continue with those plans. In other areas, many utilities are focused on generation expansion, carbon management and other alternatives such as distribution efficiency and traditional demand response. As a result, an uptick in IT spending should occur in the coming months and it will drive new information systems, architectures and business models.
Comments
AMI Business Case Questions
Good day Chris, thanks for your article - timely and relevant. There seems to be a fair amount of chatter throughout the industry that AMI business cases are being turned upside down - possibly due to load shaping/shifting assumptions being invalidated for near term cycles given the pullback in overall consumption. I am wondering if you can share some insights about what utilities are doing to address this? The operational cost savings I would expect are still valid but we all pretty much assume that these benefits alone do not swing the AMI business case into positive territory. Thanks.