Market Insight

The tipping point approaches for SaaS in electric smart metering

April 05, 2018

David Green David Green Research & Analysis Manager – Smart Utilities Infrastructure
This product is included in:

Want to learn more?
Have an expert contact you.

Electric utilities are one of the leading industries in adoption of IoT, a trend set to only increase as the power of “Software as a Service” offerings are on the rise.

Utilities are not typically considered to be ‘early adopters’ of technology, and many will recognise long periods of uncertainty in recent years as all industry stakeholders have been in a paralysis of choice between individual connectivity technologies.  For example, should a utility choose RF Mesh, LoRa, SIGFOX, NB-IoT or others?

Instead, utilities are simply becoming one of the first ‘optimisers’ of the IoT proposition, as there is an increasing realisation that IoT is not a connection-only issue.

Where is the value in the utilities IoT spend?

Central to the optimisation of the IoT solution for utilities is the spend on the final piece of the puzzle – software and analytics.

According to new IHS Markit research (Electric Grid Managed Services Report – 2018), $58.2 billion will be spent on meter-to-cash focused AMI solutions by utilities between 2016 and 2023, including the purchase of almost 900 million smart meters.  Only 6% of the spend during this window will be on the non-physical elements of the solution (i.e. not hardware or man-hours of work) and yet the entire value and ROI of the system relies on this.

The network connection remains an important issue and a large part of the investment (as a previous IHS Markit insight explains), but the IoT solution is only as strong as its weakest element.

IHS Markit defines four foundational pillars of IoT technology; Collect, Connect, Compute and Create (see more in this eBook).  Applied to the AMI solution, this becomes:

  • Collect – the smart meter device itself
  • Connect – the communication network
  • Compute – the software and IT back-end infrastructure used to hold and process the data
  • Create – the analytics, output reporting and actual usefulness of the data

Beyond the labor savings from remote meter reading, it is the computation and creation of actionable insight from smart metering data creates the higher value and maximised ROI from the network and hardware spend.

Electric utilities will still invest in AMI systems primarily justified on the meter-to-cash process – but increasingly have the intention of layering new uses and applications for that data on top later in the process.

An end-to-end “Metering as a Service” offering for meter-to-cash AMI could currently cost a utility around $4-5 per meter per year.  “AMI 2.0” type solutions such as use of AMI data within Distribution Automation (e.g. outage management solutions) as a managed service could attract 10x that level of spend when considered on a “$ per endpoint covered” basis, but can further leverage the same hardware and network spend to achieve that.

New business models help drive the adoption – in particular Software as a Service (SaaS)

As utilities start to focus their strategy on the overall solution and not just the connection, the rise of ‘as a Service’ business models is also helping to speed up the adoption.  Managed services offer a path of greater flexibility, faster scalability and a lower Capex cost in the adoption of new technology.  Every utility has its own unique circumstances, but many are already moving fast towards the managed services model.

Within this movement, the SaaS proposition has seen rapid adoption.  Indeed, by 2021 more revenue will spent by electric utilities on Head-end software ‘as a Service’ than will be spent on one-off Capex Head-end software purchases.  By comparison, the tipping point in balance of Opex to Capex on software is even sooner within the water utility sector.

In both cases, adoption from utilities in the US and European markets are both strong, even accounting for the variation in circumstance between each utility.  Whilst the relative adoption of Meter Data Management software as a Service currently lags slightly behind that of head-end software in the electric utility sector, the move towards the SaaS model is universal.

SaaS together with Network as a Service will help drive over $1.2 billion in spending by electric utilities on meter-to-cash focused AMI managed services during 2016-2023.  However, more than half of the managed services spend in North America falls on the SaaS portion.  Looking to the future, the potential upside on AMI 2.0 applications further leveraging the existing AMI hardware and network is then heavily invested on the side of software and analytics too.

One size does not fit all though

Despite this optimisation and clearer understanding of the IoT proposition by the most forward-thinking electric utilities, general progress remains steady.  Utilities will remain cautious and risk-averse (one of the reasons SaaS can be so popular) and many do not want to feel tied to one single vendor’s end-to-end solution for long-term contracts.

Instead, a focus on interoperability and “vendor-agnostic” solutions is winning utility trust and therefore their revenue.  The modularity of the solution, especially with the ability to layer new software applications at a later stage of the project, increases the value of AMI solutions to the utilities and the revenue to the vendors.

The move to SaaS is one of the few trends in AMI solutions to span multiple utility types and global regions.  Every rule has an exception, but step by step the electric utility is finding a path to a software-centric view of the big picture, as the perception of IoT technology moves on from ‘connection only’ and towards truly connected thinking.

 

This insight uses insight from the new Electric Grid Managed Services Report – 2018 which can be found here.  For more information, please contact david.green@ihsmarkit.com.

Research by Market
Power & Energy Technology
Share facebook Twitter Google Plus Linked In Add This Contact Us