Smart Grid, Smart Metering, Smart Home, Smart City, or E-Mobility. Digitalization in the Energy industry has far bigger dimensions.
Mr. Lichtenauer, a business leader from the energy industry, shares his perspective on how the energy industry has changed over the last years and the current challenges.
Q: How utility sector changed in Slovakia over the last years?
In the last 15 years, there have been many changes in the utility industry, and there were more factors that shaped the energy market. How? International companies entered the Slovak market; for instance, the Slovak state sold a minority share of its energy companies to international market players, e.g., E.ON invested in Západoslovenská energetika. Privatization changed the situation of utility companies dramatically. That was the starting point for the #transformation and #globalization of the energy market. This situation, combined with the regulation's market-opening, caused the utilities to extend their product portfolio, e.g., pure gas companies started to sell electricity, and vice-versa – energy companies began to sell gas. The companies had to rethink their strategy in terms of #customer orientation, marketing, and others. Another factor shaping the utility industry was legislation and regulation. For example, one of the core requirements of the EU directive known as the Third Energy Package concerns the Unbundling, i.e., separation of energy supply and energy generation from the operation of transmission networks. Such measures like #Unbundling aimed to create conditions for competition on the energy market and support the regulation of the prices for consumers. The Unbundling is happening on more levels – legal, operational, and on the level of information (e.g., customer data). It enables the state to steer the energy industry's liberalization. It was a new challenge in managing a large-scale energy enterprise.
Q: How did those factors influence the development of IT services in the utility sector?
The changes in the utility industry influenced IT as well. IT reaction to the new situation and changed conditions was intensified standardization and globalization. IT needed to support the business in finding synergies more than before. Due to globalization, international competence centers and cross-border cooperation became a vivid part of daily business in IT. Gradually, pressure on cost-saving was increasing. Many IT companies in the utility sector reacted to this new challenge by creating an integrated IT. Tools and processes in IT operations were standardized – also cross-country where possible. Cost pressure and acquisitions on national and international levels caused many #utility companies to consolidate data centers. Another step IT took to increase the efficiency and optimize the IT budget was selective #outsourcing and out-tasking. For example, five years ago, E.ON decided to outsource the group-wide #infrastructure services to Hewlett-Packard and T-Systems. It was, however, not only the cost reductions that marked the development of utility IT. Due to new business requirements also new investments were necessary. New business processes couldn't be supported by the former mainframe applications anymore; therefore, migration to new client-server-based architectures like SAP or Oracle has been initiated.
Q: Since you are active in the international environment, what is your observation – are these trends global, or do they differ from country to country?
After working on many international projects and being part of an international IT organization for more than ten years, I can confirm that these trends are global - at least in European countries. Although the regulation differs slightly from country to country, the consequences are everywhere the same. A good example could be the Unbundling of Retail and Distribution. At first, IT built up highly integrated #applications for Retail and Distribution in #energy companies. The EU directive required to unbundle, i.e., separate the Retail and Distribution businesses on organizational and data and process level. We again had to touch our architectures, think about different operating models, and consider #customization of existing and implementing new business processes. So, in this case, the Unbundling requirement was defined by the EU; the localization of this requirement gave the energy companies and the IT in each country slightly different frame conditions for implementing it. The necessity to implement it was, however, everywhere the same. Very similar is the situation with the #liberalization of the energy market. The requirement exists, and the tendency is common for all European countries. Some of them started with implementation earlier, others later, and not everywhere handled the customer segments in the same way.
Q: In your opinion, what development can we expect in the utility sector?
In the actual development, many essential market parameters in the utility industry have changed again. As a consequence, the utilities have to rethink their strategies and their market approach. The drivers of such development are promoting #green and #safe energy (energy generated from renewable resources like wind, photovoltaic, and others.). We can expect the shift from centralized to decentralized energy generation, the price development on the trading markets, and the cost pressure. Also, the competition has changed since new market players, start-up companies, and companies as Google or Amazon entered the utility market. It brings the traditional utility companies to a new understanding of customer orientation. They realize that it is not enough anymore to sell commodity products like gas or #electricity. They have to offer as well value-added and innovative services to their customers. In addition, there is also the regulator's request to provide the customers new functionalities like #smart metering to implement energy efficiency and reduce the usage of electricity in the households and the industry. From my perspective, these factors are driving the utility industry at the moment, and soon, the existing business processes will need a new design to align.
Q: What challenges IT has to cope with to support the new development in the utility industry?
Our IT architectures need to demonstrate the flexibility and efficiency requested by the business. Highly integrated IT architectures are not beneficial anymore. IT users expect that changes in the IT systems are implemented quickly and at the lowest possible price. On the other hand, the new IT architecture still has to be robust enough to deal with the higher requirements in data management ("#Big #Data") and enable the business to react to the market situation with quick data analysis. #Digital solutions based on #cloud services will prevail in our future IT landscapes. All these changes in IT will affect the IT operation processes and the skillset and capabilities of IT experts. Operation stability and flexibility combined with innovative solutions will drive the IT of tomorrow. When looking in the #future, I am sure that our IT experts and the newcomers in utility IT have interesting, challenging, and exciting times ahead.
Q: You just have mentioned the digital solutions. Can you specify what digitalization means for the utility industry?
Digitalization, in my understanding, is more about moving from manually performed business processes to automated digital workflows, particularly in the customer care area and new digital business models in the energy industry. New technologies are, of course, the basis for successful digitizing, i.e., the implementation of digital processes. The CIOs must review their existing IT strategies, IT concepts, and IT architectures in this relation. The most significant drivers of the digital transformation from the technological point of view are #Big #Data and #Data #Analytics, cloud-based solutions, and massive usage of mobile end devices by the customers. Also, the outer world has to be integrated more than before in the existing IT architecture intensively. For this reason, communication via social networks such as Facebook or Twitter has already become an IT standard. Still, coupling to the "Internet of Things" will massively increase the overall complexity in data communication and processing.
#Digitalization has far bigger dimensions in terms of business processes and business models. Teams of the particular business areas and IT experts have to cooperate closely to find a common and suitable way to digitize. Whether to go in the direction of digitizing is not a question anymore. That is why digitalization in the utility industry and utility-related business is a must.
In some cases, companies are preparing to implement "#Smart #Grid," "#Smart #Metering," #Smart #Home," "#Smart #City," or "E-Mobility." Not anymore is only essential to answer the "How" questions – e.g., "How can we increase the added value for the end consumer?" or "How can we contribute in terms of energy efficiency?" It is also essential to choose the right business partners. They are not just providers of products or services, but they will become a part of the business processes or business organizations within a utility-related business model. Although all these new business models rely on the IT technologies mentioned above, they will, in one way or another, influence the organizational structures, the operational processes, and under certain circumstances, even the management and steering of utility enterprises.
Regarding the holistic market development of digital, the utilities are a little behind other industries like Banking or Automotive from an overall perspective. However, with the right business and IT strategies and a careful and well-managed change of company culture, in addition, E.ON and, in particular, ZSE can shape their utility business in the right direction and still in time.
Thank you Klaus.
About Mr. Lichtenauer
Klaus Lichtenauer is a managing director at E.ON Business Services Slovakia. He is driving the business transformation and integration of new technologies. He served in various IT and business development roles within IT industries across Europe. Claus is a Master of Computer Sciences from the College of informatics in Munich.
A series of MENITY Leaders Talk interviews.
Interview with Mr. Lichtenauer by Mr. Nemcok, a partner at MENITY.
Pictures © MENITY.