1 September 2008

Pressures brought to bear by concerns for the environment are forcing the pace of change amongst utilities, says Jon Arnold.

Globally, utilities have their behaviour controlled by both the marketplace and the regulatory environment. In some regions the regulators have tight control, often because the utilities are public sector companies owned by the government. In some regions the utilities have been spun off and are private businesses or quasi private.

For example, recently Russia has liberalised its electricity market. The government-owned monopoly has been broken up into various businesses, including separate generating companies that have contracts to supply the country with electricity.

All of a sudden such plants are new kinds of businesses. They have to bid to supply along with other companies. They have to compete, to worry about contracts, bidding, profit and loss statements – all those kinds of things. ERP software such as Microsoft Dynamics AX is helping businesses during this difficult transformation from monopoly to competitive environment.

Deregulation, while stimulating competition in some areas, can’t stop the upward curve of energy prices. A lot of people thought deregulation and competition would be the tipping point, and indeed there has been sporadic change around the world, but I think the real tipping point is the environment.
The utilities business as a whole is a dirty one. Because of this, utilities tend to be in the spotlight and amongst the controversy around the environmental issues that people take so seriously today. Undeniably, utilities generate significant amounts of the carbon emissions. For example, American Electric Power is the single biggest CO2 emitter. China, India and Europe are in the same boat.

There is a common realisation amongst utilities that it’s time to think hard about alternative energy and about how to be more efficient when running a plant. This, in turn, leads to offering customers other services including renewable energy sources and energy-saving schemes.

To increase efficiency, utilities have to be able to monitor, coordinate and trade emissions. Microsoft systems are good at integrating and aggregating all the data and providing business information, so that plant managers get improved visibility to make better decisions about how to run more efficiently.

The home will also become part of the energy axis, and Microsoft has some pretty futuristic stuff in the pipeline. In the past, power came down the wires and the home consumed it. Now there's a desire to have distributed generation – roofs with solar panels, a small wind turbine in the back garden and an electric car that can give power back to the grid. Lots of different pieces are coming together and a lot of these technologies are being driven along from an environmental standpoint. Conserve energy, reduce carbon footprint, cut down travel, use smart metering – we are at the very early stages of all these ideas.

The regulators too are changing their priorities. In Hong Kong, China Light and Power makes more money as it reduces its emissions. In the US some utility CEOs are saying: if I use technology to be more efficient with the plant I’ve got and I don’t have to build another plant, I should get paid for that. If I save x amount of megawatts, I should get paid in the same way as I do now for building a new plant.

The regulatory model is undeniably slow to change, but it is changing. This means that when utilities use technology to reduce emissions and reduce energy demand in the future, they will benefit commercially as well.

Jon Arnold is Microsoft’s managing director for the worldwide utilities industry. This article first appeared in the Spring issue of Prime magazine.