New opportunities driven by the move from ‘Gold Plated’ to ‘Make Do with Less’
Energy prices in Australia have continued to rise to unprecedented levels over the last few years. Consumers are up in arms and demanding relief from both state and federal governments. A subsequent government initiated Senate inquiry investigated the performance and management of electricity networks and in 2014 identified over investment (hence the term “gold plating”) as a key reason for the increases in electricity prices.
All energy companies fall under the Australian Energy Regulator (AER). AER regulates the revenue ceiling for the utilities, thereby defining the approved utility charges and influencing the final energy pricing for consumers. To its credit, over the last couple of years the AER has been making an effort to bring down the cost of electricity by enforcing financial cuts upon electricity utilities towards the allocated capital and operating expenditure. These cuts have been gaining momentum and to give you an idea of what this is all about here are some examples:
The respective state governments are also acting with New South Wales tendering the sale of its electricity transmission utility and moving to sell two of its three electricity distributors and the Queensland government is planning on merging its two electricity distributors.
While the reduction in electricity costs can be good for the end consumer, there is a widespread impact on the utilities themselves and consequently on their vendor and service supply chain.
Utilities are caught in the dilemma of having less money yet they need to remain profitable and are mandated to continue to provide safe and reliable essential services.
Initial reactions have included significantly cutting back on CapEx projects (deferring or cancelling projects altogether). It has also resulted in putting an increased focus on OpEx savings and restructuring to reduce employee numbers (e.g. Ausgrid and Essential Energy are planning to shed over 1,000 employees each and Horizon Power has considering reducing its workforce by close to one-third).
The flow on effect of these actions has impacted technology vendors and service providers. In the GIS space, only one of the five upgrades planned for 2015 went ahead according to the schedule. Of the remaining, three have been deferred by at least six months and the remaining one is now being implemented in-house.
On the positive side for vendors and service providers, the “make do with less” scenario has resulted in a mindset change. Utilities are now looking for more efficient and effective ways to carry out their operations. In terms of GIS, up to 18 months ago offshoring of data maintenance was not an option. However, since then two leading electricity utilities have considered offshoring services to take advantage of the lower labour cost savings. A year ago cloud based hosting of data was not an option, yet today we see an openness towards using cloud technologies. Cloud technologies help overcome internal ITC constraints and reduce associated costs, with one New South Wales water utility already initiating a move to an online GIS solution. Helping to push cloud technologies, is the growing focus on mobilising the out-in-the-field workforce, and these include solutions around workforce management and mobile GIS. Cloud and mobility solutions open the opportunity door for technology vendors such as Hexagon Geospatial with its GeoMedia Online and Smart Client offerings.
Whether the utility sector in Australia fully embraces GIS offshoring and cloud solutions remains to be seen. One thing is clear though, the financial pressures being faced by utilities are not abating, but neither is their openness to change. This means that they will have their ongoing strategies focused on solutions that will optimise investments, resources, and time.
By Steven T Fisher | April 14th, 2016