Are Smart Grids the Top Priority for WE Utilities' CIOs?

If we start with an oversimplified idea that "Smart Grids = Grids + ICT," then it is obvious that utilities IT budgets have a direct effect on our future achievements of a Smart Grid. However, while there is growing excitement in the market concerning new technologies, including those in the Smart Grid concept, utilities are always cautious when it comes to IT spending and have pressure to prove ROI or TCO reduction before implementing any new initiative. Utility CIOs' budgets are still subject to numerous influences, including cost containment, compliance with regulations, and maintenance of the existing infrastructure.

In our recently published report "CIOs Priorities: IT Budget Distribution and Vendor Selection — Western European Utilities Survey 2010" (Doc# EIOS04S, October 2010), several very interesting trends emerged that can give an indication on whether utilities really are committed to the Smart Grid Vision.

To start off, it should be mentioned that on average Western European (WE) utilities' total ICT budgets are around 2.55% of total revenues. If we consider the last three years (2008, 2009 and 2010) ICT budgets have really mimicked the larger industry trends. For example, precrisis 2008, the percentage of respondents expecting to increase their ICT budgets was extremely high at 36.9%. When the survey was run during the first quarter of 2009, postcrisis and during the recession for some Western European countries, the percentage of respondents that expected to increase their ICT budgets dropped significantly to 14.1%. Western European utilities had a more positive outlook in 2010, with 21.8% of respondents expecting to increase their ICT budgets in the next 12 months. Considering 2010, WE utilities' CIOs indicated a rather even split between the external spending dedicated to back-office/ administrative processes and industry-specific processes.

Overall, if we consider Western European utilities IT budgets, we find that 25% of budgets are dedicated to "supporting new initiatives," while the rest covers "pure maintenance/management of the existing infrastructure," "routine infrastructure upgrades," as well as "supporting initiatives that are underway".

From the results of our survey, it becomes clear that the greater Smart Grid vision is still on the back burner for many Western European utilities. While smart metering, a first step in the vision, is more of an upfront concern today. For example, discussions around smart metering and smart grids have raised customer associations' concerns regarding data privacy, pushing utilities to pay additional attention to security and data privacy issues. In fact, this year's survey reveals that the two most important business initiatives in the utilities sector are "regulatory compliance" and "sensitive data privacy/payment transaction protection." Among the leading business initiatives, those most pertinent to the greater Smart Grid vision are considered more mid-to-long term, including "energy efficiency" and "development of new business models."

If we take a look at the key items on the agendas of WE Utilities' CIOs, we once again find that those most pertinent to the Smart Grid vision are not the most urgent, but could be addressed in a second moment. These key items include "integrated access to relevant information/data," and "real-time/near real-time monitoring" which are fundamental for the successful deployment of a Smart Grid.

CIOs are still facing significant challenges in determining where to make the most effective budget allocations. On one side, CIOs are expected to undertake new initiatives to ensure the most productive alignment between business process and IT to be effective and efficient. On the other hand, they are constantly asked to reduce their current expenses and make the best of what they are given.

Am I too pessimistic or just realistic?

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Tags IT spendingUtility IndustryCIO roleEMEASmart Grid/Smart MeteringenergyIT managementindustry verticals

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