In an exclusive interview, Henry Bailey, global VP of Utilities at SAP, sets out his vision of the new ‘digital prosumer’ and the opportunities this presents to reinvent the energy sector for both utilities and their customers, via SAP’s Cloud for Energy offering.
Henry Bailey knows all about energy: he’s worked in utilities for 30 years, and has been at SAP for almost 13 of them. And for the past five years, he’s headed up the enterprise software provider’s global utilities practice.
His tenure has coincided with the beginnings of the mass uptake of Internet of Things (IoT) technologies. So what changes has he seen in that timescale, and how are they transforming the Energy and Utilities sector?
Henry Bailey: “Utilities have traditionally been focused on on-premise systems, because their whole model has been based on a capital expense approach, where they invest in assets that go in the ground or above the ground, transmitting electricity, natural gas, or water.
“But as the IoT has grown, there has been real disruption in utilities from distributed energy resources and renewable energy, and non-traditional utilities getting into the business. The challenge is that those new entrants – Tesla, Google, Amazon, and the rest – really don’t have the regulatory hurdles facing them that utilities do, and so their business models are changing pretty dramatically.
So if you take into account these mega trends, and the micro trends that are occurring at regional level, then what we see is utilities grasping for new technologies, and for digital transformation.
“We’re helping utilities to make that transition and get into a more competitive position. In some cases, even though they’re in a regulation-constrained area, they are moving into an environment where anyone can generate electricity and sell it, perhaps to the grid.”
Cloud for Energy
“We’re looking at how to help utilities get to digital transformation faster. So a product that we’re announcing later this year is called Cloud for Energy. We’re essentially taking our SAP cloud platform, and our Leonardo IoT portfolio, and allowing utilities to bring in device data, such as smart meter and consumption data, and data from the grid that they need to leverage in order to make decisions and/or be able to operate their businesses more efficiently.”
Internet of Business: There is a new dialogue happening now between utilities on the one hand, whose job is to get energy into people’s homes and businesses, and their customers on the other, who can deploy the IoT, smart thermostats, hubs, and smart lighting to help them use energy more efficiently. How can companies such as SAP insert themselves into that conversation and help both sides?
“One of the initiatives that we started almost a year ago is around what we call the ‘digital prosumer’. And that is about helping utilities move their models on from focusing on the meter.
“If you look at the traditional business model that’s been in place for 100 years, it’s really been around generating the electricity or distributing the gas or water, and having a relationship centred on the meter. But now, the consumer is able to either generate electricity themselves or to have more control over their consumption through smart meters, smart devices, and smart appliances.
“Transportation’s move from petroleum to electric vehicles is another thing that’s helping to create this prosumer model, too. Because as soon as you start moving your transportation to electricity, your whole way of thinking, your paradigm, shifts. And that’s what we’re seeing with the digital prosumer.
Just as they’re making the transition from bricks and mortar stores to online services, for example, so we see the same thing happen with energy consumption and management.
“The ability to offer a service that allows the digital prosumer to consume, manage, and even invest in renewable energy easily as a portfolio option, we see that as a great opportunity for utilities, to really capitalise on going beyond just the energy commodity and getting into these non-commodity services.”
When utilities sell insurance
Can you give us an example of what you mean by ‘getting into non-commodity services’?
“Utilities can even get into financial-based services, such as insurance. Several of our customers have figured out how to make quite high margins from home insurance, because they have access [to consumer data] and can monitor appliances and are able to reduce potential risks, and that makes insurance an attractive proposition.
“Utilities have a core competency that sometimes they don’t know they could deploy. What we’re trying to do is help them recognise those areas where they can innovate, and help them to enable those new products and services rapidly through our cloud technologies.”
To what extent is AI now an important part of this mix, with competitors such as Oracle, Microsoft, Google, IBM, and Salesforce, also refocusing on cognitive services?
“One of the advantages that SAP has in the market is that we provide an end-to-end service from the customer or digital prosumer throughout the entire operation and infrastructure – work management, asset management, predictive analytics, and so on. We have close to 800 utilities globally that use our customer system from the mid market all the way up to the largest of the big utilities.
“So one of the things we can do is analyse the data from the transactions that our customers are generating, so that we can see where opportunities might exist for AI and machine learning.
“You know, something as simple as implausible meter reads, where you might not have the complete picture from the smart meter to do the analysis for proper billing. In the past that’s taken a manual process to go in and review the data.
“What we’ve been able to determine is that this is a good opportunity for AI and machine learning to really automate that with a high degree of certainty – while still providing for human interaction for verification and validation, of course. We can look for patterns in the data and link those with readings from smart meters.
“That’s just one example of where we can take a mundane back-office process and free up resources to allow our customers to do more interesting and profitable things.”
SAP has been hosting roundtables on how the IoT can support the complete asset lifecycle of networks and plants. Can you talk us through what you mean by that?
“One of the solutions that we announced a few years ago is our predictive analytics, maintenance and services solution, which sits under the Leonardo IoT portfolio. That solution was designed across multiple industries, including utilities, so that we can make use of the asset data. As utilities start to replace their ageing assets, this new asset profile and protocol is coming in with a lot of computing power, a lot of sensors, and a lot of data.
“The issue has been in the past that you have the different OEMs, whether it be Siemens, GE, and so forth, that are providing their own solutions for monitoring and recording. So what we’ve done is to create more of an open platform to bring that data, in real time, into our HANA in-memory platform, so we can leverage the unstructured data platforms, like Hadoop.
“Now we’ve got all the different asset classes that we have created – which are independent of the manufacturer – we can look across a heterogeneous landscape of different assets from different suppliers. This gives us the ability to apply machine learning and AI in a systematic, holistic approach so that we can zero in on what assets or devices in the network are predicted to fail, for example, based on overall system operation.
“Then we can tie that into plant maintenance, whether it be from SAP or another vendor, and have that asset score help the work planner to schedule repairs based on the importance of the asset to the overall system – and the urgency, if it’s about to fail!
This gives utilities a way to optimise their resources as they deal with an ever-shrinking operational budget. And that really is the next level of leveraging AI and machine learning.
“This really helps utilities. Not only from the customer perspective, which is what some of our competitors only focus on, but from a holistic enterprise approach. If the asset serving the customer is going to fail, then you can notify the customer about that ahead of time. Study after study has shown that this will increase your customer satisfaction score.
“Even if you don’t provide the service yourself, being able to notify the customer about what’s going on – and make more accurate estimates about restoration time – that can really help with overall customer engagement. So we’re applying that, not just on the customer side, but on the full asset lifecycle side as well.”
Disclosure: SAP is a gold sponsor at our second annual Internet of Energy event in Berlin, 6-7 March 2018.
Internet of Business says
The interview reveals that the IoT isn’t just about gathering reams of data from sensors and connected devices to help organisations run more efficient services or make more sustainable use of energy, it’s also about giving organisations the data to launch entirely new types of service – in some cases ones that complement their core business.