3/16/2007
A UtiliPoint Interview with Klaus Heimann, Head of Business Unit, Utilities Industry, SAP
Daily IssueAlert
Two weeks ago, I had the pleasure of attending the SAP International Utilities Conference in Amsterdam. At that conference, many utilities were discussing Advanced Metering Infrastructures (AMI), Meter Data Management (MDM), and Smart Grid technology. UtiliPoint has been covering this area with interest for some time now and what some believe to be a trend in North America is actually a trend globally. Utilities from Europe, Asia Pacific, and the Americas are all investing in automating the grid. Drivers may differ from region to region but the end results remain similar. Obviously intrigued, I scheduled a few moments with a very busy Klaus Heimann, Senior Vice President and Director of the Utilities Industry Business Unit of SAP for a quick interview on the AMI and MDM trend in the global utility industry. I trust that you will enjoy reading what Klaus has to say about this trend and what we can expect to see from SAP in the future.
Jon Brock (JB): First of all I would like to know. Utilities have been managing meter data for years. What has changed in recent years requiring utilities to invest in AMI and meter data management?
Klaus Heimann (KH): I guess so far utilities have been using meter technology mainly to improve customer service and to reduce the costs of doing customer services, in particular those services that require the utility to go onsite to the customers premise. And now, in particular the United States with the Energy Act, there comes a very important aspect in addition to that which is to enable the customer to stay in control about this energy consumption. And even more, to provide him means so that he can just smartly control his energy consumption by leveraging information that is forwarded to him by smart meters and maybe even to a control monitor or maybe even to appliances that the customer is using. I think that is the big difference that we currently experience. The two aspects belong together. Clearly utilities want to save costs and improve customer service but I guess the second aspect is even more important then the first aspect given the urgency of smarter energy consumption in combination with smarter energy generation. Both aspects can be combined, that is the interesting thing about AMI.
JB: Now what we are seeing is the introduction of what we call innovation at the utility and that is related to smart grid technology so you mentioned something interesting. You mentioned about the appliances, the ability to interact with appliances and/or thermostats. Something has to "talk" to those. In your opinion is meter data management required for a utility to have a successful AMI project?
KH: We see MDM as one of the four ingredients of an AMI infrastructure. It is the smart meters, millions of them, it is the communication technology that is required to get access to these smart meters through a central hub which we gave the name meter data management. It is the gateway that the smart meter offers to the premise. So once again, the gateway, the smart meter, the communication and then the centralizing hub. These are the four ingredients. That doesn't necessarily mean that it all must come from one vendor. But we need to look at it as a combination of things that need to work together. And it's those four components that we want to communicate with the administrative and commercial part of a utilities business, represented by CIS systems in particular but also Enterprise Asset Management systems or Outage Management Systems.
JB: You mentioned four pieces, is there a priority order for utilities to implement those pieces?
KH: Obviously a smart meter would not make sense without the communication and the smart meters would not make sense if you don't have intelligent hubs that collect all of the metering data and helps you to slice and dice, evaluate it and aggregate it and forward it to all the subsequent commercial systems. You may reprioritize the gateway. So you may start simple and provide a gateway that gives the customer information about what he is currently doing in energy consumption rather then installing a complete home automation with real curtailment of energy and shutting up and down appliances. I think this is something we should look at for commercial and industrial customers.
JB: I fully agree. We've had some utilities in the United States lately stall some CIS projects because they had AMI and MDM and demand response coming and they are looking at from the sense of, “Well, maybe I am doing this backwards. Maybe I am putting in CIS and I still don't have the ability to collect the data.” And, luckily, we advised them that you may even change the requirements of your billing system once you put in AMI MDM because you may effectively move something like validation, editing and estimation out into a MDM tool, which will change the requirements on your CIS. It is fascinating to see, they are starting to prioritize themselves exactly the way you said, the order to put it in. What are utilities asking SAP for today in the realm of meter or data management?
KH: Of course, they ask us to support them. They ask for our development plans in supporting AMI infrastructures. They don't expect us to develop an AMI infrastructure. Maybe when it comes to the MDM system then questions rise whether we are going to provide an MDM. Our answer was very clear: We want to leave technical processes of metering, of communicating and gathering technical data or consumption data to vendors, that are experts in that specialized area. What SAP wants is to provide a very intelligent interface based on an enterprise service oriented architecture (eSOA) that looks to AMI through the “gateway” of the MDM. The MDM represents all the AMI technology behind the MDM. Our system and particular our CIS system, can do as much as the intelligence of the MDM and the AMI behind it allows it to do. So the smarter the meter the more potential for the customer service processes to leverage it. It's not only about collecting and gathering data from the network and the meters but also about sending data to the meters like lowering of the consumption or even a disconnection or a reprogramming of the meter, selling of a product that requires the smart meter to be reprogrammed in real time from one behavior to a second behavior. So we are looking from our commercial processes to the capabilities of the MDM and we communicate with the MDM via services and we enable our software to be able to deal with any type of meter, independent of whether they are smart meters or the traditional “dumb” ones.
The assumption that everything goes from one day to the other from a dump meter to a smart meter is wrong. The customer service agent will need to know what type of meter is installed at the premise and that is quite difficult when you think about a deregulated market where the single point of contact is an Energy Retailer that doesn't own smart meters and where all that information needs to be communicated through another service provider, the Distribution Service Operator (DSO). So the CIS system of the Energy Retailer being fully customer-oriented and the Premise Information System of the DSO, which is more service oriented, will know exactly what the capability of that smart meter is and they will leverage those capabilities as far as the process allows them or forces them to do. Based on this we plan extending our CRM & Billing solution such that it can handle very smart energy products such as the combined Solar Power Co- Generation rate that I explained as an example in my key note, where the customer pays for a dynamic KWh price which is a dynamically calculated combined monthly cost of the solar power generation unit (installed and paid for by the retailer) and the market price of consumed KWh's that exceed the current power of that unit.
JB: You did mention leaving technology up to the technology providers. Does that explain your announcement yesterday with Itron? Can you talk a little bit more about the Itron announcement?
KH: We see, of course, Itron as a leading provider of technology in that area. We also see other vendors, for example, in the data streaming area, like OSIsoft, as a very interesting approach. We have not finalized our analysis here but my first thought after talking to the people is that they may in fact work nicely together. Because the endeavor of collecting huge volumes of metering data and storing that data for simple energy products, as well as for very complex energy products, requires sophisticated mass volume data management. AMI technology vendors have a lot to do since the technology moves so quickly forward. SAP will look through the AMI Services (see picture) to the whole AMI scenario, and through those MDM services and the energy products we handle in our CIS we can tell our AMI Technology Partners what we expect them to do and how we want them to support commercial products and processes through AMI technology. This is the subject of our partnership with AMI Technology Partners like Itron or European AMI vendors such as Goerlitz.
JB: You did mention geography. Are these requirements different by geography. So Asia Pacific, to North America to Europe?
KH: Well, yes. The answer is yes, but this is a function in time. In fact European Utilities are currently driven by the schedules of regulators. The unbundling, the deregulation process has priority. Deregulation is not necessarily in support of implementing AMI. At the long end it will be supportive. But at first unbundling the full service utility into a DSO and an Energy Retailer is a handicap in communication between the customer and his premise. In so far I believe, since deregulation is going slow in the United States for good reasons, we will see an advantage for the Rollout of AMI, whereas in Europe we see a strong rollout of deregulated business models. SAP focuses on both regions and both topics. However that does not mean that we won't have AMI pilot customers in Europe. There is a very famous European Utility enterprise that decided already for being an AMI pilot here in Europe. And vice versa we have US Utilities in deregulated U.S. states like Texas that work with us on new deregulated business models.
JB: What are the benefits that you are seeing from AMI and MDM for your clients?
KH: Cost saving, as I said in the very beginning, but also it will improve their image because everybody will appreciate their role in supporting customers to consume energy smarter. And then of course they will deal with the question “how can we compensate revenue we made with energy for services provided to customers for consuming less energy?” Utilities will make smart metering, AMI, and the processes and the products behind it a business of energy saving as much as the automotive business made energy saving a business. I would not hesitate to pay one thousand Euro more for a car if I knew that it saves me two thousand Euro per fifty thousand miles. Utilities will explain to the customers that it is worth while for them to invest in technology. It may cost customers some money which they either pay upfront for a smart meter and the technology behind it. Or they pay it continuously with the rate: they will be offered special products where the depreciation for the assets and the services is built into the product and they pay over time. You will see very smart products where customers combine own generation with smart metering so there will be a balance shown on that meter and the price will be very low when the customers own generation is strong and the price will be high and influenced from the market when the customers own generation is down or very low. I've seen such smart products piloted at utility customers in Europe, and customers were very excited signing up for these products. However, this is vision and one should not underestimate the time it needs to turn it into reality such that economies of scale are reasonable. It will take 10, 15 years until the costs for such technology and services scale to the benefits.
JB: Is AMI and MDM another fad in the technology world of utilities or is it here to stay? The reason I ask that is covering utilities for the last fifteen years, you know, as well as I, there are fads and there are cycles. So in North America CRM was very hot during deregulation and then when our deregulation stalled in North America it fell. Now it is starting to climb back. I guess my question is do you see AMI and MDM as a cyclical thing or is it going to continue on for the next 10, 15 years.
KH: It will go through that curve as any other technology but it will survive and that is the important thing. I think there will be a phase of disillusionment when people understand how much they do have to change here to make that happen not only for a pilot, a couple of houses, no, for n or even nn million customers. How will it work in volatile markets and how will demand response and demand side management work in Virtual Utilities. So when you try putting all this together and when you see the dimension of complexity behind it then I think everyone will experience some disillusionment. We will get through that phase somehow, I am sure. It will become even stronger once we understand how it really works.
JB: On meter data management systems. Today what we are seeing world wide is there is different integration points. So there are distribution operations, customer service billing, and outage management. How is SAP seeing that, is there any priority there? Is it first customer service and then comes the operations, or vice versa.
KH: No, with AMI and Smart Grids customer service and operations will need to work hand in hand. Let's look to customer service and enterprise asset management. Enterprise Asset Management is so important because before you benefit from an Automated Meter Infrastructure and a Smart Grid you have to install it. The required Supply Chain and Work Management processes are a core domain of SAP. They need to be executed as lean and inexpensive as possible such that the total amount of money required to install all the infrastructure is as low as possible. So that must be a very smooth process. Once it is completed premise per premise, our EAM system will forward all necessary information to the party responsible for the operation of the infrastructure. In a regulated market that is easier, since the “Full Service Provider” owns all supporting systems, the EAM coordinating and managing the installation work, the CIS managing the customers, supply contracts and according energy products, the AMI system running the infrastructure and last not least the generic ERP consolidating all activities into Financial Accounting and Human Resource Management. In deregulated markets that is quite more complicated since process integration requires intensive enterprise collaboration and hence collaboration of their respective software systems. Once that is done our Customer Information System is going to leverage the intelligence of all types of smart meters and it reacts differently dependent on what type of smart meter is installed, what type of energy product has been sold and what type of service we are running against that smart meter.
