Modernising power networks through digitisation and innovative technologies such as artificial intelligence (AI) and machine learning (ML) is essential for utilities and municipalities to improve efficiency and manage the growing complexities of energy distribution.
A key element of this transformation is using advanced software, which serves as the backbone for integrating AI and ML into utility operations. However, the financial investment required for such a shift often poses a challenge.
By shifting from capital expenditure (CapEx) models to operational expenditure (OpEx) frameworks, utilities can distribute costs over time through subscription-based payments for software, reducing the necessity for large upfront investments. This transition facilitates the gradual integration of advanced technologies into their operations, enhancing grid efficiency and reliability. Large electrical utilities typically invest in enterprise-level software like scada, advanced distribution management systems (ADMS) and outage management systems (OMS) to operate their networks. Historically, this software was provided through perpetual licences, where the utility would pay an upfront fee and own the licence indefinitely, similar to how Microsoft Office used to be sold.
Significant CapEx
This perpetual licence model necessitated substantial capital expenditure (CapEx) from the utilities to acquire and sustain software systems, including the maintenance and support contracts with these vendors, which increased the ongoing operational expenditure (OpEx).
The upfront cost of deploying a typical OMS system can start around R25 million, depending on the level of implementation required. This does not include any additional costs for maintenance and support contracts, or the associated hardware costs required to run the software. The significant capital investment required for these enterprise software systems is therefore not easily manageable for municipalities and other utility providers to pay upfront.
In recent years, the software industry has shifted towards a subscription-based model, where customers no longer own the platform, but rather ‘rent’ or subscribe to the use of the platform for a certain duration. The ADMS, OMS and scada applications used by utilities have similarly shifted towards this subscription-based or Software as a Service (SaaS) model, and away from the traditional perpetual licence model.
Beyond the financial considerations of software deployment, the subscription-based model is also key to facilitating the modernisation of utility networks. For example, an ADMS generates a large quantities of real-time data about the network, and to leverage this data and apply ML and AI analytics, utilities with on-premises software solutions need to push the data to the cloud.
Easier to analyse
With a SaaS model, the data already resides in the cloud, making it easier to apply AI and ML to analyse network behaviour and conditions. The cloud-based SaaS approach enables utilities to leverage advanced analytics and insights more readily, and make better informed operational decisions, improving network management.
By leveraging the OpEx model and cloud-based platforms, utilities can gain access to innovative capabilities around energy trading and management, as they can invest in solutions that enable them to trade energy based on time-of-day usage patterns.
This allows utilities to optimise when they produce, generate, consume or store energy, leveraging the flexibility and insights provided by the platform. The OpEx model supports this type of innovation and flexibility around energy management and trading, which was more difficult to achieve with traditional capital-intensive, on-premises software deployments.
Ultimately, the move from CapEX to OpEx models impacts the utility’s balance sheets by reducing the high expenditure associated with capital-intensive projects. The OpEx model, through SaaS, can help finance teams better manage cash flow, thereby reducing reliance on an internal IT team to maintain and support enterprise software systems. This allows the utility to focus more on its core operations by keeping the lights on, rather than having to dedicate resources to maintain software systems.
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