Western European utilities are expected to spend $10.4bn on IT in 2013, 62.9% of which will be dedicated to services.
The IDC Western Europe Utilities Industry IT Spending 2012–2017 forecast predicted that software spending would see the most significant boom, growing by 7.4% to reach $3.2bn by 2017.
IT services are expected to grow annually by an average of 4.9%, while IDC predicted minimal growth in the hardware sector, despite the drive for smart energy, which relies on sensor networks.
“IT spending is being affected by smart meter projects, but it is not completely changing the growth rate,” said Roberta Bigliani, associate vice-president at IDC Insight, adding that Germany recently said smart meters were not economically viable and the UK is moving very slowly.
The biggest spending area for utilities is the maintenance of IT systems and infrastructure, according to Bigliani, accounting for around 60% of their overall IT budget.
More on IT in utilities
In terms of application spending, she noted that customer relationship management (CRM) was the biggest area for utilities, accounting for 9% of total IT spending.
Cloud is also becoming more prevalent. “When you ask utilities about cloud computing, they say 'it’s not for us', but in reality they are doing much more. I’ve seen utilities companies investing in Salesforce.com [subscriptions] even if they are typical SAP shops,” said Bigliani.
She predicted that systems integrators would likely offer compelling business process outsourcing (BPO) services for utilities in the area of CRM and billing, built on cloud computing, which will enable companies to reduce ongoing IT costs.
IDC found the fastest software growth area to be analytics. “We are beginning to see very sophisticated analytics in utilities,” said Bigliani.
"The need to comply with energy policies and regulation will continue to drive utilities' ICT investments"
Gaia Gallotti, IDC Energy Insights
But utilities face major challenges, which will affect long-term projects. “Utilities are under-performing in the stock market, and demand for energy is decreasing in Europe,” she said. This means IT projects need a two to three-year return on investment.
This puts a question mark over major projects that use digitisation and the internet of things to improve operational efficiency though initiatives such as predictive maintenance. Bigliani said utilities will pilot such initiatives on a small scale to realise a faster return on investment (ROI).
"More than ever, utilities are striving to make the most of every dollar spent to achieve operational excellence and reduce inefficiencies," said Gaia Gallotti, research manager at IDC Energy Insights. "However, the need to comply with energy policies and regulation will continue to drive utilities' ICT investments."