The utility industry is one of the slowest to adopt the SaaS deployment model, according to a new IDC Energy Insights report.
One of the reasons for this is that the utility industry has a practice of providing a rate of return on capitalised investments, which provides a disincentive to invest in cloud solutions.
Utilities and utility CIOs should not let what should be a technical decision turn into a capex/opex allocation funding decision, the report states.
IDC Energy Insights completed a financial analysis comparing the total cost of ownership (TCO) of on-premise with SaaS for a customer information system (CIS) - one of the most difficult system implementations a utility can undertake.
The analysis shows that cloud has a substantial advantage over on premise at the right subscription price.
The hard-to-quantify benefits of SaaS (strategic agility, better use of resources and user adoption, continuous updates, and quicker time to value) will sway decision making in favour of the cloud, the report states.
According to IDC Energy Insights, IT vendors are putting their best development efforts and intelligence into cloud-based offerings, and increasingly these offerings are coming with pre-integration to other cloud-based offerings.
In the next five years, the utility industry will be faced with fewer and fewer attractive alternatives in on-premise offerings.
"Today's technology advancements are being developed in cloud applications first, and not necessarily in on-premise applications," says Jill Feblowitz, IDC Energy Insights vice president.
"At a time when utilities need to evaluate and adopt current and emerging technologies more aggressively, regulators, shareholders, stakeholders, and ratepayers need to take a closer look at the true economic impact of the traditional capex/opex model to determine whether the numbers, in fact, make sense for all parties,” she says.
IDC Energy Insights finds the decision to adopt the SaaS deployment model is not as simple as whether the cost gap between the SaaS solution and the on-premise version is greater than the rate of return that could be earned on the capitalisation of the on-premise solution.
The technical and financial merits of the SaaS model have been clearly demonstrated across industries. In the utility industry, however, there are nuances and complexities to the SaaS versus on-premise discussion.
Utilities are waiting for the regulators to clarify. Regulators are waiting for utilities to make the business case. IDC recommends all parties take a more assertive approach to accommodating the cloud model for long-term success.