As the utilities sector wrestles with the convergence of key topics, such as commitments to zero-carbon emissions and adoption of cloud ERP, industry leaders’ transformation strategies must be designed to at once release their businesses from decades of technical debt and enable them to embrace innovation in the decades ahead.
Enterprise applications in general—and SAP platforms in particular—will play a vital role in enabling an industry-wide evolution that impacts every aspect of utility operations. To better understand the shifting utilities landscape and gain insights into the operational opportunities currently available to industry leaders, ASUG recently interviewed Michael Sullivan, North America's newly appointed National Vice President – Renewable Energy & Utilities at SAP.
Ahead of delivering the opening keynote at this year’s SAP for Utilities, Presented by ASUG conference (Oct. 9–11 in Chicago, IL; register here), Sullivan discussed three major topics that will inform his address: energy transition, cloud adoption and business transformation.
This interview has been edited and condensed.
ASUG: While the utilities sector has traditionally been seen as a risk-conscious industry, this sector is now moving forward with ambitious business transformation objectives. What part will enterprise applications play, and what is SAP’s role, in ongoing efforts to enable and accelerate transformation for utilities?
Sullivan: We’re in the middle of an energy transition. We’re seeing one of the largest macroeconomic shifts that we’ll probably see this century—certainly in our generation—where power generation and energy consumption are moving toward renewables and the electrification of everything.
Within that context, SAP's portfolio is perfectly suited to help drive that transformation in many areas, starting with the utility’s end customer, who’s not only a consumer of energy but now also a participant in the generation and management of energy. More than ever, we see the criticality of engaging with these consumers and bringing them into the process. SAP works with our utilities customers to drive transformation in the way they engage with their customer base.
In the past, we may have focused on creating a mobile app for online payments and account management. Today, we still do that, but customer expectations and behavior patterns are pushing us to consider how to create much deeper and more holistic experiences. For example, when someone installs solar on their home and becomes a participant in power generation, how is SAP working with the utility to transform and engage that customer with new programs and services? What are potential new demand response paradigms? How is customer engagement evolving in this context? This is a key area of focus.
On the other end of the equation, we're seeing utilities—and even industries outside of utilities—make massive investments in the development of renewable energy sources: solar, wind, the modernization of hydro, and even micro-nuclear generation in its early phases. We're seeing private equity firms engage deeply in consolidating assets. We're seeing energy storage companies emerge and start to grow at scale in terms of their ability to plug into and manage the intermittent nature of these generation assets on the grid. And SAP is being asked how we can help with this.
Consider a utility deploying grid-scale solar. There are countless questions to navigate, many of which fall squarely in SAP’s domain. How are these companies going to prioritize potential investment, identify land, and manage those leases? How are they going to structure and manage the legal entities that spring up around these new renewable assets? How are they going to optimize construction of these assets and manage material acquisition? How are they going to most efficiently maintain those assets, and even protect them from digital and physical security threats, given geographic distribution?
SAP has an extremely relevant role to play in the transformation taking place across the entire energy spectrum.
ASUG: This, of course, relates to another high priority of utility industry executives: zero-carbon initiatives. How is SAP helping this sector capture and track new variables to manage and integrate operations that meet zero-carbon emission objectives?
Sullivan: You’ve heard about SAP Green Ledger. We’re in a unique position where we can help our customers report on and capture that information from an ESG perspective, to ensure they can speak to and manage that side of their operations. Because SAP goes beyond reporting and is central in managing the supply chain, managing generation assets, and even managing the way that distributed energy resources are engaged on a customer front, we're going down to the operational level to help utilities achieve carbon goals and sustainability goals—in addition to helping them measure, report, and understand their progress on those goals.
ASUG: What’s the state of cloud migration initiatives in the utilities sector? What benefits do utility companies gain by integrating cloud into their IT architecture?
Sullivan: Utilities organizations have broadly embraced the fact that today’s technologies need to be delivered in the cloud. The conversations we’re having daily with customers center around “when,” not “if.” And for SAP, helping our customers move to Cloud ERP for their core financial, asset and customer systems is absolutely top of mind.
From SAP's perspective, the cloud is a fundamental enabler of what our customer are asking us to deliver: amazing and always-improving user experiences, best-in-class industry business process automation, and optimized decision support, all underpinned by Artificial Intelligence. This is what we are asked for. But the computing resources and data sets necessary to drive that kind of innovation in the platform mandate that SAP deliver these capabilities in the cloud. We have no other option. Our customers see that.
We've passed the point where people are asking, “Do we need this?” It’s become a question of how we do this quickly and how we do it in a way that integrates with and enhances the current operating models that utilities use to deliver enterprise assets.
ASUG: Like other sectors, utility industry leaders struggle to bridge the talent gap. How will emerging technologies—like AI and advanced automation—help companies in this sector to do more with less?
Sullivan: First, customers are moving their SAP environments into the cloud and allowing SAP to run and operate them as cloud services. This is a significant shift toward letting companies free up resources they need to drive innovation around asset management, customer engagement, and other such areas.
While the shift to cloud unlocks innovation, it also unlocks people. SAP is fundamentally taking on an operational responsibility with utilities customers more than ever. We’re becoming embedded in their core operations, allowing customers to deploy limited resources more strategically.
Second, the evolution that SAP has gone through—in terms of our own transition to cloud and how we’re delivering digital cloud services—has become a force multiplier in terms of increasing the ability of existing utilities staff to engage their work more efficiently and effectively.
For example, SAP flipped the script in terms of how analytical data is presented to employees. We no longer want to separate analytics from the execution of the business process. Rather, as customers execute daily on work order execution or financial decisions, the analytical information is embedded directly in the transactional system. Customers have a single view, and we're merging these two concepts so that we are not only making the process more efficient, but we’re also giving them tools to do this more robustly and quickly.
Our core business, historically, was to deliver software. We would support that software, but the utility or its partners operated that software. The paradigm has shifted. Certainly, the utility and its partners are right in the middle, but we’ve become embedded in that operating model as well. When we talk with the utility about delivering a customer service platform, we don't just deliver that platform but also help to operate it.
Take climate and shifts in weather patterns. If SAP is at the heart of running a utility’s customer call center, we’re no longer just delivering software. We’re running and maintaining that service for their customers. We’re involved when that utility shifts into storm operation mode. We must dynamically accommodate, to ensure that our platform is up and available. We’re ensuring that we're fully interlocked with how they're going to manage their storm response, so that we in no way, shape, or form create disruption.
ASUG: What key success factors must the utility industry master to achieve mission-critical objectives?
Sullivan: Utilities are in the midst of undergoing such significant change that, even in the next five years, it's hard to predict how the models will shake out.
We’re having a lot of conversations about energy transition and our customers’ ability to accommodate the shift to renewables, as well as the growth curves around electric vehicles. There are differing forecasts as to how quickly wide scale EV adoption is going to happen, and these curves are regional as well. But I believe it’s very clear it’s going to happen; whether it’s five, ten, or 15 years away, most vehicles on the road will eventually be electric. For utilities, it's not just about the charger in someone's garage. It becomes a question of whether the distribution network in that area can handle the increased load on the grid.
There are social governance implications to that shift as well: a shift in energy. Are utilities making investments in a way that’s distributed across all social and economic environments? While the electric vehicles growth curve has been driven by a certain initial consumer demand, the utility must make sure that it’s managing the grid equitably.
Energy transition is driving a massive reinvestment in the transmission and distribution grids, and renewable generation assets. We’re having a lot of conversations with utilities around how to effectively plan investments. How do utilities choose between competing investments? And how do utilities execute construction projects to set operations up for the future?
Over the next five years, given the Inflation Reduction Act of 2022 and the investment going into this space, utilities are making hard decisions about how to distribute capital. This is going to be critical to the success of this sector. Concurrently, utilities are shifting significantly in how to engage customers as this environment shifts. We’re working with business leaders to ensure that they have the applications they need today, and we're setting them up with a platform that’s going to let them drive and pivot as a relatively unpredictable market evolution takes place.
The macro level changes are clear. But as electric vehicles scale, how will we effectively bill our customers at a different rate than what we’re billing to deliver power to their house today? Are we going to do flat rate billing? How are we going to get consumption information? How are we going to manage the whole process?
The ability to pivot as the environment changes, with EV adoption as only one example, is something we know that utilities need. We’re establishing platforms to meet that need. This agility, delivered in the cloud and purpose-built for utilities, is something SAP is uniquely positioned to provide.