Wednesday, 16 September 2009

Logica explains Smart Metering for Dummies

(By Anthony Miller – Wednesday 16th September 2009 7:45am). Accurately assessing the knowledge level of certain members of the audience, Logica thoughtfully provided a copy of its latest handbook, Smart Metering for Dummies, at an analyst briefing in its recently inaugurated International Utilities Centre of Excellence in Lisbon. The Centre is situated on the campus of Portuguese electricity supplier, EDP, which famously offloaded its IT arm, Edinfor, to Logica for €135m in January 2005 as part of a €510m outsourcing deal. For the next 2-3 years Logica struggled under the yoke of a loss-making operation which increasingly threatened an untimely end to the contract.

Which is why I am both surprised and delighted to report that the ‘Portuguese Patient’ is not just alive and well, but has serendipitously advanced Logica’s progress into the smart gird/smart metering and sustainable energy marketplace.

First, let’s talk about Edinfor. I am given to understand that it margins are now among the highest in Logica’s regional mix. That’s a heck of a turn-round and is testament not just to the effect of a radical restructuring of the Edinfor operation, but also to a transformational improvement in Logica’s relationship with EDP top management.

But what really fascinated me were the demonstrations of Logica’s prototype applications in smart metering and wind farm management. Those of you who had been following my critical assessment of UK government plans to replace every ‘dumb’ meter in the land with its ‘smart’ equivalent will know I have a pretty jaundiced view on the whole proposal (e.g. see Smart Meter Madness (Part 4)). I struggle to see how the projected benefits for consumers will justify the cost, and am deeply concerned over the privacy and security implications. What Logica showed me yesterday went some of the way to addressing my first concern. Based on a pilot roll-out in France, it seems trial customers have been able to reduce their electricity consumption by 30%, by adapting their usage to suit an almost dynamically changing tariff system only made possible because the electricity supplier was able to monitor demand hour by hour. Now, I still remain to be convinced that we as consumers can’t be a lot smarter with the way we use energy without the need for smart meters. But I can also see how the apps that Logica demo’d would have got any electricity supplier drooling. Why? Because although consumers can reduce their electricity usage and so pay their supplier less, the supplier can do likewise with the generators, from whom they purchase electricity on half-hourly tariffs, and so increase their profits.

Logica’s wind farm management system was in many ways even more impressive, especially in terms of revenue potential. Simply put, Logica has developed a system which it hopes to sell to utility companies for between €1.5-2.5m a pop to manage wind farms. This is a case where you need to see it to appreciate it, but it looked good to me. And according to Logica, there is only one other system like it available today, developed and owned by Spanish utility, Iberdrola. Much to Logica’s chagrin, Iberdrola also happens to own Scottish Power, which it acquired for nearly £12b in 2006. Scottish Power claims to be the UK’s largest wind farm developer. Logica developed its wind farm solution for EDP (on a fee basis) but owns the IPR, a proposition which may seem more attractive to Iberdrola’s competitors.

With EDP, Logica finally seems to have clutched victory from the jaws of defeat. In so doing it has also paved the way to boost its presence in the potentially huge but still nascent market for ‘sustainable energy’. But the question that investors will once again be asking is this. Can Logica turn great technology into a great commercial opportunity?

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