IDC Australia: Industry Changes in the Electricity Network Distribution Sector are Driving ICT Spending and the "Smart-Plating" of networks
25 Sep 2012
Sydney, Australia, September 26, 2012. IDC released a report on 'Utilities ICT Market Forecast and Analysis 2011 to 2015', which details IDC's analysis of ICT spending in the Utilities vertical of the Australian ICT market and how the Utilities sector is responding to industry challenges.
According to the report, ICT spending within the Utility sector will grow by 5-yr CAGR of 2.3% to A$1,981.9 million in 2015 based on conservative assumptions. IDC believes that IT services (representing 39.3% of total ICT spending) will drive ICT expenditure with a 5-yr CAGR of 3.6%. "IT service providers are well positioned to capitalize on the upside from smart grid investments. The merger of the three NSW electricity distributors presents system integration and consulting opportunities for IT businesses." says David So, Australian Vertical Markets analyst for IDC.
In IDC's opinion, there are three industry changes in the electricity network distribution sector that are major catalysts for a new wave of ICT spending. David added "In addition to the merger of the NSW electricity distributors and the rollout of smart grids, the changes in the network pricing rules will not only control the rise in electricity prices but will also present business opportunities for ICT vendors".
IDC notes that the energy regulator is amending the network pricing rules such that it does not favour capital expenditure (capex) as a means for the electricity network distributors to generate their regulated revenue and drive up retail electricity prices. As such, the Australian Prime Minister in August 2012 blamed the State government for "gold-plating" the networks (i.e. excess capacity expansion to increase the reliability of the networks especially for peak demand). "The regulator is realizing that the return on capital approach in determining revenue for the electricity distributors may not work well when retail electricity prices have risen by 18% since the introduction of the carbon tax. The amendments in this rule could potentially result in higher operating expenditure on cloud computing and also drive the formation of partnerships with mobile operators for the rollout of the smart grids" Mr So commented.
Instead of increasing the capacity of electricity networks, IDC believes that rolling out the smart grids is the long-term solution to controlling the rise in electricity prices and this trend of "smart-plating" the network is emerging at the expense of "gold-plating" them. On this basis, IDC believes that ICT vendors can ride on this new wave of expansionary capex generated by the utility companies.
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