Over the past two to three years, we have seen a marked change in utilities’ approach to service-based delivery. With every passing day, the pressure to seek more flexible delivery options is increasing, while barriers are weakening. Globally, utilities are increasingly turning to service-based delivery to help them take a more flexible approach to business processes, mitigate technology risks, and reduce costs.

Some of these drivers are nothing new. Over the past two years, there has been a fundamental shift toward the software as a service (SaaS)-based delivery of enterprise applications, including enterprise resource planning and customer relationship management. Until this point, utilities have been steadfastly sticking to on-premise software and data centers. So why the sudden change? From 2014, the industry has been at an inflection point, where drivers are becoming stronger than barriers.

Historic resistance to SaaS was primarily driven by the joint forces of security concerns and financing. Many software vendors will recognize the situation where a conversation regarding cloud computing is brought to a rapid conclusion by a utility’s head of security, expressing concerns about where and how data and applications are hosted. These conversations were often shortened by finance executives unable to square the circle of cloud’s OPEX-based payments against a utility’s profits from CAPEX.

However, security is becoming less of a concern. Cloud vendors have woken up to utilities and other industries’ security requirements. It is more often the case that cloud vendors’ investments in security will exceed those of a utility, making cloud a more secure option than on-premise, both from a cyber and physical security perspective.

While utilities still make profits from their CAPEX investments, the issue is of less importance to finance departments, where taking costs out of the business has become the imperative. Many utilities have realized that replacing monolithic, expensive-to-maintain legacy systems with a cloud-based solution saves more money than the additional profits a CAPEX-based replacement would bring. And for utilities still desperate to maximize their CAPEX, some vendors have reportedly developed payment plans for cloud services that can be treated as a capital rather than operating expense.

The positive news for cloud does not stop there. The technological transformation that the industry is currently experiencing is a huge driver for service-based delivery. A consequence of the convergence of IT and OT departments is that IT staff are increasingly regarded as strategic assets and have a stronger voice within many companies. And with that stronger voice, IT teams are talking about the benefits of service-based delivery.

However, the strongest technological driver is the emergence of the Energy Cloud. Only two or three years ago, the industry took a singular approach to new technologies. The focus was on individual technologies, such as smart meters, distribution automation equipment, or distributed energy resources (DER). However, as utilities’ experience of these technologies matures, the focus shifts away from individual technologies and toward convergence. At a system level, convergence occurs through aggregation by virtual power plants, microgrids, and DER management systems. But utilities are also seeking value in the convergence of data from these new systems and with existing operational data.

Some of this hardware—specifically, smart meters—has been successfully outsourced. However, the more a technology directly affects network management, the less likely it will be acquired through an as-a-service model. This runs true for both the physical hardware and the applications that manage the hardware’s business processes. However, the same is definitely not the case when it comes to outsourcing data management and analytics.

Data is one of the most strategic assets a utility can own, and it is unfortunate that utilities are waking up to the value of enterprise data at the same time their data is growing at an exponential rate. Existing systems were not designed to cope with such large volumes of data, so utilities have to come up with new strategies to converge and analyze operational data. Some do this internally; others have turned to third parties. We have now seen a number of analytics businesses offer analytics as a service. Interestingly, the companies vying for this business come from both the IT (Oracle Dataraker and SAS) and OT (GE and ABB) worlds. A utility can transfer data from any number of sources into the third party’s cloud, where it is analyzed by either the utility or the service provider’s own data scientists. There are many benefits to this model: cloud’s elastic pricing allows utilities to quickly ramp up and down their compute requirements, only paying for what they need in any given month.

Security will always be a utility’s number one priority, so cloud vendors will always have to meet the industry’s exacting requirements. However, the requirement to take costs out of the business will only get stronger, and as a result, SaaS-based delivery is expected to become increasingly common.

While cloud-based analytics is still relatively niche, we expect this market to grow significantly in the near future. And regulators could well be the driving force: GE recently announced that US utility Exelon will use its cloud-based Predix platform to analyze data from its entire generation fleet, seeking a 20% reduction in operation and maintenance costs. If Exelon is successful, it will not take long for regulators to demand that other utilities do the same so that rates can be reduced.

Some utilities will remain resistant to change, but for many, the future lies—at least partially—in the cloud.