Computer software companies are enjoying a bonanza as European energy firms spend hundreds of millions of dollars on new systems to compete in the region's rapidly liberalising electricity and gas markets. The focus is on Germany - Europe's largest energy market -- where firms are splashing out heavily on software following the opening last year of the German electricity sector to competition. "The German IT market has been extremely buoyant for over a year." Nicholas Perry, senior vice president Europe at software house Caminus, told Reuters on the sidelines of an electricity conference. "It exploded in July and August last year in a slightly delayed reaction to the European directives. Prior to that, people were in denial about the impact of liberalisation." The European Union's gas and electricity directives are revolutionising energy markets by allowing big industrial buyers to shop around for the cheapest power, instead of being forced to accept energy from their traditional supplier.
Competition started in the electricity sector this year and will extend to gas in August 2000. Liberalisation will lead to lower prices but they will also be more volatile, posing problems for monopolies used to stable prices and who have little experience of using sophisticated financial instruments to control their risk. European utilities are mindful of events last summer in the liberalised United States power market when a heatwave sent wholeale prices soaring to $10,000 a megawatt hour. "Risk is the number one issue for all utilities that are trading. They need people who understand the markets and software," said Eric Harrison, from SEMA Group Consultancy.
The global trend towards energy liberalisation is a gold mine for the software industry. A report commissioned by Caminus estimated global energy spending on IT is about $14 billion a year, rising to $24 billion in 2005. The amount spent globally on trading software will rise from $250 million in 1999 to $1.8 billion in 2005 - an increase of 40percent a year, it said.
While competition will bring down broking and transaction costs, IT costs will keep increasing as companies need ever more sophisticated systems to cope with the vast amount of data they want to analyse. US-based energy company Enron Corp, for example, estimates that it collected 35 million pieces of data a day last year, a figure which will rise to 500 million next year. Enron joined the software fray this week when it announced a joint venture with Andersen Consulting to sell its own trading systems to other companies through a new subsidiary EnergyDesk.com.
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.