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Here are the results of our vendor website review (note: vendors are often unable to announce client licensing deals meaning that press announcements on vendor websites represent only a small proportion of the actual activity levels).

In fact, UtiliPoint knows of many more ETRM licensing deals that have occurred in Europe over the last 18-months but have not been announced for a variety of reasons. Activity levels remain high for ETRM software in all categories here but also in North America and other parts of the world. But this backlog of ETRM implementations has the potential to cause serious issues in our view.

Shortage of Resources

With high activity levels for the last two-to-three years one potentially serious issue that is emerging is a shortage of resources. The skills required to help implement and support complex and highly configurable software solutions such as ETRM software just aren't readily available in the market and it's not just the ETRM software vendors that are impacted but systems integrators and consulting firms too. Allegro, for example, has announced significant expansion of their European operations opening new offices in Switzerland and the Netherlands and all the other major vendors have also been recruiting energetically in Europe.

To highlight the point, just two weeks ago I had a call from a headhunter seeking to place 22 new staff for one of the major vendors in Europe! Where do vendors and consulting firms find these skills? Usually the answer is from energy companies and utilities. The skills shortage also impacts the buyers of ETRM software too. An ETRM implementation often requires back filling various operational roles as those staff are deployed to work on the implementation project and that requires recruitment of new staff to fill those positions.

The inability to recruit experienced resources by vendors, consulting firms and users is a serious issue and one that can have significant impacts both in terms of an optimal implementation but also in terms of overall project risks, timescales and costs. ETRM software implementation is tricky at the best of times but if he vendor is unable to provide deeply product knowledgeable resources and/or the systems integrator has similar issues the chances of the project failing rise considerably. Additionally, if the end user company cannot free up front line operational resources to work on the project, the project risks grow considerably¹.

International Power PLC in the UK is currently undertaking a major vendor ETRM implementation and has experienced some of these very issues. "Over the last six months International Power has been seeking to appoint permanent members of staff experienced in trading systems to assist with the implementation of a new ETRM system in London. Such people have proved extremely difficult (and expensive) to recruit and we have been well aware of the competition with other utilities, ETRM vendors, and system integrators who are offering similar roles,” said Mr. Neil Vig, ETRM Project Manager at International Power.

The heart of the issue though is more complex than simply being able to recruit energy trading and risk management knowledgeable people. It is being able to recruit people with intimate knowledge of a particular vendor solution that is the key. Each of these systems is a highly complex and rather unique product and it can take even the most diligent and energy savvy recruit in excess of six months to get up the learning curve as it applies to a particular product and how it is to be configured, what its capabilities truly are and how it can be integrated into a particular business and technical environment. Often, the best that can be achieved is to hire someone with knowledge of a similar competing product but this is also a suboptimal decision since that recruit is still not in a position to know how another product works, is architected or where its relative strengths and weaknesses lie.

Industry veteran and now recruiter at Prime Energy Partnership in London, Victor Peeke² commented, “There is indeed a global shortage of experienced Business Analysts and software implementation technicians, but the real issue is not just that many capable software implementation technicians are lacking in knowledge of the energy/commodities markets and how they trade, those that do have good market knowledge upon joining a new organization still have to learn how that organization's system/product deals with a trade from front to back—and every system is different, very different, so it's always a very steep learning curve, and the client will bare the brunt of that curve.”

Mr. Peeke went on to add the additional comments, “Another issue is that the ETRM organizations often appear unable or rather unwilling to retain their experienced and quality staff. It may often be the case that they are simply restricted by the wage levels and are unable to offer the increasingly higher salaries required, in order to avoid creating havoc amongst the existing staff, but the loss of quality staff who have acquired both market and system knowledge remains critical. When clients are evaluating which system to purchase these days a critical question is always: What's the turnover in your staff?”

Unfortunately, there is no solution to this issue. It simply has to be factored in to the decision making process when deciding to procure and implement an ETRM solution. The risks that need to be assessed are these;

• As a buyer, can you be confident that your vendor can provide product knowledgeable and experienced staff onto your project? If not, what is your fallback position and what is the impact on the implementation project? Can you contract the vendor to provide specific named resources onto the project?

• The same questions must be asked of your systems integrator and/or consulting firm and the same risks assessed.

• Are you able to back fill operational jobs vacated by staffs that are allocated to the project? If not, what is the fallback position and impact on the project?

Many ETRM projects end up not achieving the initial objectives. They are not necessarily outright failures but simply result in suboptimal solutions. UtiliPoint's research suggests that around 25 percent of all ETRM projects are deemed to be poor or worse with or without external system integrators and/or consultants involved. Having expert and knowledgeable resources in the project is a major risk factor in being to be one of the 10-15 percent of ETRM implementations that users deem to be excellent (Figure 1).

ETRM Implementation Turmoil

The second major concern with respect to the number of ETRM implementation projects on going in Europe right now is simply one of doing business. An ETRM implementation can last months if not years and be a significant disruption to the business but right now, when commodity prices are high and volatile, this disruption can be more costly than ever.

The risk to the business of errors or omissions in data entry and transaction processing while running a legacy system and implementing a new system are magnified several times today by virtue of the significantly current higher prices of energy and other commodities. This ought to be an area of concern for senior management and one that is given a good deal of focus. Not only does the implementation need to be effectively managed but the normal and usual business processes need to be screened and checks and balances added to ensure that the disruption to the business does not cause more serious issues. UtiliPoint believes this to be an area that is overlooked but one that is very important. The cost of a data entry error can be significant in today's energy commodity markets.

Summary

UtiliPoint observes that with higher and more volatile commodity prices and skills—specifically ETRM product knowledge—at a premium in the industry, the risks of implementing ETRM software are considerably higher than they were. This should not be taken to read don't select and implement an ETRM software solution. In fact, activity levels are so high because the imperatives to invest in a solid ad reliable TRM software platform have never been more convincing. It simply means that there are additional risk factors to be identified, managed and mitigated when conducting these types of project.

¹See Selecting and Implementing Energy Trading, Transaction and Risk Management Software—A Primer by Patrick Reames and Dr. Gary M. Vasey, Booksurge Publishing, 2008 for more details.

²Mr. Peeke can be reached at victor.peeke@primepartnership.com

³Energy Trading, Transaction and Risk Management Software Implementation Projects—hot Survey Results, 2007, UtiliPoint Report - http://www.utilipoint.com/rci/details.asp?ProductID=1149