Landmark change predicted in technology and structure of power utilities

June 25, 2008 — Sweeping changes lie ahead in the power utilities industry, according to the latest Utilities Global Survey by PricewaterhouseCoopers. The 2008 report, A World of Difference , marks the tenth anniversary of the annual survey of 118 senior executives in 37 countries and reveals a sector that is anticipating wide scale transformation in the decade ahead. The changes they predict include a different technological landscape and structure of the sector in the future.

There has been a big surge in expectations that a diverse range of generation technologies — wind, solar, geothermal, combined heat and power, other forms of distributed generation and a range of combustible renewable and waste generation — will have a significant impact on companies’ power markets in the next ten years.

The proportion of survey respondents anticipating that distributed generation will have the greatest impact has doubled — from 24% just two years ago to 49% in this year’s survey. Even more striking, the proportion expecting solar power plants to have the greatest impact has risen from 20% to 54% in the same period.

There has also been a large change in outlook in the space of just 12 months in how companies view the future structure of the sector. In the 2007 survey, only 33% of respondents envisaged making direct investment upstream. By 2008, this had risen to 51%. However, utility companies face a major challenge in realising these ambitions. They face intense competition from the oil majors in securing upstream equity assets in gas and the state-owned national oil and gas companies will also be seeking to maximise their control over assets. The threat from oil and gas companies moving into the utilities space is rated higher than in previous years. Downstream, for the first time ever, the competitive threat from energy intensive companies establishing their own power generation is rated as high as the threat from other utility companies.

Manfred Wiegand, global utilities leader, PricewaterhouseCoopers, commented:

“These are profound changes with an unprecedented range of technological investment. As the pressures of climate change and energy security intensify, the conditions are ripe for a diversification of generation technologies.

“We are also likely to see a landmark change in industry structure with blurring and convergence of fuel supply chains upstream and utility markets downstream driven by the desire to secure supply and to secure markets. Similar shifts are taking place on the equipment and technological front with utility companies and equipment providers alike seeking to secure ownership of technological assets and market space. Clearly, with such intense competition, the scope for some big alliances, joint initiatives or mergers cannot be ruled out.”

The report points out that technology itself will play a part in industry structure change. Carbon capture and storage, for example, embraces both the overground world of utility plants and the underground world of mining and the oil and gas industry.

However, the report sounds a warning note on the prospects for greenhouse gas (GHG) mitigation:

• Utility company survey respondents expect nuclear and renewable generation to have the biggest impact on limiting greenhouse gas emissions (GHGs) with nuclear having the edge.
• But, given that coal is widely expected to continue to be a mainstay and, indeed, to grow in the world power generation fuel mix, the contribution of carbon capture technology, and the extent to which cleaner gas-fired plant can replace less clean coal generation, are both critical to the outlook for GHG emissions.
• Only 26% and 14% of survey respondents expect each of these developments to play a lead role in reducing GHGs, even by 2050.
• Only a quarter (25%) expect carbon capture from coal to make a big impact in the next ten years but, rather surprisingly, this barely changes when respondents look ahead to 2050 with only 26% believing it will have the biggest impact on GHGs even in the middle of the century.

“The continuing importance of coal reminds us that the most crucial change won’t be the landscape of smokestacks but the technology inside the stack. The pace of development of carbon capture and storage technologies will rest critically on the economic cost of change, the existence and effectiveness of future economic signals for the price of carbon, and government and society’s willingness to absorb extra costs.”

For the first time, the annual survey includes the viewpoints of top leaders from energy technology and equipment suppliers. Companies in these sectors also reinforce the importance of economic signals in shaping change in the power generation fuel mix and the potential for future changes to the sector’s structure.

Other report highlights include:

• The view that it is for governments not the utility industry to take the energy efficiency lead has increased to 59%. This is particularly strongly felt by respondents in Europe and Asia but, even in the Americas, only 25% of respondents thought that utility companies should be setting the energy efficiency pace.
• Utilities expect regulatory developments to continue to trigger repositioning by country and across the value chain. This is particularly the case in Europe. Within ten years, 48% of all survey respondents expect to have repositioned internationally and 42% within the value chain in response to regulatory moves compared to 38% and 28% doing so now.
• Increasingly, the energy utilities landscape will be led by companies with global brands. The companies that have the most success will be those with big balance sheets to make the huge investments that are required in nuclear, carbon capture and storage and other technologies.

1. For additional information, please contact Vera Totskaya, PR Manager, or Anna Kogosova, PR Assistant Manager.
2. A copy of ‘A World of Difference: tomorrow’s power utilities industry’, PricewaterhouseCoopers 2008 Utilities Global Survey and also a podcast can be downloaded from our site.
3. It is a major survey of boardroom opinion inside utility companies conducted annually by PricewaterhouseCoopers and includes data from 118 senior executives, from 115 utility and utility investor companies across 37 countries. Research covers Europe, the Americas, Asia-Pacific, Africa and the Middle East. The majority of utility participants were senior vice presidents and presidents, CEOs and other senior managers.
4. The report includes a series of regional reports covering the Americas, Europe, Asia Pacific and the Middle East and Africa; individual country and regional surveys covering the US, Canada, South America and Australia. In its tenth anniversary year, the survey also includes a series of case studies of PricewaterhouseCoopers assignments where it has been at the heart of industry change.
5. The PricewaterhouseCoopers Global Energy, Utilities and Mining Group is the professional services leader in the international energy, utilities and mining community, advising clients through a global network of fully dedicated industry specialists.