Leading the Way is a column written by PricewaterhouseCoopers professional staff. It appears in the Business section of the Bangkok Post twice each month. The column provides specialised advice to corporate decision-makers in Thailand on global and local business trends.
This article appeared in the May 2, 2006 issue of the Bangkok Post.
By Nangnoi Charoenthaveesub and Amornrat Pearmpoonvatanasuk
Inside the boardrooms of the world's leading utility companies, executives are preparing for the biggest challenge faced by the industry in modern times. They are grappling with conflicting issues, securing supply as fuel sources become scarcer and trying to deliver cleaner power amid burgeoning demand. So what is this leading up to?
According to PricewaterhouseCoopers' eighth annual global utilities survey, world energy leaders are bracing for revolutionary changes within the industry. These changes are being influenced by a number of issues, including supply-and-demand imbalances, infrastructure vulnerability and environmental concerns.
So, what can companies do to prepare for these changes? Well, judging by the responses of 116 senior executives from 98 utility and utility-investor companies across 43 countries, quite a bit.
Utilities companies need to step up the pace on decision-making. The global power and gas sectors are keenly aware of the urgent need for a revolutionary change in planning, pricing and regulation within the industry. There is little doubt about the scale of the challenge _ but policy makers and regulators are the biggest barriers to achieving change.
The impact of regulatory uncertainty on investment is felt especially strongly in the Asia Pacific region, where no fewer than 54% of respondents rate it as a high disincentive to investment. Governments must increase regulatory frameworks that provide a better environment for investment and planning.
On top of this, the threat of supply shortage is real. In fact, 51% of the respondents to our survey reported that they would face either a significant or immense supply-and-demand challenge over the next five years. The balance of industry opinion is tilted toward the view that power blackouts or interruptions to gas supply are more likely now than compared with five years ago.
In the long term, greater end-user energy efficiency could ease supply-and-demand imbalances, however, the mandate to make this happen sits uneasily between regulators and the utility companies.
Technological innovation is essential for companies to deliver supply efficiently, as well as respond to demand challenges and environmental concerns. Coal tops the list of fuels that will contribute the most to meeting future demand, and it is here that survey respondents expected technology to have the greatest impact.
The combination of technological developments and high energy prices are expected to significantly increase the contribution of both coal and nuclear in the energy mix. In fact, 44% of the respondents said they expected nuclear capacity to increase in their region.
For most companies in the Asia Pacific region, cost reduction is the number-one priority. This priority is being propelled partly by the high cost of fuel and price constraints, and also by the scope for delivering greater efficiencies as more companies make the transition from state monopolies to liberalised markets.
In Thailand, the overall situation of the utilities industry is somewhat different. Since undergoing restructuring in December 2003, the Thai utilities industry has become embroiled in a complex debate over privatisation. To this day, the power restructuring process is still pending, and this is directly affecting power companies in Thailand, in terms of business direction and competition.
These obstacles affect the development of Thailand's utilities industry, and it may be falling behind other countries in the Asia Pacific region.
Ultimately, each country's competitiveness on a global energy scale will depend on its ability to keep up with the revolutionary changes affecting the industry.
