The Big Leap*: Utilities Global Survey 2006

Two-thirds of the world’s utility company leaders believe the industry is facing its biggest challenge in modern times. According to the eighth annual PricewaterhouseCoopers report ‘The Big Leap*: Utilities Global Survey 2006’, the majority of these executives describe the required changes as ‘revolutionary’.

The PricewaterhouseCoopers report, which presents the views of 116 senior executives from leading utilities companies in 43 countries, reveals that governments and regulators are the most powerful forces for change. Paradoxically, political and regulatory factors are also identified as the highest barriers to the change challenge ahead.

Derek Kidley, Resources Leader, PricewaterhouseCoopers said, "The changes pending in the Australian market are little short of revolutionary. The dash for gas will drive major change, while the required $30 billion in new asset investment will likely transform the industry. The establishment of a new single, national Australian Energy Regulator is an overdue, but nonetheless revolutionary step in the right direction and an opportunity to come to grips with the problems of the industry.”

Australian market reforms, including the formation of the National Electricity Market in 1998, have delivered significant benefits. However, in the Australian section of the report a lack of interconnectivity between regions is identified as the most significant impediment to an efficient national energy market.

Australian executives in the survey see the existing transmission infrastructure and regulatory arrangements as creating excessively regionalised markets and the tendency to state-based rather than national solutions. This issue is particularly acute during periods of high demand when the market has shown it will fragment into separate, inefficient regions.

Mr Kidley said, "In different markets around the world we are seeing customer choice becoming a reality. Accordingly global utilities leaders are seeing pressure from customers as a more significant force for change than technology, the competition and the growth in energy demand.”

Given the consolidation of the retail industry in Australia, a greater focus is being put on obtaining additional value from and protecting the existing customer base. This can be achieved through up-sell offers such as dual fuel, which emerged in the survey as by far the most important factor in retail customer strategies.

In a competitive environment it is critical to differentiate yourself from your competitors. It’s difficult to do this without a thorough knowledge of the industry, competitors and what messages they are sending to the market. Customer service, which is a core part of all utilities business, is rated highest by the respondents as a differentiating factor, followed by brand awareness and product offerings, such as green and dual fuel.

Mr Kidley said, "Australian labour market conditions are highly competitive and there is a scarcity of good people. As a result, Australian respondents identified the retention of key workers as the most critical human resources issue, shortly followed by concerns over the number of experienced managers due to move into retirement.”

The PricewaterhouseCoopers ‘The Big Leap*’ report also highlights other key global developments in the utilities sector:

• Coal tops favoured fuel supplies: Coal ranks alongside gas as the fuel expected to make the biggest contribution to meeting demand growth in the next five years.

• Half of the respondents in the Americas and Europe and 44 per cent of all respondents said they expect nuclear capacity to increase in their region as a result of concerns about climate change.

• Nearly 60 per cent of global utility leaders believe the industry needs to have a strong ten year focus on reducing environmental damage.

• Technological advances: Companies are increasingly looking to technological innovation to deliver efficiencies and respond to the pincer of future demand challenges and environmental concerns.