SINGAPORE, 17 October 2013 – Business models that have underpinned the global utilities industry for the past century are under increasing threat from changing consumer behaviour, disruptive technology, and the rise of decentralised power generation, according to PwC’s 13th annual global power and utilities survey.
Energy Transformation: The impact on the power sector business model, reports that 94 per cent of survey respondents believe their business model is poised for “complete transformation or important changes” by 2030. That’s the view of nearly all senior respondents from 53 power and utility companies located in 35 countries. Only 6 per cent believe their business models would remain “more or less the same”.
PwC’s Energy, Utilities and Mining leader for Asia and Australia Jock O’Callaghan said the results varied between continents but most (69 per cent) Asian region respondents expected some degree of transformation, with eight per cent believing business models would become “unrecognisable” by 2030.
“Globally, the industry is recognising that it’s on the cusp of fundamental, once-in-a century change,” Mr O’Callaghan said. “This is an industry transitioning from the 20th century to the 21st and beyond.”
PwC’s Australian utilities leader Mark Coughlin said the industry was on the brink of radical change in the short term.
“The sector is poised to jettison its longstanding – albeit somewhat staid image – as an industry where returns are very predictable to one potentially more volatile,” Mr Coughlin said
“Consumers will hold the upper hand, new fossil fuel sources such as shale will come on line, renewable sources will become increasingly affordable and competition more intense than in the past."
“New technology is enabling more and more consumers to generate their own power rather than buying it from one centralised source. This is already the case to some degree in Australia with more than 1 million homes now having solar cells on their roof – a trend that is accelerating globally.”
According to respondents, 65 per cent describe their customers as “passive customers that take what they are given”. This is expected to fall to 39 per cent in 10-years’ time. And 61 per cent believe there is “high” or “very high” scope for customer service to improve.
“There may be scope to adopt lessons learned from the telecommunication industry, such as increased use of bundling and pre-paid contracts,” Mr O’Callaghan said.
64 per cent of respondents believe a medium to high probability exists that the industry will develop new customer tariffs based on those from the telecommunications sector.
Where the power lies: fossil and renewable
Global demand for electricity will continue to outstrip demand for any other energy source in coming decades. New fossil fuel sources, specifically shale gas and tight oil, are looming as a major challenge to regulators and policy makers. How these challenges - often relating to environmental and community concerns – are met will help determine how big an influence these will play.
Also, growing shale gas supplies have helped lead to lower coal prices, meaning that coal is preferred to gas in many areas, especially in Europe and Asia, for power generation. The expectation of an ASEAN power grid in coming years will see a much more integrated South East Asian market.
New technologies are also helping encourage the spread of renewable energy, especially solar, with 56 per cent saying the rapid fall in solar prices will have “a high or very high impact on their market”.
“The effect of these new technologies is that half our respondents believe consumers will pay more for transmission and distribution as it represents an increasing proportion in electricity prices,” Mr O’Callaghan said.
“Overall, the industry is extremely optimistic about future energy supplies. Industry opinion is far from ruling out the possibility we are on the verge of a new, abundant energy era with the prospect of the United States achieving energy self-sufficiency and renewables becoming increasingly economic.”
At the same time, concerns about blackouts are increasing (37 per cent versus 26 per cent decreasing) in many areas as reserve capacity gets stretched.
“This is a very real issue particularly in the fast growing Asian region as demand for power continues to grow exponentially.”
How is the industry responding?
Cost cutting and austerity measures are high on the agenda with more than 90 per cent of respondents saying there is scope for major cost and efficiency improvements.
“This will buy time but austerity is not a long-term solution. However, an overwhelming majority – 82 per cent – believe distributed generation is an opportunity rather than a threat and 73 per cent (77 per cent in Asia) see big scope for asset performance to be improved and for core operations to be transformed.”
“There are very large drivers for utilities to 'sweat' their assets more including increasing pressure on network businesses to reduce their component of the energy bill."
The 13th PwC Annual Power and Utilities Survey is based on research conducted between March and July 2013 with senior executives from 53 utility companies in 35 countries across Europe, the Americas, Asia Pacific, Middle East and Africa.