I’m not talking about the Occupy movement marching on utilities around the world. It is worse than that if we are to believe the results of PwC’s 12th Global Power & Utilities report – The shape of power to come. The survey tells us what we already know— we will live in interesting times in the global power business with the uncertainty of transformational change the only constant.
If you are an energy strategy consultant this is very good news. Volatility is a wonderful thing for consultants. We spend our time figuring out what keeps energy executives up at night. Our challenge is to get them beyond that ‘deer in the headlights’ stage to see change as a world of opportunities as well as a world of risks.
But the utility executives of the world are worried—big time!
Utilities face a sea change of new regulatory demands to reduce greenhouse gas emissions, to increase the market share of renewable energy resources, to better engage customers in energy efficiency and demand response, to deliver on the illusive benefits of smart meter deployment—and customers, regulators and politicians want all of this done with little conflict over rate increases.
Uncertainty is a big time problem facing utilities!
The energy industry is being turned on its head by these competing drivers of change. But unlike other industries in the midst of transformation, utilities as regulated entities, lack the authority to change the things that often matter most to successfully navigate the transition.
And all their cost drivers seem to be going up!
What was surprising in the results of this latest PriceWaterhouseCoopers survey is the overall sense of foreboding about the outcomes. Maybe these utility execs are nearing retirement age—they surely are mostly baby boomers—and just want to ride out their tenure quietly then go play golf. That seems unlikely when 46% of North American and European utility executives see a growing risk of blackouts—of the career ending kind—between now and 2030.
Their peers in the developing markets, conversely, seem more optimistic as their faster growing economies hungry for energy are investing more in energy infrastructure and new technologies that are reducing their historically persistently higher risk of power shortages so 53% of them think things will get better during the same 2030 planning period. This is the glass half full or half empty question.
The survey headlines reflect the broad uncertainty that pervades the power markets today. Of 72 power companies surveyed by PWC staff between October 2011 and April 2012 in 43 countries:
PWC 12th Annual Global Power & Utility Survey Results at a Glance
|80%||End to Feed-in-Tariffs. Expect wind, solar and biomass renewable energy resources will not need subsidies by 2030.|
|80%||Smart Grid’s High Hurdles. 80% of North American and 74% of EU energy execs feel that smart meter deployments and new smart grid-driven technologies are improving grid operating performance but increasing utility risks from their poor customer engagement performance. The executives surveyed admit their traditional utility culture is a big barrier to getting customers to change their behaviors toward energy use, efficiency and dynamic pricing.|
|68%||Update Power Generation Fleet. More than two-thirds of companies are replacing older power generation
|66%||Energy Affordability and Rate Increases. Two-thirds also say they fear that rate increases will be major barriers to meeting energy demand growth. Where rate recovery is reduced or denied the risk of energy shortages will grow:
|60%||Growing PHEV Fleet. Say there is a medium to high probability that plug-in hybrid electric vehicles (PHEV) will make up a substantial part of the vehicle fleet by 2030 helping to reduce greenhouse gas emissions but increasing power demand.|
|43%||Non-fossil Fuel Market Share is Growing—but so is Global Warming. Utilities surveyed see substantial growth in non-fossil fuel energy market share to 43% by 2030 but warn that it will not be enough to limit global warming to 2 degrees centigrade increase policy goal.|
|27%||Big Brand Name Competitive Threat is Achilles Heel for Utilities. A growing share of utility executives see the biggest competitive threats to their business model coming from outside the utility industry from big name brands seeking to leverage their customer aggregation and relationships to disintermediate utilities. Implicit in this worry is that smart grid technologies accelerate this risk exposure by changing customer behaviors about energy efficiency, demand response and bundles services.|
This conflict between affordability, reliability and sustainability is a recurring theme for the utility industry. It is merely being fought out on different battlefields today than it was in previous boom and bust power business cycles when the major driver of change was bringing down high utility rates caused by inflation, nuclear construction programs, and oil embargoes. That is the same fear that swamped the utilities boat in the last boom and bust cycle—high utility rates are never a good thing.
In those previous battles nuclear energy was seen as the great savior reducing our dependence upon imported oil then often used for power generation. Limited supplies of natural gas were prohibited from use in power generation by the Fuel Use Act from the Carter Administration era.
By the early 1990’s wholesale competition for power generation was seen at the way to break that utility power plant construction rate increase cycle. The Energy policy Act of 1992 authorized exempt wholesale power generation competition. Later stranded cost recovery and utility divestment of power plants ushered in the merchant generation growth in the last boom stage of the power business cycle. Renewable portfolio standards were created to make a place in this wholesale market for clean energy resources.
The PWC survey reminds us that competition whether between wholesale power generators competing for utility procurement or big brands competing to aggregate customers from utilities to buy their own bundled solutions is the same competition played out in different customer classes, different market battlefields with different weapons—but it is still competition in a segment of the regulated utility market.
Déjà vu all over again!