Challenges ahead for utility sector
Availability of funds identified as potential hurdle for investment
Report identifies availability of funds as potential hurdle for more investment
Utility companies face a difficult challenge as they balance the constraints of the downturn with the investment required to meet future energy demand, security of supply, and climate change concerns, according to a global survey released in May.
PricewaterhouseCoopers’ 2009 Utilities Global Survey, A World Beyond Recession, highlights the dilemmas of steering through the downturn, while remaining focused on the long-term.
The survey reveals that infrastructure investment needs remain high – the development of new generation capacity and the renewal of existing generation plant is a priority area for most companies. 83% of survey respondents say their companies are seeking to make medium to large investment in new generation and 79% are seeking to do likewise in transmission.
Worries about capital shortages are widespread, as the report highlights. There is considerable doubt on whether investment will come forward in a timely manner to keep pace with future demand for power and climate change targets.
Two thirds (67%) of survey respondents report that a shortage of capital is having a high or very high impact on their activities. Two thirds cite problems in securing finance as a medium or high barrier to project development.
The survey also highlights the extent to which the industry sees technological innovation as key to the future. In the coming decade, technological innovation is seen has having the most new impact on energy efficiency, solar power, combined heat and power, distributed generation and combustible renewable generation. Carbon capture and storage (CCS) will be essential for the sector’s long-term contribution to the mitigation of climate change.
Indeed, such is the current and future importance of technology, that power utility companies in the survey point to equipment and technology companies as a more significant competitive threat than even direct competition in the retail market by other utility company home market rivals.
“Technology will be key to competitive advantage in the coming decade. Despite the current downturn, companies seeking growth are setting their sights on a future low carbon, but high energy demand world. This will require bold strategic and investment moves,” explained Manfred Wiegand, global utilities leader, PricewaterhouseCoopers.
“Utility companies are understandably concerned about both the financial environment and governments’ commitment to future energy and climate change policy. The more constrained financial environment makes it even more important that governments reach an effective agreement at the December 2009 UN Climate Summit in Copenhagen to set a clear and certain framework for the development of cleaner power.”
“The development of CCS in coal burning plant will perhaps be the most critical single development in the power sector in the coming decade. Like renewables, that will require very strong economic incentives and price signals.”
As well as investment in CCS, the survey highlights some of the major moves that companies are making: moving upstream to secure gas supply and invest in liquefied natural gas (LNG) supply chains; horizontal expansion to increase presence in the renewable energy or nuclear power field; developing new technological capabilities to exploit new sources of power generation; exploring a more flexible mix of distributed energy supply and smart
Michael Hurley, energy and utilities advisory leader at PwC sees a future where the roles and footprints of power utility companies will shift substantially.
“Traditional boundaries and spheres of operations are being superseded by new, more far-reaching power utility company roles and footprints. Already, utility companies are looking at the potential to develop networks of plug-in electric car recharging points and to harness the potential of overnight charging to make use of underused off-peak generation capacity,” says Hurley.
“Carbon sequestration will require new alliances with utilities and oil companies in order to develop underground carbon storage. First mover or early mover advantage in developing commercial scale carbon capture technology at an acceptable cost will give crucial competitive advantage in the future,” he adds.
83% of respondents from utility companies in Europe, for example, report that their companies are evaluating CCS projects.