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Utilities are biggest operational concern, study

Difficulties arising from operating in more technically challenging physical environments is the number one risk on the minds of executives in the power and utilities sector, according to a new study

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Difficulties arising from operating in more technically challenging physical environments is the number one risk on the minds of executives in the power and utilities sector, according to a new Natural Resources Risk Index and top ten ranking released by Willis Towers Watson (NASDAQ: WLTW), the leading global advisory, broking and solutions company.

According to Willis Towers Watson’s Natural Resources Risk Index 2016, the top three risks affecting power and utilities companies are: operating in more technically challenging physical environments, currency and interest rate fluctuations creating uncertainty, and increased cyber security and data privacy risks. Natural disasters and epidemics, the difficulty attracting and retaining key talent and a general shortage of industry specific skills ranked fourth, fifth and six in the Index respectively.

The risk ranking is based on interviews with 87 C-suite executives across the power and utilities sector globally. The respondents were asked to rank 50 risks according to their impact and how difficult each one is to manage.

According to the research, power and utilities executives are also seriously concerned about their vulnerability to reclamation obligations (ranked #7), technology opening up the marketplace to disruptors (ranked #8), uncertainty over, and encroachment of, climate change and environmental policy (ranked #9) and increasingly complex asset portfolios (ranked #10).

Graham Knight, Head of Downstream Natural Resources, GB for Willis Towers Watson, commented: “Executives’ assessment of the greatest risks facing their businesses over the next decade centre on several common themes: commodity prices, trends in policymaking and regulation, and the global economy. But the biggest problem is uncertainty — not knowing what challenges the next day, let alone the next year, will bring.”

He continued: “In the power and utilities sector, many major companies have largely exhausted the opportunities of developed and OECD countries and are looking to new, fast-growing markets. But they face both logistical and technical challenges in doing business in frontier territories.”

“The difficulty attracting and retaining key talent was ranked as a serious concern by the power and utility executives that we spoke to,” added Knight. “Increasingly power and utility companies are competing with tech companies for the best engineering and project management talent.”
Willis Towers Watson’s research also highlighted how much executives are concerned about shifts in the way that today’s governments approach regulation. Knight added: “Traditional and conventional natural resources companies are not the only businesses to be affected by new regulations.

Alternative energy companies — wind, solar, and wave power — are also feeling the pinch in developed countries as cash strapped governments ease the generous incentive systems they put in place in the early 2000s for “clean” energy production.”

Despite these challenges, noted Willis Towers Watson’s report, the companies who are best at maintaining cost discipline, driving efficiencies and adapting to change will be positioned to grow market share and build competitive advantage.

“Anticipating and managing the key organisational and people risks in this rapidly evolving business environment — and taking considered risks that hold potential for reward — will be key to unlocking future potential,” according to Willis Towers Watson.

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