Blackouts on both sides of the Atlantic have propelled security of energy supply to become the top concern for utilities companies across the world. That is according to the sixth annual PricewaterhouseCoopers report 'Supply Essentials: Utilities Global Survey 2004', which presents the views of 148 leading companies across 47 countries throughout Europe, the Americas, Asia Pacific, Africa and the Middle East.
The report indicates that securing power supply has risen from the fourth concern only 12 months ago to the highest ranking issue of 2004.
This dramatic change in the global utilities landscape was a direct result of increasing difficulties in the balancing act of power generation, demand and transmission.
Demand is now outstripping supply, and world energy demand is expected to rise by two-thirds between 2003 and 2030. In the same period, global electricity sector investment needs are estimated US$10 trillion, three times higher than investment in the electricity sector during the past 30 years*.
There is also an increasing reliance on gas as a cleaner fuel source.
Manfred Wiegand, Global Utilities Leader, PricewaterhouseCoopers comments: "Security of supply is a global concern. If blackouts are not to become a regular feature of the future, major investment in the sector is required. Across the world we see ageing infrastructure, coupled with increasing demands, on generation and transmission capacity.
"A consistent and stable regulatory environment is required to make the sector more attractive to investors. Capital will only come with good rates of return."
While security of supply was identified as the highest concern globally, a variety of issues echo across the world. In Europe, 91% of respondents surveyed believe blackouts will continue to be a regular occurrence. In the US, vertical integration and a back to basics approach is back on the agenda, as 82% predict a modest 0% to 5% growth in the next 12 months.
In Asia, a small number of companies are investing outside their domestic markets, driven by constraints in their home markets due to high reserve margins and expanding electricity sector regulation.
In Africa, respondents believe that the New Partnership for Africa's Development (NEPAD) will encourage co-operation and the formation of a common power pool.
Stanley Subramoney, deputy CEO at PricewaterhouseCoopers South Africa, notes that the South African Black Economic Empowerment Charter is seen as a key driver in restructuring, privatisation and a mixed model ownership of the South African utility industry. Further, "There are concerns over security of supply as the demand for electricity generation is expected to exceed supply by 2007. Coal remains South Africa's dominant primary energy source, so with imminent laws on emissions, investment in renewable energy is essential - currently largely untapped in the region. Attracting investment in the region remains a key challenge."
The PricewaterhouseCoopers 'Supply Essentials' report identifies utility leaders' top global concerns and issues driving the market
Market seeks confirmation on regulation: Companies predict increasing regulation and obligation as a likely aspect of the power market over the next five years. Many regions across the globe are experiencing a slow reform environment and the market is calling for clarity.
Emissions Trading proves a challenge
Companies are struggling to deliver well developed climate change strategies that encompass emissions reductions and trading. The introduction of the EU Emissions Trading Scheme is proving challenging for utility companies, with 43% of global respondents having a fully or partially operational strategy for climate change and a considerable 26% having no strategy at all despite a deadline of 1 January 2005.
Utilities seek a route to competitive differentiation
Customer service and price were identified as the leading differentiators in an increasingly competitive market, with brand awareness in third place.
Industry sees slowdown in M&A
Caution became the over-riding sentiment towards M&A. Merger and acquisition activity was identified as being driven by the need increase scale and enlarge the customer base by acquiring new customers. There is a strong focus on investment in neighbouring markets.
Energy Trading takes a pivotal role
Energy trading now plays an important role in the business of utility companies globally and hedging price risk for own generation and retail remains the dominant strategy. In an environment of extreme price volatility, trading and risk management have become an integral part of the business model.
For more information contact Stanley Subramoney, PricewaterhouseCoopers South Africa, 011 797 4000, [email protected]
* According to a recent report from the International Energy Agency 'World Energy Investment Outlook 2003'
The results of the regional survey for Europe, the Americas (US, Canada, Latin America), Asia-Pacific (Australasia, Asia, including China and India), and Africa and the Middle East can be found in attachment 1. Methodology: 'Supply Essentials: Utilities Global Survey 2004' includes data from The PricewaterhouseCoopers survey of 178 utility leaders in Europe, the Americas, Asia Pacific, Africa and the Middle East. The analysis is based on research conducted between December 2003 and April 2004.
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