The utilities industry is facing its biggest challenge in modern times, mainly from regulatory dithering and security issues, according to the eighth annual PricewaterhouseCoopers report ‘The Big Leap: Utilities Global Survey 2006’.
The majority of the world’s leading utility company leaders rate the changes that the industry will have to undergo as little short of revolutionary, while two-thirds believe that the industry is facing its biggest challenge, according to PWC’s report. This sentiment is felt most strongly in Europe, which is grappling with conflicting challenges including supply and demand imbalances, infrastructure vulnerability and environmental concerns.
PWC interviewed 116 senior executives, from 98 utility and utility investor companies across 43 countries all round the world. The majority of participants were senio rvps and presidents, CEOs and other senior managers. This year, for the first time, the survey focused on the sector’s viewpoint about the changes needed to meet the challenges ahead. The report summarises the changes that are being made or need to be made in technology, investment, M&A, efficiency, cleaner fuels and customer relationships.
The report reveals that security of supply remains thr primary concern as it has over the last two years, particularly in Europe where twice as many utility leaders believe prospects for power cuts have increased rather than diminished compared to five years ago. Many within the industry believe the pace of change needs to be stepped up to face the challenges that lie ahead. For example, 42% said the sector is lagging behind in the development of renewable energy sources.
Regulatory uncertainty continues to affect investment in the sector and was cited as one of the top three concerns amongst the utilities companies polled. Meeting projected supply needs will require an investment of US$13 trillion by 2030 in power generation, transmission and distribution and gas-supply infrastructure yet 42% of respondents felt that government or regulatory policy restricted their ability to develop long-term plans.
The industry itself is believed to be ready to make ‘a big leap forward’ with nearly two thirds believing the industry needs to adopt a 10 year focus on reducing environmental damage, developing new technologies, improving customer service relationships and finding new fuel sources. However, many feel that policy-makers also have to make a leap. 80% of respondents believe political and regulatory factors are inhibiting the ability of the sector to respond to these challenges, and shock factors such as supply or environmental crises may need to occur to force change.
Manfred Wiegand (Global Utilities Leader, PricewaterhouseCoopers) commented:
“We can expect to see a future power and gas utilities sector that is radically different from now. On the ownership and sector structure front, we will see many fewer and much larger super-regional generation and distribution companies, greater fusion of upstream and downstream energy and a continued move of infrastructure entities into private investment fund ownership. On the customer front, we will have the prospect of much greater end-user involvement in both industrial-scale power projects and smaller and more medium-sized distributed power.”
Specifically, the report recorded M&A activity at record level, total deal value soaring to US$196bn in 2005 from US$123bn in 2004, an expectation that nuclear energy is ready to step up, nearly half of all respondents saying they expected nuclear capacity to increase in their region as a result of concerns about climate change, and an increasing expectation that technological innovation will deliver the necessary efficiencies to respond to future demand challenges and environmental concerns.