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North America Utility Industry 2009 Top 10 Predictions
North America Utility Industry 2009 Top 10 Predictions
North America Utility Industry 2009 Top 10 Predictions
North America Utility Industry 2009 Top 10 Predictions
North America Utility Industry 2009 Top 10 Predictions
North America Utility Industry 2009 Top 10 Predictions
North America Utility Industry 2009 Top 10 Predictions
North America Utility Industry 2009 Top 10 Predictions
North America Utility Industry 2009 Top 10 Predictions
North America Utility Industry 2009 Top 10 Predictions
North America Utility Industry 2009 Top 10 Predictions
North America Utility Industry 2009 Top 10 Predictions
North America Utility Industry 2009 Top 10 Predictions
North America Utility Industry 2009 Top 10 Predictions
North America Utility Industry 2009 Top 10 Predictions
North America Utility Industry 2009 Top 10 Predictions
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North America Utility Industry 2009 Top 10 Predictions

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These slides were presented during our annual top 10 predictions webcast on January 8, 2009

These slides were presented during our annual top 10 predictions webcast on January 8, 2009

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    • 1. North America Utility Industry 2009 Top 10 Predictions
    • 2. Why Predictions? <ul><li>Goal : Identify trends that impact business and technology decisions. Preview the Energy Insights research agenda. </li></ul><ul><li>Process: Drawn from IDC and Energy Insights studies, industry contacts, and our own industry experience. </li></ul><ul><li>Bias: We focus on the transformation of major industry business processes and how information and energy technologies enable that transformation. </li></ul><ul><li>Time Frame: Predictions are focused on 2009, but will have a long range impact </li></ul>
    • 3. <ul><li>Merchant segment hit hard </li></ul><ul><ul><li>Constellation stock plunged 60% in 3 days – 50% of nuclear business to be acquired by EDF, continuing liquidity concerns </li></ul></ul><ul><ul><li>Reliant reviewing strategic alternatives and exiting C&I retail business, being sued by Merrill Lynch </li></ul></ul><ul><li>Industry stocks following overall market downturn </li></ul><ul><li>Credit crunch slows capital spending and forces companies to conserve cash </li></ul><ul><ul><li>Fossil-fueled and nuclear generation projects will suffer the worst due to high risk profiles </li></ul></ul><ul><li>Energy consumption expected to be down on a weather normalized basis due to the recession </li></ul><ul><ul><li>Slower rate of increase for residential </li></ul></ul><ul><ul><li>Possible decrease for business </li></ul></ul><ul><li>Venture capital and private equity investment in “cleantech” expected to remain relatively healthy </li></ul><ul><ul><li>Slight decline overall in 2009 </li></ul></ul><ul><ul><li>Private equity to become more active </li></ul></ul>Source: SNL Energy, 2008 Business and Regulatory Environment Impact of the economic crisis
    • 4. Business and Regulatory Environment A wild ride for energy prices Source: U.S. Energy Information Administration, 2008
    • 5. Business and Regulatory Environment Big policy changes under the Obama administration <ul><li>Emergency Economic Stabilization Act of 2008 </li></ul><ul><ul><li>One-year extension of the production tax credit (PTC) for wind </li></ul></ul><ul><ul><li>Two-year extension of the PTC for other renewables </li></ul></ul><ul><ul><li>New PTC for marine and hydrokinetic </li></ul></ul><ul><ul><li>Eight-year extension of the 30% investment tax credit (ITC) for solar and fuel cells </li></ul></ul><ul><ul><li>New 30% ITC for small wind </li></ul></ul><ul><ul><li>Change in the depreciation rate for smart meters and smart grid technologies from the current 20-year period to a 10-year period </li></ul></ul><ul><li>Obama’s expected energy policies </li></ul><ul><ul><li>Mandatory carbon cap-and-trade program (80% reduction from 1990 levels by 2050) </li></ul></ul><ul><ul><li>National renewable portfolio standard (10% by 2012, 25% by 2025) </li></ul></ul><ul><ul><li>Economic stimulus package to focus on infrastructure programs including the intelligent grid </li></ul></ul><ul><ul><li>Strong support for energy efficiency (reduce demand 15% from DOE forecast by 2020) </li></ul></ul><ul><ul><li>1 million PHEVs on the road by 2015 (subject to the fate of the auto industry) </li></ul></ul><ul><ul><li>Stricter environmental regulation and enforcement </li></ul></ul>
    • 6. #1 – Energy efficiency will become the “first fuel” choice for electric utilities <ul><li>Drivers </li></ul><ul><li>Demand growth (30% by 2030) </li></ul><ul><li>Regulatory mandates and goals for energy efficiency (20 states with energy efficiency portfolio standards) </li></ul><ul><li>Desire to reduce CO 2 emissions </li></ul><ul><li>High cost and long lead times for building traditional generation (fossil, nuclear) </li></ul><ul><li>Inability to satisfy demand with renewables alone (cost, variability) </li></ul><ul><li>Predictions </li></ul><ul><li>Utilities will increase investments in energy efficiency programs, focusing on industrial motors, commercial lighting and cooling, IT equipment, residential air conditioning and consumer electronics </li></ul><ul><li>Utilities will increase investments in demand response programs, focusing on time and event-based rates, load control and 3 rd party aggregators </li></ul><ul><li>Utilities will increase investments in technologies that enable energy efficiency and demand response programs including intelligent grid components, smart metering, home area networks, in-home displays, smart thermostats and consumer web portals </li></ul><ul><li>The number of 3 rd -party energy management solutions, ranging from consumer products available at retail stores to offerings from broadband service providers will increase dramatically </li></ul>Source: EPRI, 2007
    • 7. #2 – Renewable energy growth will slow in 2009 but rebound in 2010 <ul><li>Drivers </li></ul><ul><li>Expanding renewable portfolio standards </li></ul><ul><li>Economic stimulus package (e.g., jobs creation) </li></ul><ul><li>Carbon cap-and-trade programs </li></ul><ul><li>Other policy initiatives (feed-in tariffs, tax credits) </li></ul><ul><li>Hedge value of renewable energy </li></ul><ul><li>High cost of credit </li></ul><ul><li>Predictions </li></ul><ul><li>High cost of credit will slow near-term growth of many RE markets (e.g., wind, solar, geothermal, biomass) but fundamentals of RE ensure rebound by 2010 </li></ul><ul><li>Decrease in VC/PE funding growth coupled with high cost of credit will increase the role of established energy companies </li></ul><ul><li>Reduced access to capital coupled with polysilicon market glut will significantly lower PV price points </li></ul><ul><li>Pace of RD&D for more experimental technologies such as wave and tidal energy will moderate </li></ul>
    • 8. #3 – Utilities will place greater emphasis on distributed energy as a grid support tool <ul><li>Predictions </li></ul><ul><li>Investor funding for utility scale energy storage – especially for automotive and grid-scale applications – will markedly increase: accelerating deployment of commercial stationary storage applications to ensue </li></ul><ul><li>Vehicle-to-grid (V2G) vision will be more hype than reality: infrastructure build-out will take decades not years </li></ul><ul><li>Utility programs will buoy distributed PV deployment and trigger economy-of-scale price reductions </li></ul><ul><li>Despite reduced fuel prices, market for backup generation will collapse due to capital constraints </li></ul><ul><li>Generator dispatch for demand response will stagnate as companies pursue low hanging alternatives such as load shifting provided by demand response aggregators </li></ul><ul><li>Slide in gas prices, CO 2 profile will spur greater combined heat and power (CHP) development </li></ul><ul><li>Drivers </li></ul><ul><li>Constrained grid pushing markets to on-site solutions for generation and storage </li></ul><ul><li>Advances in communications and control enabling distributed energy operation </li></ul><ul><li>Concerns and investments to enhance energy security and reliability </li></ul><ul><li>Climate change policymaking encouraging efficiency, including combined heat and power </li></ul>Source: American Electric Power
    • 9. #4 – Intelligent grid technology spending will reach $70 billion in 2013 <ul><li>Drivers </li></ul><ul><li>Need to enable energy efficiency and demand response programs </li></ul><ul><li>Integration of renewable and distributed energy resources </li></ul><ul><li>Reliability concerns and mandatory grid reliability standards </li></ul><ul><li>Smart metering mandates </li></ul><ul><li>Expected U.S. Federal government subsidies as part of an economic stimulus package </li></ul><ul><li>Predictions </li></ul><ul><li>Full-scale deployments to all or most customers in a service territory will be focused on smart metering in 2009 – broader intelligent grid deployments using technologies beyond smart metering (e.g., Xcel Energy Smart Grid City, AEP GRIDsmart) will be limited to pilot projects </li></ul><ul><li>Intelligent grid subsidies as part of an economic stimulus package will dramatically accelerate technology investment during 2010-2013 </li></ul><ul><li>The industry will face critical constraints imposed by workforce availability, manufacturing capacity and project complexity </li></ul>Field crews Analytics Distributed/ renewable generation Power line sensors Transformer sensors Substation automation Smart meters/ End-user devices
    • 10. #5 – Web portals will be the fastest way to enable active consumer energy management <ul><li>Predictions </li></ul><ul><li>Utilities will prioritize deployment of customer web portals that enable energy efficiency and demand response programs over other similar technology investments in 2009 due to lower costs and easier implementation </li></ul><ul><li>Web portals coupled with other technologies such as in-home displays and smart thermostats will become the norm in 2010-2013 </li></ul><ul><li>Web 2.0 capabilities like social networking, wikis and blogs won’t be included until after 2010 </li></ul><ul><li>Drivers </li></ul><ul><li>Need to enable energy efficiency and demand response programs </li></ul><ul><li>Consumer desire to reduce energy bills and have access to self-service options </li></ul><ul><li>Consumer concern with climate change and sustainability issues </li></ul><ul><li>Availability of interval data from smart metering deployments </li></ul>Source: Lixar SRS Source: Agilewaves
    • 11. #6 – Energy trading and risk management technology investment will stall <ul><li>Predictions </li></ul><ul><li>Utilities will look to vendors to provide analytics that will allow them to simulate the impact of risk events with low probability, but high impact. Expenditure will likely occur in finance, rather than trading, to support enterprise risk management. </li></ul><ul><li>ETRM investment will be down sharply, similar to post-Enron. Companies that don’t already have their credit risk capabilities and visibility to position, will focus what investment they do make on credit risk and intraday visibility to position. </li></ul><ul><li>Utilities that participate in wholesale markets will be faced with doing the basic block and tackle work just to be able to schedule and settle with the markets. The absence of a standard market design will keep highly customized software and services companies busy. </li></ul><ul><li>Drivers </li></ul><ul><li>Companies that benefited by taking long position when oil was low are suffering </li></ul><ul><li>Merchant generators moving away from risky commodity trading portfolios </li></ul><ul><li>With investment banks becoming commercial banks, trading is being orphaned out, temporarily reducing liquidity </li></ul><ul><li>New wholesale market design continues to dominate the attention of utilities just to do business </li></ul>
    • 12. #7 – Generators will be focused on managing and reducing carbon exposure <ul><li>Predictions </li></ul><ul><li>Generators will look to IT to provide analytics, such as complex simulations with cost of carbon, as one of the parameters to test changes to their portfolio of generation plants </li></ul><ul><li>Companies with fossil generation will use analytics to help increase the efficiency of plant operations in an effort to grab some emissions reductions- these companies will want more visibility into emissions performance from plant floor to generation management </li></ul><ul><li>No new nuclear plants in the next 4 years because of capital and water concerns but limited expansion of existing nuclear power plants - control system and enterprise asset management software vendors will benefit </li></ul><ul><li>Companies with “clean” generation (renewables, natural gas) will prepare for mandatory markets and look for ways to improve trading efficiency </li></ul><ul><li>Drivers </li></ul><ul><li>Stronger carbon emission regulation and enforcement under the Obama administration </li></ul><ul><li>The first U.S. mandatory regional carbon market coming into operation </li></ul><ul><li>34% of utilities in North America now participating in voluntary carbon markets </li></ul><ul><li>15 applications for 25 possible new U.S. reactors received by NRC, but tight credit makes investment difficult for capital intensive projects such as nuclear plants and new clean coal experiments </li></ul>
    • 13. #8 – Scarcity of clean water and availability of new technology will awaken the sleeping water market <ul><li>Drivers </li></ul><ul><li>Water consumption risk coming under scrutiny by financial investment community </li></ul><ul><li>Growing government, financial and public interest in sustainability issues </li></ul><ul><li>Pilot projects for smart metering and differentiated pricing </li></ul><ul><li>Early implementations of sensors and networks for watershed management </li></ul><ul><li>Tie between water and energy (energy to transport water, water to cool power plants) </li></ul><ul><li>Predictions </li></ul><ul><li>Increasing water rates will begin to provide a price signal that drives conservation initiatives and associated technology investments during the next 2-3 years </li></ul><ul><li>Initial technology deployments will mimic electric utility investments by focusing on smart meters, two-way communications networks and analytics </li></ul><ul><li>Outsourcing and build-operate-transfer (BOT) contracts will accelerate </li></ul><ul><li>Industry fragmentation will continue to be the biggest challenge </li></ul>
    • 14. #9 – Gas utilities will be hit harder than electric utilities by the economic crisis <ul><li>Drivers </li></ul><ul><li>Increasing domestic natural gas production </li></ul><ul><li>Slowdown in residential home construction – fewer new gas customers </li></ul><ul><li>Decreasing consumption per customer due to increasing appliance efficiency </li></ul><ul><li>Transportation segment momentum building for electric vehicles – little or no focus on compressed natural gas (CNG) </li></ul><ul><li>Predictions </li></ul><ul><li>Increasing supply and flat or decreasing demand will keep prices low – reducing segment revenues overall </li></ul><ul><li>Natural gas will gain market share as a fuel for power generation – but will not benefit local distribution companies (LDCs) </li></ul><ul><li>Gas utilities will become increasingly marginalized by electricity focused energy policies and competition from the electric segment </li></ul><ul><li>Any increases in IT spending will be driven primarily by regulatory compliance requirements such as the U.S. Dept. of Transportation distribution integrity management program (DIMP) </li></ul>
    • 15. #10 – U.S. utility industry IT spending growth will decrease to 1.9% in 2009 <ul><li>Predictions </li></ul><ul><li>U.S. utility industry IT spending growth will decrease to 1.9% in 2009, down from 5.9% </li></ul><ul><li>Utility CIOs will conserve cash by freezing or slowing down external spending until the credit markets recover (3-6 months) </li></ul><ul><li>Longer term (1-2 years), new IT spending will be used to support energy efficiency, demand response, renewable generation, intelligent grid and carbon management initiatives </li></ul><ul><li>Assumptions </li></ul><ul><li>Economic growth will track the IMF November 2008 forecast </li></ul><ul><li>Government bailout efforts will be at least partially successful </li></ul><ul><li>Credit will begin to loosen at the end of 2008 </li></ul><ul><li>Housing prices will hit bottom in the second half of 2009 </li></ul><ul><li>Oil prices will fluctuate in the $60-100 per barrel range </li></ul><ul><li>Stock market fluctuations will have little direct impact on IT spending </li></ul><ul><li>Inflation will remain under control </li></ul>CAGR 4.5% CAGR 2.7%
    • 16. Steering the Right Course in an Uncertain Environment <ul><li>Utilities </li></ul><ul><ul><li>Look for opportunities to cut O&M costs and free up money to support key business initiatives </li></ul></ul><ul><ul><ul><li>Energy efficiency and demand response </li></ul></ul></ul><ul><ul><ul><li>Renewable energy </li></ul></ul></ul><ul><ul><ul><li>Intelligent grid </li></ul></ul></ul><ul><ul><ul><li>Carbon management </li></ul></ul></ul><ul><ul><li>Be prepared to take immediate advantage of expected government subsidies and other investment incentives </li></ul></ul><ul><li>Technology vendors </li></ul><ul><ul><li>Adjust your go-to-market messaging for the altered business priorities of 2009 </li></ul></ul><ul><ul><li>Make the connection for customers - how your technology solutions will help them achieve their 2009 goals </li></ul></ul>

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