European Energy ChallengesColette Lewiner, CapgeminiBarcelona ConferenceMarch 28th, 2012                             | Ene...
An overview of the European energy markets Recent events are impacting the energy markets Electricity and gas security o...
The rising political tensions in Iran are particularly worrying                                                           ...
Oil prices in European currencies are at their highest Oil prices forecasts uncertainty is increased by                  ...
Gas is not a global market.                                                                         Very different regiona...
Post-Fukushima nuclear reactors’ market: new builds mainly                                                  in Asia, Russi...
An overview of the European energy markets Recent events are impacting the energy markets Electricity and gas security o...
Electrical peak loads are increasing year-on-year threatening                                                             ...
France recorded a new peak load on February 8, 2012 due to                                                       the cold ...
Several countries recorded also gas consumption peaks in                                                           Februar...
When will European electricity and gas markets be perfectly                                                             fl...
Electricity price convergence has progressed significantly.                                            Gas price convergen...
An overview of the European energy markets Recent events are impacting the energy markets Electricity and gas security o...
The Fukushima accident has triggered a debate on the                                                         present and f...
Renewable energies have continued their development As of May 2011, 10% of the European                                  ...
Extensive analysis have been carried out on the nuclear                                                        generation ...
Status on the 2020 EU objectives After the 2009 drop (-7.1%), GHG emissions                                              ...
An overview of the European energy markets Recent events are impacting the energy markets Electricity and gas security o...
Infrastructure investments needs are very large  Investment needs increases result                                       ...
Many negative impacts on Utilities performances                                                                           ...
Regulations changes are needed                                                               UK solution to face future in...
An overview of the European energy markets Recent events are impacting the energy markets Electricity and gas security o...
To increase profitability, Utilities companies have to improve                                                     their r...
More synergies have to be implemented                                           August 27, 2009                      Novem...
Utilities need to manage their assets portfolio                                                                           ...
Smart meters are the first steps for smart grids                                               Electricity and gas smart m...
European Energy Challenges
European Energy Challenges
European Energy Challenges
European Energy Challenges
European Energy Challenges
European Energy Challenges
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European Energy Challenges

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Conference – Barcelona, March 28 2012:

A view of the European energy markets (Middle East events, Fukushima accident and economic downturn are impacting the energy markets in terms of security of supply and energy mix). Plus
a focus on Utilities’ situation and challenges

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European Energy Challenges

  1. 1. European Energy ChallengesColette Lewiner, CapgeminiBarcelona ConferenceMarch 28th, 2012 | Energy, Utilities & Chemicals Global Sector
  2. 2. An overview of the European energy markets Recent events are impacting the energy markets Electricity and gas security of supply remain issues Mid-term changes to be expected in: • Energy mix • Sustainability objectives European Utilities companies are under pressure: • More energy-related investments are needed • While electricity and gas prices are low and demand growth is limited • Regulation changes are needed How to be a winner? • Increase competitiveness • Develop synergies • Manage the assets portfolio • Become more innovative Conclusion | Energy, Utilities & Chemicals Global Sector 2
  3. 3. The rising political tensions in Iran are particularly worrying for global oil supply Italy After China, the EU is the largest importer of Iranian Iran’s oil exports (Jan to June 2011) oil (about 20%) % of each 13% country’s total 7% In response to the Iran’s nuclear program negotiations oil imports Others Other EU Jan to June 2011 Spain failure, the US and Europe decided sanctions against 12% 5% Iran, who, in return, threatened to close the Strait of China 6% 13% Hormuz: • Strengthening of the US military presence in the Gulf 11% Total Japan • Oil embargo from the EU (due to start in July) which should Iranian oil hit 450,000 to 550,000 barrels a day of Iranian oil exports South Africa 22% exports 14% 10% But Iran banned crude oil supply to France, the UK and 2.3 m the EU right away 25% bl/d In addition, Japan, South Korea, Taiwan and India could Source: Financial Times India reduce their purchases (up to 250,000 bl/d). In total, Turkey 13% between 25% and 35% of Iran’s oil exports could be 4% 11% impacted 51% 7% 10% South Korea Average daily oil flow 10% through the Strait of Hormuz (2011) 14 crude oil tankers Primary factors driving demand are Almost 17 million barrels Source: Financial Times economic growth and increased 35% 20% requirements in the developing world Iran political situations may place global of all seaborne of oil traded production and transportation at risk traded oil worldwide | Energy, Utilities & Chemicals Global Sector 3
  4. 4. Oil prices in European currencies are at their highest Oil prices forecasts uncertainty is increased by  In Euros, the crude oil spot price is at its highest speculation: each barrel traded on the physical  There is currently a $20 spread between WTI and market is traded 35 times on the financial markets Brent, a the consequence of a localized logistic There is some consumption/price elasticity phenomenon at Cushing, Oklahoma, where WTI is High present oil prices are linked to tensions in priced Middle East and Iran Oil prices Crude oil spot – Brent in US dollars and in Euros Crude oil spot – Brent vs. WTI 130 120 Brent 110 100 WTI 90 80 70 March 2011 July 2011 Nov 2011 Feb 2012Source: Focus Gaz, February 17, 2012 Source: Ycharts Source: France inflation High oil prices impact economic growth (EU’s oil import costs up 44% in 2011 compared to 2010) and trade exchanges balance | Energy, Utilities & Chemicals Global Sector 4
  5. 5. Gas is not a global market. Very different regional pricing systems Gas spot prices Gas prices evolution 50 100 In €/MWh ($4.4/MBtu=€10.6 /MWh) DE - Import price NL - TTF BE - Zeebrugge UK - NBP 40 DE - NCG FR - PEG Nord 80 Long-term contracts price Brent month ahead Spot priceGas prices [€/MWh] 30 60 Brent price [€/bl] 20 40 10 20 0 0 Europe versus US gas pricesSource: Gas Exchanges web sites, SG Commodities Research, BMWI – Capgemini analysis, EEMO13  US spot prices could go up on the mid-term triggered by the new EPA (Environment Protection Agency) regulation on air pollution (Cross State Air Pollution Rule) that could lead to 20% of US coal-fired plants phase-out and their replacement by gas  Beginning of 2012, Gazprom has agreed to reduce by 10% the price of its long-term contracts to Europe US spot gas prices are only one third of long-term European gas prices. For how long? Source: Focus Gaz January 2012 | Energy, Utilities & Chemicals Global Sector 5
  6. 6. Post-Fukushima nuclear reactors’ market: new builds mainly in Asia, Russia and Middle East Worldwide, 434 reactors are in operation, 61 under construction and 495 planned or proposed (February 2012, World Nuclear Association) Overview of existing nuclear plants and project capacities (as of February 2012) The final number of planned or proposed 0 50,000 100,000 150,000 200,000 250,000 reactors is difficult to assess. However, two China MWe points are clear: USA Russia • Provided reactors are run safely, the India consequences of the Fukushima accident Japan France should be less important than viewed just after South Korea the accident United Kingdom Ukraine • The proportion of new, safer “Generation 3 Canada reactor” builds will increase UAE Operable Saudi Arabia It is worthwhile mentioning that: Germany Under construction Planned • TVA in the US has decided to complete South Africa Vietnam Proposed Bellefonte 1 reactor, that the Nuclear Regulatory Turkey Commission has certified the design of Sweden Westinghouse Electric Co.s AP1000 reactor Spain Finland and that Southern Company is building 2 new Czech Republic nuclear plants in Vogtle, Georgia Brazil Switzerland • Finland announced a new build, the first Source: World Nuclear Association announcement of a new site anywhere in the world since the Fukushima accident The vast majority of new constructions and existing • Russian Rosenergoatom has received a license plants in operation should continue with some delays for building the Kaliningrad plant and more safety focus. • No.1 nuclear unit in Zhejiang Sanmen (China) The IEA* forecasts that nuclear output will rise by has restarted the infrastructure construction more than 70% over the period to 2035 project *IEA: International Energy Agency, World Energy Outlook 2011 | Energy, Utilities & Chemicals Global Sector 6
  7. 7. An overview of the European energy markets Recent events are impacting the energy markets Electricity and gas security of supply remain issues Mid-term changes to be expected in: • Energy mix • Sustainability objectives European Utilities companies are under pressure: • More energy-related investments are needed • While electricity and gas prices are low and demand growth is limited • Regulation changes are needed How to be a winner? • Increase competitiveness • Develop synergies • Manage the assets portfolio • Become more innovative Conclusion | Energy, Utilities & Chemicals Global Sector 7
  8. 8. Electrical peak loads are increasing year-on-year threatening security of supply 160,000 9.1% Peak load, generation capacity and electricity mix (2010) & 140,000 Peak load 2012: Total installed capacity for Europe in 2010: 882,712 MW 101,700 MW (+3.7% compared to 2009) 3.6% & 120,000Total generation capacity and peak load [MW] 2.1% CO2 emitting generation capacity 4.7% & 3.9% Non-CO2 emitting generation capacity 100,000 & & Peak load 2010 Total generation capacity evolution 2010 vs. 2009 (notified if below or above +/-3%: +3.4%) Peak load evolution 2010 vs. 2009 (notified if below or above +/-3%: +3.4%) 9.5% Source: ENTSO-E – Capgemini analysis, EEMO13 & 1.5% 80,000 & 2.6% 8.8% & 60,000 & 0.1% Peak load 2012: & 25,844 MW -0.1% 40,000 2.2% ( 0.1% & 6.2% & 0.1% 3.2% 9.3% & & 1.6% & & 1.0% 5.8% 0.3% 9.3% 6.8% & -1.4% 3.6% & 6.6% 20,000 & &1.7% & ( & & 0.2% 10.3% -0.6% 4.8% 0.1% & & 1.1% 2.0% 2.6% & &0.3% &1.1% 2.1% 10.2% 9.3% ( & & & 1.0% & 1.1% 4.1% & & & & &5.1%-23.6% 7.9% 1.8% 3.0% & & & -0.4% -1.3% 1.9% 4.9% 1.5% 6.8% & ( & & & ( ( & & & 0 DE FR IT ES UK SE PL NO NL AT BE CH FI CZ PT RO DK GR BG HU IE SK LT SI LV EE LU Nine countries registered an all-time high peak loads in 2010 due to cold temperatures. During the cold wave early 2012, France and Poland recorded all time record electricity demands and Germany has activated its reserve coal power plants | Energy, Utilities & Chemicals Global Sector 8
  9. 9. France recorded a new peak load on February 8, 2012 due to the cold spell Generation mix on February 8, 2012 at 19:00 The French peak load reached 101,700 MW at 19:00 Gas • Nuclear plants’ availability largely contributed: 59,165 MW (55 reactors Oil-fired + Coal out of the 58 were in operation) 3% peak 5% • France imported 7,845 MW from all its neighboring countries (max 9,000 MW) capacities • On EPEX Spot, day-ahead electricity prices jumped to €1,938/MWh 5% • RTE activated it EcoWatt demand response program in Brittany and PACA Imports Nuclear regions which resulted in a consumption reduction of respectively 2% and 3% 8% 58% • EnergyPool curtailed 20 MW of industrial consumption which have been used for Brittany region In 2011, net new generation capacities have been added: Others Hydro • 850 MW of CCGT 6% 13% • 1,250 MW of renewable energies Wind • 450 MW of fossil-fired plant have been decommissioned Source: RTE 2% But tariff-related demand response capacities have decreased from 6,000 MW in 2004 to 3,000 MW in 2011 A holistic approach to manage the peak load needs to be implemented. It should encompass: • Generation capacities • Demand response: tariffs or other types of demand response programs • Incentives to build peak generation capacities • Grids reinforcement • Incentives for energy savings | Energy, Utilities & Chemicals Global Sector 9
  10. 10. Several countries recorded also gas consumption peaks in February 2012 Gas supply for selected European countries (2010) CZ PL ES FR UK During the first week of February, temperatures Domestic production dropped in average to Russia -20°C, both in Europe and CZ PL ES FR UK Norway in Russia. Gas demand 9.3 bcm 14.3 bcm 34.5 bcm 46.8 bcm 94 bcm Algeria LNG jumped by 20% in Other Europe Source: BP statistical report 2011 – Capgemini analysis Gas consumption peaked in several EU countries: • UK: 4,428 GWh, NBP gas spot price skyrocketed at 69.175 p/th, a level not reached since November 2008 Map of gas reverse flows • FR: 3,662 GWh on February 8 Increase of the transmission • IT: 4,711 GWh on February 7 capacity through the Czech Republic from the CZ-DE Construction of PL-CZ Due to very cold weather in Russia, Gazprom reduced its exportations border towards CZ-SK border interconnection to EU (82 mcm instead of the 108.9 mcm requested). PL, SK, AT, HU, (Cieszyn) with 0.5 bcm Upgrading of the Überackern PL reverse flow BG, RO, GR and IT were the most impacted countries: Export Facility to allow for DE reverse flow from Germany Increase in delivery and • IT (via the AT border): -10% construction of two pipelines Upgrading of the Baumgarten to interconnect the stations • Yamal-Europe pipeline supplying DE and PL: -10% gas hub to allow transport of CZ SK of the existing gas storage gas from Germany to countries facilities with the Central • AT and SK: -30% adjacent to Austria AT Station Gajary-Baden HU Gas and electricity consumption peaks are simultaneous, SI RO IT exacerbating the gas peak Reverse flows projects BG to be implemented as Even if gas consumption peak is mitigated by gas defined in 2009 after the Russia/Ukraine gas storage, the whole system has to adapt to this dispute GR tense situation. Pipeline and storage need to Projects completed as increase operational intra-day and inter-days of mid 2011 Source: GIE, various sources – Capgemini analysis | Energy, Utilities & Chemicals Global Sector 10
  11. 11. When will European electricity and gas markets be perfectly fluid? CWE* Price coupling Despite remaining physical AT Price coupled to bottlenecks in electricity, DE (no congestion) European power market coupling (current and future situation) TSOs and Power UK Price coupled to NL via BritNed Exchanges common Nordics Price coupling actions have improved + EE electricity prices ITVC Volume coupling convergence: CWE – Nordics • Trilateral market coupling IT-SI Price coupling (TLC) from November 2006 Mibel Price coupling +NordPool between France, Belgium, CZ-SK Price coupling (end 2012) and the Netherlands • Coreso (Regional Coordination Service Centre +UK operational since February 2009 on the CWE* area) +DE bordering • CWE* market coupling and CWE countries ITVC** since November 2010 (end 2013) Gas market integration is slower but should progress End +MIBEL 2014 Trading is becoming a European business offering synergies Source: ENTSO-E, EUROPEX, Energies 2050 opportunities *CWE: Central Western Europe; **ITVC: Interim Tight Volume Coupling | Energy, Utilities & Chemicals Global Sector 11
  12. 12. Electricity price convergence has progressed significantly. Gas price convergence is already a reality On the CWE* area, before market coupling, day-ahead 80 Electricity spot prices (2011) hourly prices in 2010 were identical between France 70 and Germany 0.2% of the time 60 Source: Power Exchanges web sites, SG Commodities Research – Capgemini analysis, EEMO13 After market coupling, a 66% price convergence was 50 observed over all CWE* countries in 2011 Price [€/MWh] 40 Gas spot price differentials between UK NBP (the 30 major gas hub in Europe, representing over 80% of all BE - BELPEX EU gas traded) and the other European gas hubs 20 DE - EPEX ranged from €1.1 to €1.4/MWh in 2011 while long-term 10 FR - EPEX NL - APX prices are very different 0 In Italy, the gas spot price is about 27% higher than the NBP price, due to a low demand and a well- supplied market in the UK and a tighter Italian market 50 Gas spot prices (Jan 2010 to Sept 2011) In addition to electricity day-ahead NL - TTF BE - Zeebrugge 40 market coupling, intra-day market UK - NBP coupling should decrease real time Gas prices [€/MWh] 30 DE - NCG FR - PEG Nord imbalances and lead to better intermittent generation management 20 As for gas, there is still room for 10 improvements in market connections and cross-border trading 0 *CWE: Central Western Europe | Energy, Utilities & Chemicals Global Sector 12
  13. 13. An overview of the European energy markets Recent events are impacting the energy markets Electricity and gas security of supply remain issues Mid-term changes to be expected in: • Energy mix • Sustainability objectives European Utilities companies are under pressure: • More energy-related investment are needed • While electricity and gas prices are low and demand growth is limited • Regulation changes are needed How to be a winner? • Increase competitiveness • Develop synergies • Manage the assets portfolio • Become more innovative Conclusion | Energy, Utilities & Chemicals Global Sector 13
  14. 14. The Fukushima accident has triggered a debate on the present and future energy mix 2010 and 2025 electricity mix (as of June 2011) Energy mix should evolve towards 100% more gas, renewables and coal (in certain countries) 90% The main cause for gas progression 80% is power plants’ consumption In the new IEA GAS* scenario, gas 70% Solar + Biomass share of primary energy consumption Wind 60% reaches 25% in 2035 at a global Hydro Other f ossil level (more than coal, slightly less than Gas 50% oil) but leads to a +3.5°C global Lignite + Coal temperature increase (compared to Nuclear 40% the +2°C objective) 2010 mix: lef t- hand side bar 30% The IEA** has examined a Low 2025 mix: right- hand side bar Nuclear Scenario (no new nuclear 20% plant is built in OECD countries, non- OECD countries build only half of the 10% projected nuclear plants and the operating lifespan of existing nuclear 0% BE BG CH CZ DE ES FI FR UK HU IT LT NL PL RO SE SI SK plants is limited to 45 years) which Source: ENTSO-E – Capgemini analysis and estimations, EEMO13 consequences would be to: • Put additional upward pressure on energy prices The energy mix evolution could result in: • Raise additional concerns about energy security • Higher costs (renewables development) • Make it harder and more expensive to combat climate change • Higher temperature increase (more fossil fuels) *GAS: Golden Age of Gas, International Energy Agency • Lower energy independency **World Energy Outlook 2011, IEA | Energy, Utilities & Chemicals Global Sector 14
  15. 15. Renewable energies have continued their development As of May 2011, 10% of the European Growth rate of renewable energy sources generation plants under construction Source: Eur’Observer barometers – Capgemini analysis, EEMO13 110% 2008 Solar PV Top 3 countries ranked by: are from renewable energy sources 100% Capacity Growth (abs.) Growth (%) Capacity installed* Growth** (absolute) (vs. 7% in 2009) DE DE SK 1. DE 1. SK In 2010, wind power provided the 90% 2005 IT CZ FR 2. ES 2. FR CZ FR SI largest output (147 TWh) but had a 3. IT 3. SI declining growth due to onshore 80% 2010 * Volume for wind, small hydro, geothermal and solar PV in MW and for biogas and biomass in TWh favorable sites saturation and local ** Relative growth additionally displayed for solar PV and 70% wind negative reactions Many governments have or are launching Growth (%) 60% 2007 2009 large offshore wind programs • September 2010: 300 MW offshore wind 50% 2006 farm inaugurated in the UK 40% Wind • In July 2011, France launched a tender Capacity Growth (abs.) Growth (%) for 3,000 MW DE ES RO 30% • North Sea: 400 MW (Germany) and 325 ES DE BG IT FR PL MW (Belgium) under construction 20% 2005 2006 2008 2009 • Nuclear phase out in Germany should 2007 2010 boost wind power but creates issues 10% 2009 + Biomass DE PL on the grid FI SE 0% Despite the solar PV growth in 2010 0 10 20 30 40 50 60 70 SE 80 NL 90 100 110 120 130 140 150 (+80%), several solar companies went Electricity production (TWh) bust because of China competition In 2011, renewable energy investment A stable governmental policy is key for renewables rose 5% to US$260 billion* globally development as they still need governmental subsidies. The (solar energy: +36%) eurozone sovereign debt issues should lead to a decrease of *Bloomberg New Energy Finance those subsidies and impact renewables development | Energy, Utilities & Chemicals Global Sector 15
  16. 16. Extensive analysis have been carried out on the nuclear generation costs and energy mix scenarios in France €/MWh Nuclear generation costs in France 80 75 A working group, Energies 2050, set up by the Decommissioning Radioactive waste 70 management French Minister of Industry, Energy and the Digital Lifetime 60 extension 0.5 Economy examined four energy scenarios: 2011-25 2.5 4.95 1. Lifespan extension of existing reactors 50 55 43 2. Quicker adoption of 3rd generation nuclear reactors 40 3. Progressive reduction of nuclear energy in the mix 35 30 57.5 4. a. Nuclear phase out (more fossil fuel energy) 49.5 49.5 54.45 56.95 4. b. Nuclear phase out (more RES) 20 39 42 The final price to end-customers is a combination of: 10 • Energy generation: 40% 0 Champsaur ARENH 2010 Full cost Historical New • Transportation and distribution: 33% nuclear nuclear • Taxes: 27% French Court of Auditors 2030 2030 Energies 2050 Source: Les coûts de la filière nucléaire, January 2012 and Energies 2050, February 2012 – Capgemini analysis Assumptions on electricity generation costs by 2030 (€/MWh w/o taxes) 1 Lifespan extension of existing nuclear reactors2 Quicker adoption of 3rd generation nuclear reactors Energies 2050 commission 3 Progressive reduction of nuclear energy in the mix recommends extending nuclear 4a Nuclear phase out (more fossil fuel energy) reactors lifespan 4b Nuclear phase out (more RES)Source: Energies 2050, February 2012 – Capgemini analysis 50 60 70 80 90 100 110 | Energy, Utilities & Chemicals Global Sector 16
  17. 17. Status on the 2020 EU objectives After the 2009 drop (-7.1%), GHG emissions 110 EU-27 GHG emissions Source: BP statistical report 2011, European Environment Agency, Eur’Observer – Capgemini analysis, EEMO13 increased by 2.4% due to the 2010 economic Historical evolution of GHG emissions EU-27 GHG emissions [base year=100] 105 Path to reach 2020 target recovery. For 2011, a slight ETS sector CO2 2020 target f or EU-27 emissions increase (+2.6%*) is projected 100 An economic slowdown would push CO2 95 emissions down In its March 2011 Energy Efficiency plan, the 90 EU estimated that with current measures only 85 half of the objective would be attained and -20% developed a new draft Directive focusing on: 80 1990 1995 2000 2005 2010 2015 2020 • Triggering better energy efficiency of public 1,850 EU-27 primary energy consumption buildings EU-27 Primary energy consumption [Mtoe] 1,800 • Demand response programs through smart meters roll out 1,750 • White Certificates mechanisms extension 1,700 • Better usage of cogeneration 1,650 -9% • In 2013, the EU will re-assess the situation 1,600 Utilities need to develop end-to-end 1,550 Historical evolution of primary energy consumption Path to reach 2020 target 2020 target f or EU-27 energy services helping curbing energy Projection with current measures in place (as per the March 2011 EU Energy Ef f iciency Plan) demand 1,500 -20% 1,450 *Deutsche Bank Forecast 1990 1995 2000 2005 2010 2015 2020 | Energy, Utilities & Chemicals Global Sector 17
  18. 18. An overview of the European energy markets Recent events are impacting the energy markets Electricity and gas security of supply remain issues Mid-term changes to be expected in: • Energy mix • Sustainability objectives European Utilities companies are under pressure: • More energy-related investment are needed • While electricity and gas prices are low and demand growth is limited • Regulation changes are needed How to be a winner? • Increase competitiveness • Develop synergies • Manage the assets portfolio • Become more innovative Conclusion | Energy, Utilities & Chemicals Global Sector 18
  19. 19. Infrastructure investments needs are very large  Investment needs increases result Total investment needs in the electricity and gas sector from: between 2010-20: over 1 trillion €* • Generation plants’ construction to replace old plants, nuclear reactors phase-out and to accommodate the electricity consumption Power generation: ~ 500 bn Transmission and distribution: ~ 600 bn increase • Electricity and gas grids reinforcement to improve security of supply, accommodate RES: ~ 310 – 370 bn Distribution: ~ 400 bn decentralized and renewable generation and transform present grids to smarter ones 25% Utilities CAPEX to revenues ratio Transmission: ~ 200 bn is decreasing Out of which ~100 bn gap (not covered by market 20% under existing regulatory Electricity: ~ 140 bn (interconnectors: 70, offshore conditions) grid: 30; smart grid installations 15% in transmission: 40) On October 19, 2011, the EU has adopted a plan to boost European Gas: ~ 70 bn 10% networks (to be effective by 2014). (import pipes, interconnectors, €9.1 billion to be invested in trans- reverse flows, storages, LNG) European energy infrastructure 5% Source: European Commission 0% This estimation does not include 1990 1995 2000 2005 2010 • €250 billion** German investments linked to nuclear phase-outSource: SG Global Research, company data – Capgemini analysis, EEMO13 + €16.4 billion*** (linked to the immediate nuclear phase out) * EU estimation before Fukushima accident • Other investment needs linked to Fukushima accident **Estimation by KfW, the German state-owned investment bank consequences *** Estimation from EWI, GWS and Prognos | Energy, Utilities & Chemicals Global Sector 19
  20. 20. Many negative impacts on Utilities performances 400 Utilities debts’ evolution 350 Rising commodities prices 300 Debts (in billion euros) • Brent crude forecasted at $117/bl in 2012 and $123/bl in 2014* 250 • Gas price at TTF** forecasted at €24.5/MWh in 2012 and €36.4/MWh in 2014* 200 Electricity and gas prices control in many geographies 150 Utilities’ cost cutting programs have delivered some results: 100 • E.ON reduced its debts by €2 billion in 2011 50 • EDF reduced its debts by €1.1 billion in 2011 • Enel reduced its debts by €295 million in 2011 0 2004 2005 2006 2007 2008 2009 2010 2011e Rising taxes: Source: SG Global Research, company data – Capgemini analysis, EEMO13 • Concerns on rising taxes due to the Eurozone’s difficulties EU electricity and gas consumption • Nuclear taxes in Germany (despite the phase out) and in Belgium (€550 million (non-weather-adjusted) in 2012 which government plans to extend in 2013) -6.1% +7.0% -8-9% • Increasing taxes to support the development of renewables 5,336 5,010 5,363 4,880 Economic recession impacting Utilities client’s consumption +4.1% -2.7% -4.7% Concerns over smaller Utilities’ ability to get financing during the 3,265 3,294 3,136 3,177 crisis 2011 Utilities performance was good with most companies having met or exceeded estimates. 2012 outlook is blurred due to demand and pricing expected to remain weak, together with significant Electricity Gas CAPEX requirements 2008 2009 2010 2011 * Estimation Deutsche Bank, January 2012; **TTF: Title Transfer Facility, the Dutch gas hub Source: ENTSO-E, BP – Capgemini analysis, EEMO13 | Energy, Utilities & Chemicals Global Sector 20
  21. 21. Regulations changes are needed UK solution to face future investments Main Challenges: • Over the next 10 years, a quarter of the UK’s generating capacity is shutting down and • More than £110 billion in investment is needed to :  Build the equivalent of 20 large power stations  Upgrade the grid. • By 2050, electricity demand is set to double, as more transport and heating is shifted onto the electricity grid. White Paper “Planning our electricity future” sets out measures to: • Attract investment, • Reduce the impact on consumer bills, • Create a secure mix of electricity sources including gas, new nuclear, renewables, and Carbon Capture and Storage. Key elements of the reform package include: • A Carbon Price Floor (announced in Budget 2011) • New long-term contracts to provide stable financial incentives to invest in all forms of low-carbon electricity generation • An Emissions Performance Standard (EPS) set at 450g CO2/kWh so that no new coal-fired power stations are built without CCS • A Capacity Mechanism, including demand response as well as generation rewarding mechanism Other Member States, governments and regulators should thinkSource: National Grid of launching similar bold actions | Energy, Utilities & Chemicals Global Sector 21
  22. 22. An overview of the European energy markets Recent events are impacting the energy markets Electricity and gas security of supply is an issue Mid-term changes to be expected in: • Energy mix • Sustainability objectives European Utilities companies are under pressure: • More energy-related investment are needed • While electricity and gas prices are low and demand growth is limited • Regulation changes are needed How to be a winner? • Increase competitiveness • Develop synergies • Manage asset portfolio • Become more innovative Conclusion | Energy, Utilities & Chemicals Global Sector 22
  23. 23. To increase profitability, Utilities companies have to improve their retail business competitiveness European energy retailers are often facing negative margins on the B2C segment (1/3 Cost toServe (CtS) per contract (2010) of the participants*) 70 Cost to Serve per contract, PPP and labor costs corrected Retailers operating in a competitive environment for a few years have a higher 60 Cost to Serve (CtS) due to: 50 • The necessary adaptation of their loyalty, marketing and sales strategies, impacting their (€ per contract) processes and channels management 40 • Higher bad debts (three times higher compared Average: €27/contract 30 to other participants) due to insolvent customers taking advantage of the market opening to switch supplier and avoid disconnection 20 Quality of service impacts costs, customer 10 satisfaction and channels used by customers Channels are operated at different costs. 0 The cheapest channels are web and call Non-competitive market Competitive market since < 10 years Competitive market since > 10 years centers. And a proper multi-channel Large size companies (>800,000 clients) strategy should be implemented Source: Capgemini Multi-client retail B2C benchmark 2011 A complete performance improvement is possible when taking a broad view embracing: • Customer satisfaction improvement leading to a higher customer lifetime value • End-to-end process efficiency: marketing, acquisition digital meter-to-cash and energy services * Multi-client retail benchmarking study 2011, 38 participants in 17 countries | Energy, Utilities & Chemicals Global Sector 23
  24. 24. More synergies have to be implemented August 27, 2009 November 8, 2009 Electricity/Gas synergies to be developed • Securing electricity grid management despite renewables generation volatility • Improving electricity peaks management • Gas/electricity combined commercial offerings for wholesale and retail markets Large European clients commercial management Gas and other goods purchases synergies Operational and management best practices sharing In the absence of competitive electricity storage solutions, gas storage and CCGT rapid ramp up helps managing the renewable output volatility on the grid | Energy, Utilities & Chemicals Global Sector 24
  25. 25. Utilities need to manage their assets portfolio EDF’s investments in new capacities (in € billion) Geographical refocus 2010 2011 Perspective for 2015 • Development outside Europe  EDF aiming to increase its generation capacity outside of France by 50% France Other  E.ON targeting 25% of its EBITDA from foreign operations by 2015 activities 3.9 3.4 ~5.8 • Scaling-down to a limited number of countries  Vattenfall sold two Polish subsidiaries to refocus on Sweden, Germany and Other UK the Netherlands international Source: EDF Targeted renewable generation capacities increase • Acquisitions favored by a cheap valuation environment E.ON’s transformation strategy  The purchase of EDF Energies Nouvelles and Iberdrola Renovables by respectively EDF and Iberdrola • Targeted expansion in renewables  In its “Cleaner and Better energy” strategy, E.ON plans to further develop renewables ($7 billion investments in the next five years, of which just over €2 billion in new offshore wind farms in Germany, the UK and Sweden)  Enel aims at strengthening its growth in renewables in Latin America, Russia and Eastern Europe Securitization of gas supplies through backward integration • Acquisition of gas production/transmission capacities  GDF SUEZ purchasing 9% share in the Nord Stream pipeline  EDF purchasing 15% share in South Stream • Development of new gas fields  RWE Dea investing in 2 offshore gas fields in Egypt International Utilities assets portfolio needs to be well balanced between developed and developing countries Source: E.ON | Energy, Utilities & Chemicals Global Sector 25
  26. 26. Smart meters are the first steps for smart grids Electricity and gas smart metering projects in Europe  In addition to smart meters and Mass roll-out finalized Norway Finland E Draft regulation issued in Feb. 2011 E Legislation into effect. At least boxes, time of use tariffs, Mass roll-out by 2020 well-engaged 80% roll-out by 2016, 100% by 2018 80% roll-out by end 2013 electricity curtailment incentives Mass roll-out probably not Sweden and public education are key completed by 2020 Netherlands E Legal framework for voluntary E 100% smart meters FI elements to implement a demand implemented in 2009 installation adopted UK Several pilots under way NO management policy E 27 million smart meters should be implemented by 2020 SE  80% of electricity customers in EU G Similar to electricity Estonia Denmark EE Member States should have smart E Deployment by several E Mandatory nationwide Ireland DNOs. No national plan LV roll-out under discussion meters by 2020. All countries E National roll-out DK required to perform cost benefit planned for 2014-17 IE Germany G Studies under way LT for gas E 50 trials from 10 to 115,000 meters Nationwide roll out under discussion analysis by September 2012 UK Customers can opt in or out Belgium NL G Similar to electricity E No legislation yet Several business case BE DE PL Poland  In September 2011, France has E Legislation should be ready in 2012 studies under way LU Pilots run by all Utilities decided the mass roll out of 35 G Similar to electricity CZ G Similar to electricity million meters from 2013 to 2020 France SK E Decision for roll-out of 35 FR Czech Republic  4 technologies experimented for million smart meters by 2020 CH AT E National roll-out under discussion taken in 2011. Austria HU Several pilots under way gas smart meters (18,500 meters) E Legislation adopted in 2010. SI G GreenLys pilot, decision for Pilots from 10,000 to RO Hungary in France. Decision for mass roll-out mass roll-out by 2013 240,000 meters G Legislation under discussion E Legislation adopted in 2011 should be taken in 2013 ES G Legislation under discussion IT BG PT Portugal Italy  Together with smart meters and E Smart meter substitution plan Spain E 100% smart meters Greece boxes, Utilities have the presented by the regulator E 100% smart meters should be implemented in 2009 E Roll-out under way GR opportunity to develop services Several pilots (30,000 to implemented by end 2018 G 80% smart meters to be G Plans for extending the 50,000 meters) run installed by 2016 electricity system to water and gas metersSource: ESMA, GEODE – Capgemini analysis, EEMO12, updated March 2012 Energy savings are necessary for a long-term sustained development | Energy, Utilities & Chemicals Global Sector 26

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