European Energy Markets: How Utilities Companies Can Improve Performance

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Conference – Paris, April 5 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 sustainability issues and solutions to improve Utilities’
performance

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European Energy Markets: How Utilities Companies Can Improve Performance

  1. 1. European Energy ChallengesColette Lewiner and Philippe DavidParis – April 5th, 2012 | Energy, Utilities & Chemicals Global Sector
  2. 2. An overview of the European energy markets Recent events are impacting the energy markets • Middle-East political tensions • Fukushima accident consequences • Economic downturn They are changing the electricity security of supply Present and future energy mix is evolving How to reach the sustainability objectives? How to improve Utilities companies performance? 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 oil Iran’s oil exports (Jan to June 2011) (about 20%) % of each 13% In response to the Iran’s nuclear program negotiations country’s total 7% oil imports Others Other EU failure, the US and Europe decided sanctions against Iran, Jan to June 2011 Spain who, in return, threatened to close the Strait of Hormuz: 12% 5% China 6% 13% • Strengthening of the US military presence in the Gulf • Oil embargo from the EU (due to start in July) which should 11% hit 450,000 to 550,000 barrels a day of Iranian oil exports Total Japan Iranian oil But Iran banned crude oil supply to France, the UK and South Africa 22% exports 14% 10% the EU right away 2.3 m In addition, Japan, South Korea, Taiwan and India could 25% bl/d reduce their purchases (up to 250,000 bl/d). In total, Source: Financial Times between 25% and 35% of Iran’s oil exports could be India Turkey 13% impacted 4% 11% However, Saudi Arabia is increasing significantly its 51% 7% production to curb price 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 Brent, market is traded 35 times on the financial markets a the consequence of a localized logistic phenomenon There is some consumption/price elasticity at Cushing, Oklahoma, where WTI is priced High present oil prices are linked to tensions in  President Obama is supporting a new pipeline Middle East and Iran (Keystone XL) Oil prices Crude oil spot – Brent in US dollars and in Euros Crude oil spot – Brent vs. WTI 130 124.38 Brent 120 110 105.68 100 WTI 90 80 70 Apr 2011 Aug 2011 Dec 2011 Mar 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 net oil import bill estimated to account for 2.8% EU’s GDP in 2012 compared to 1.7% from 2000 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. There is some elasticity between the economic situation and the energy consumption EU electricity and gas consumption Evolution of electricity and gas consumption (M/M-12) non-weather-adjusted (non-weather-adjusted) Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 -6.1% +7.0% -8-9% 5,336 5,010 5,363 1% 4,880 0% +4.1% -2.7% -4.7% 0% -4% 3,265 -2% -1% -2% -3% -3% -2% -2% 3,294 3,136 3,177 -4% -4% -6% -5% -8% -7% -10% -10% -12% -12% Electricity -14% -16% Gas Electricity Gas -22% 2008 2009 2010 2011 Source: SG Energy Pulse – Capgemini analysis, EEMO13 Source: ENTSO-E, BP – Capgemini analysis, EEMO13 In 2009, electricity and gas consumption dropped in Europe (-4.7% and -6.1% respectively) due to the crisis, in 2010, they increased again (+4.1% and +7.0%) thanks to the economic recovery and colder than average winter temperatures. Wholesale electricity and gas prices followed the same trend. In 2011, European electricity and gas consumption decreased respectively by 2.7%* and 8-9%**, mainly due to a mild weather. In France, electricity consumption decreased by 6.8% (weather-adjusted: +0.8%) and gas consumption by 13.4% (weather-adjusted: -1.9%). A second economic slowdown would impact negatively the energy consumption and prices * Société Générale Energy Pulse (Focus group representing 63% of European electricity consumption) **Cedigaz provisional figure | Energy, Utilities & Chemicals Global Sector 7
  8. 8. An overview of the European energy markets Recent events are impacting the energy markets • Middle-East political tensions • Fukushima accident consequences • Economic downturn They are changing the electricity security of supply Present and future energy mix is evolving How to reach the sustainability objectives? How to improve Utilities companies performance? Conclusion | Energy, Utilities & Chemicals Global Sector 8
  9. 9. 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 102,100 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 9
  10. 10. France recorded a new peak load on February 8, 2012 due to the cold spell The French electricity peak load reached 102,100 MW at 19:00 Generation mix on February 8, 2012 at 19:00 • Nuclear plants’ availability largely contributed: 59,165 MW (55 reactors out of the 58 were in operation) Gas • France imported 7,845 MW from all its neighboring countries (max 9,000 MW) Oil-fired + Coal 3% • On EPEX Spot, day-ahead electricity prices jumped to €1,938/MWh peak 5% • RTE activated it EcoWatt demand response program in Brittany and PACA regions capacities which resulted in a consumption reduction of respectively 2% and 3% 5% • EnergyPool curtailed 20 MW of industrial consumption which have been used for Brittany region Imports Nuclear In 2011, net new generation capacities have been added: 8% 58% • 850 MW of CCGT • 1,250 MW of renewable energies • 450 MW of fossil-fired plant have been decommissioned Others Hydro New housing heating gas is regaining market share: close to 60% compared 6% 13% to less than 40% for electricity in 2011 (2008 electrical heating market share was 70%). This has decreased the potential electricity demand at peak hours by Wind 450 MW 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 10
  11. 11. Infrastructure investments needs are very large  Investment needs increases result from: Total investment needs in the electricity and gas sector between 2010-20: over 1 trillion €* • Generation plants’ construction to replace old plants, nuclear reactors potential phase-out and safety improvement Power generation: ~ 500 bn Transmission and distribution: ~ 600 bn • Electricity and gas grids reinforcement to improve security of supply, accommodate RES: ~ 310 – 370 bn Distribution: ~ 400 bn decentralized and renewable generation, transform present grids to smarter ones and to Transmission: ~ 200 bn accommodate the electricity consumption Out of which ~100 bn gap increase (not covered by market Electricity: ~ 140 bn under existing regulatory (interconnectors: 70, offshore conditions) grid: 30; smart grid installations in transmission: 40) 25% Utilities CAPEX to revenues ratio is decreasing On October 19, 2011, the EU has adopted a plan to boost European Gas: ~ 70 bn 20% networks (to be effective by 2014). (import pipes, interconnectors, €9.1 billion to be invested in trans- reverse flows, storages, LNG) European energy infrastructure Source: European Commission 15% * EU estimation before Fukushima accident. This estimation does not include: • €250 billion German investments linked to nuclear phase-out (estimation by KfW, the German state-owned investment bank) 10% • €16.4 billion linked to the immediate nuclear phase-out (estimation from EWI, GWS and Prognos) • Other investments needs linked to Fukushima accident consequences 5% In order to incentivize the Utilities, 0% regulation changes are needed 1990 1995 2000 2005 2010Source: SG Global Research, company data – Capgemini analysis, EEMO13 | Energy, Utilities & Chemicals Global Sector 11
  12. 12. An overview of the European energy markets Recent events are impacting the energy markets • Middle-East political tensions • Fukushima accident consequences • Economic downturn They are changing the electricity security of supply Present and future energy mix is evolving How to reach the sustainability objectives? How to improve Utilities companies performance? Conclusion | Energy, Utilities & Chemicals Global Sector 12
  13. 13. 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 13
  14. 14. Current electricity generation costs vary significantly from one source to another  Electricity generation costs depend on:  Recent studies have focused on nuclear energy • Discount rate, especially for high CAPEX technologies such costs as nuclear, wind or solar energy Nuclear generation costs estimation* in France €/MWh • Commodity and CO2 certificates prices (gas or coal prices 80 for fossil-fueled plants) Decommissioning Radioactive waste 75 management 240-400 70 • Load factor Lifetime extension 2011-25 • Technology improvements and breakthroughs 60 2.5 0.5 4.95 • Externalities 50 55 43 150-200 40 Compared costs of 35 30 57.5 generating electricity in Around 49.5 49.5 54.45 56.95 France in 2010 (€/MWh) Around 70 with 80 with 1t of CO2 20 39 42 1t of CO2 at €20 Very variable at €20 Around 100-150 10 50-60 Around 90 with depending on 100 with 1t of CO2 coal price 1t of CO2 at €50 0 Champsaur 2010 Full cost Historical New at €50 nuclear nuclear ARENH 70 80 French Court of Auditors 2030 2030 33-50 Energies 2050 30-40 * Estimation methodologies are different Source: Les coûts de la filière nucléaire, January 2012 and Energies 2050, February 2012 – Capgemini analysis On- Off- Despite potential increase of safety Hydro Current Coal-fired Gas-fired Biomass Solar electricity nuclear plant plant shore shore wind wind plant photovotaic CAPEX and OPEX and back-end costs Net (decommissioning, final disposal)electricity existing nuclear plants remaingeneration in 2010 competitiveSource: Energies 2050 | Energy, Utilities & Chemicals Global Sector 14
  15. 15. Extensive analysis have been carried out on the nuclear generation costs and energy mix scenarios in France  The Energies 2050 commission examined four existing energy scenarios:  Scenarios methodology 1. Lifespan extension of existing reactors: all existing nuclear reactors lifetime is extended to 60 could be improved on: years providing the nuclear safety authority (ASN) allows it • Energy consumption 2. Quicker adoption of 3rd generation nuclear reactors: replacement of all existing nuclear reactors • Renewable energies grid by 3rd generation reactors (EPR) as soon as they reach their 40 years lifetime, which implies to build impact at least 2 EPR reactors per year during 10 years (from 2020 to 2030) • Ability to finance large 3. Progressive reduction of nuclear energy in the mix: all existing nuclear reactors are investments decommissioned when reaching their 40 years lifetime and 1 on 2 reactors is replaced by a 3 rd generation reactor (EPR), which leads to a 40-60% nuclear energy share by 2030 4. a. Nuclear phase out (more fossil fuel energy): all existing nuclear reactors are decommissioned when reaching their 40 years lifetime and are replaced by fossil fueled plants 4. b. Nuclear phase out (more RES): all existing nuclear reactors are decommissioned when reaching their 40 years lifetime and are replaced by renewable energy plants Assumptions in the different scenarios by 2030 Electricity generation costs (€/MWh w/o taxes) CO2 emissions Employment Energy securityactors 1 ~25 MtCO2/y Stable Stable Energies 2050actors 2 ~25 MtCO2/y Not able to measure Stable commission 3 - 100,000 to Energy sources diversification recommendshe mix 30-50 MtCO2/y 150,000 jobs but increase of fossil fuel imports extending 4anergy) ~120 MtCO2/y - 200,000 jobs Increase of fossil fuel imports nuclear reactors 4be RES) ~45 MtCO2/y Potential issues on grid security lifespan 50 60 70 80 90 100 110 Source: Energies 2050, February 2012 – Capgemini analysis | Energy, Utilities & Chemicals Global Sector 15
  16. 16. Union Française de l’Electricité has modeled 3 energy mix scenarios by 2030, similar to the Energies 2050 commission scenarios Three scenarios developed by UFE: Installed capacity in the different scenario (GW) • Nuclear production at 70%: nuclear plants lifetime extension and commissioning of 2 EPR, 2020 renewables objectives met • Nuclear production at 50%: nuclear energy share is reduced to 50%, the development of renewables is higher than in the first scenario, the additional energy need is provided by thermal plants production • Nuclear production at 20%: all nuclear plants are shut down after 40 years of operation, renewable energies development is pushed at its maximum level, the additional energy need is provided by thermal plants production There are some similarities with Energies 2050 scenarios: • Nuclear production at 70% scenario (UFE) corresponds to the Lifespan extension of existing reactors scenario (Energies 2050) • Nuclear production at 50% scenario (UFE) corresponds to the Progressive reduction of nuclear energy in the mix scenario (Energies 2050) • Nuclear production at 20% (UFE) corresponds to the Nuclear phase out (more RES) scenario (Energies 2050) The “50% nuclear” and “20% nuclear” scenarios are the most unfavorable from an economic, environmental and social perspective, consistent with the Energies 2050 conclusions Source: UFE | Energy, Utilities & Chemicals Global Sector 16
  17. 17. In all scenarios, end-users electricity prices and investments are bound to increase Evolution of residential electricity prices Investments in the different scenario (billion €) in the different scenario (€/MWh) Source: UFE Source: UFE The final price to end-customers is a combination of:  Investments required over the period 2010-2030 are • Energy generation: 40% evaluated on the basis of: • Transmission and distribution: 33% • The extension and development of generating capacities • Taxes: 27% • The transmission and distribution networks Final price to consumers is higher in nuclear phase- • Interconnectors out scenarios • And investments in Demand Side Management (DSM) The CSPE should increase three-fold in the UFE “20% nuclear” scenario | Energy, Utilities & Chemicals Global Sector 17
  18. 18. An overview of the European energy markets Recent events are impacting the energy markets • Middle-East political tensions • Fukushima accident consequences • Economic downturn They are changing the electricity security of supply Present and future energy mix is evolving How to reach the sustainability objectives? How to improve Utilities companies performance? Conclusion | Energy, Utilities & Chemicals Global Sector 18
  19. 19. Renewable energies have continued their development As of May 2011, 10% of the European Growth rate of renewable energy sources generation plants under construction 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 Source: Eur’Observer barometers – Capgemini analysis, EEMO13 In 2011, renewable energy investment A stable governmental policy is key for renewables rose 5% to US$260 billion* globally development. The eurozone sovereign debt issues should (solar energy: +36%) lead to a subsidies decrease and threaten 2020 objective *Bloomberg New Energy Finance achievement | Energy, Utilities & Chemicals Global Sector 19
  20. 20. Status on the 2020 EU objectives 110 EU-27 GHG emissions Source: BP statistical report 2011, European Environment Agency, Eur’Observer – Capgemini analysis, EEMO13 After the 2009 drop (-7.1%), GHG emissions increased Historical evolution of GHG emissions EU-27 GHG emissions [base year=100] 105 Path to reach 2020 target by 2.2% due to the 2010 economic recovery. For 2011, 2020 target f or EU-27 88% ETS sector CO2 emissions released data show a 100 2.4%* decrease, mainly due to the combustion/power sector (-3.1%) 95 An economic slowdown would push CO2 emissions down 90 In its March 2011 Energy Efficiency plan, the EU 85 estimated that with current measures only half of the objective would be attained and developed a new draft 80 -20% Directive focusing on: 1990 1995 2000 2005 2010 2015 2020 • Triggering better energy efficiency of public buildings 1,850 EU-27 primary energy consumption • Demand response programs through smart meters roll out EU-27 Primary energy consumption [Mtoe] 1,800 • White Certificates mechanisms extension 1,750 • Better usage of cogeneration • In 2013, the EU will re-assess the situation 1,700 -9% 1,650 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) 1,500 demand -20% 1,450 *Deutsche Bank analysis, April 2012 1990 1995 2000 2005 2010 2015 2020 | Energy, Utilities & Chemicals Global Sector 20
  21. 21. Pilot programs results on peak shaving % peak shaving observed in various pilots worldwide Several means exist for peak shaving and energy % peak shaving Range of peak shaving savings, that can be combined or not: • Dynamic tariffs (that should be further developed with the mass roll-out of smart meters) • Automation such as smart thermostat, smart appliances, in-home displays or web-based consumer portal • Demand management programs such as customers alerts, social networks communication or feedbacks through bills, web, SMS, smart phones Source: Capgemini Consulting Peak shaving: the use of displays helps but the customers’ behavior is key | Energy, Utilities & Chemicals Global Sector 21
  22. 22. Pilot programs results on energy savings % energy savings observed in various pilots worldwide Large-scale pilots run for more than one year % energy saving Range of energy saving reach energy savings in the 2-6% range while more focused programs based on customer segmentation can reach 18%* energy savings Prices increase and Time-of-Use tariffs should trigger sustained results Source: Capgemini Consulting *Literature review for the Energy Demand Research Project, Sarah Darby, Oxford University, 2010 | Energy, Utilities & Chemicals Global Sector 22
  23. 23. Demand response potential for EU-27 by 2020 Dynamic scenario: In our Demand Response (DR) study*, the Demand Response study 3.1 Savings in CO2 emissions (in Mt of CO2 1 ) potential of peak shaving and energy savings is 2012 results snapshot 1.0 3% Savings in electricity consumption (in equivalent number of major cities2 and in % energy savings) modeled on the basis of a baseline scenario: 5.2 4 2% Savings in peak generating capacities (in number • GDP growth 2010-20: 1.8% in average 0.9 2% 4.3 of power plants3 and in % peak shaving) • CAGR electricity consumption 2010-20: 0.7% 0.8 1% Moderate scenario: Probable savings based on our observation of • Some existing energy efficiency programs such 24 13% current trends in regulatory, technical and 3.7 22 15% market conditions (in number of power plants) as Grenelle de l’Environnement or White 0.6 2% 2.5 2.8 1.4 0.4 1% 1.1 Certificates 0.5 2% 0.2 1% 1.0 15 13% 0.2 1% Assumptions are made on: 0.7 0.6 14 13% 0.2 2% 12 13% 7 13% 0.1 1% 0.1 1% • Regulation (norms and standards, energy 6 13% 5 13% efficiency objectives, tariffs and incentive policies) 4 14% 4 15% • Market design (possibility to monetize DR on wholesale markets, contracts optimization, capacity markets) • Smart meters penetration and functionalities (for the households segment) 1 Normative hypothesis: 1 kWh saves 700g CO2 (average European value considering avoided peak capacity is mainly gas-fired plants) And typical DR offerings are modeled with 2 Expressed in equivalent of avoided consumption of large size cities (2 mio inhabitants and 150,000 commercials, average consumption of 8.2 TWh/year) 3 Expressed in equivalent of avoided construction of power plants (500 MW) hypothesis on their adoption by customers Source: Capgemini Consulting In a dynamic scenario, the demand response potential can be translated into the equivalent capacity of 108 gas plants saved and the consumption of 13 major cities avoided *Demand Response study 2012 - Capgemini Consulting, VaasaETT and Enerdata | Energy, Utilities & Chemicals Global Sector 23
  24. 24. An overview of the European energy markets Recent events are impacting the energy markets • Middle-East political tensions • Fukushima accident consequences • Economic downturn They are changing the electricity security of supply Present and future energy mix is evolving How to reach the sustainability objectives? How to improve Utilities companies performance? Conclusion | Energy, Utilities & Chemicals Global Sector 24
  25. 25. 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 to Serve (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 25
  26. 26. The performance of distribution network operators (DNO) can also be improved Structural factors such as consumers’ Performance of each DNO on the same reference network (basis 100) density, network structure and level of consumption have an impact on full costs level of DNOs Taking these structural factors into consideration, our benchmark* shows a 40% performance gap between the most efficient and the least efficient DNO on full costs On average, full costs can be decreased by nearly 7% to reach top performers’ full costs level through improvement of controllable costs**. Two third of this decrease arises from Network Operations and one third from Customers’ Services However, most DNOs having a lower cost of network operations than average have a poorer quality of supply Source: Capgemini 2011 European power distribution network operators benchmark With the smart grids and smart metering deployment, investments will increase significantly and lead to lower operational costs. As a consequence, regulation has to evolve to better incentivize investments such as for example the new RIIO*** in the UK * 2011 European power distribution network operators benchmark, 39 participating DNOs from 14 countries ** Controllable costs: network operations and customers services, non-controllable costs: transmission fees, taxes, losses, financial costs, depreciation *** RIIO: Revenue=Incentives+Innovation+Outputs | Energy, Utilities & Chemicals Global Sector 26
  27. 27. An overview of the European energy markets Recent events are impacting the energy markets • Middle-East political tensions • Fukushima accident consequences • Economic downturn They are changing the electricity security of supply Present and future energy mix is evolving How to reach the sustainability objectives? How to improve Utilities companies performance? Conclusion | Energy, Utilities & Chemicals Global Sector 27
  28. 28. Utilities need to change their business model European Utilities companies are GDF SUEZ plans to spend more than 30% of growth CAPEX in under pressure: fast growing countries over 2012-2017 • 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 (1) H1 2011: as of June30 ; 2017: estimated as of year end Source: GDF SUEZ investors presentation, December 2011 | Energy, Utilities & Chemicals Global Sector 28
  29. 29. About CapgeminiWith around 120,000 people in 40 countries, Capgemini is one of the worlds foremost providers ofconsulting, technology and outsourcing services. The Group reported 2011 global revenues of EUR 9.7billion. Together with its clients, Capgemini creates and delivers business and technology solutions that fittheir needs and drive the results they want.A deeply multicultural organization, Capgemini has developed its own way of working, the CollaborativeBusiness ExperienceTM, and draws on Rightshore ®, its worldwide delivery model.With EUR 670 million revenue in 2011 and 8,400 dedicated consultants engaged in Utilities projectsacross Europe, North & South America and Asia Pacific, Capgeminis Global Utilities Sector serves thebusiness consulting and information technology needs of many of the world’s largest players of thisindustry.More information is available at www.capgemini.com/energy.Rightshore® is a trademark belonging to Capgemini | Energy, Utilities & Chemicals Global Sector Rightshore® is a trademark belonging to Capgemini 29
  30. 30. Q & As | Energy, Utilities & Chemicals Global Sector

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