www.pwc.com/utilities                             The shape of                             power to come                  ...
wordwide industry viewpointsArgentinaAustraliaAustria                                72 power and utilities companiesBelgi...
IntroductionThe PwC Annual Global Power & UtilitiesSurvey goes to the heart of boardroom thinkingin utility companies acro...
Executive summary        The world faces a huge electricity demand        challenge in the coming decades. A range of     ...
Investment outlook                                      Energy affordability and                       Cleaner energy     ...
Energy efficiency                               A new gas era                                                      Can we ...
Smarter energy                                  2030 scenarios                                  Company strategies in     ...
The big issues8   12th PwC Annual Global Power & Utilities Survey
Huge demand growth                                                                                                        ...
Their focus is clear – they believe greater            Removing bottlenecks                           Other issues, such a...
Are we heading for a supplycrunch?The scale of the demand growth challengebetween now and 2030 begs the obviousquestion – ...
2030 scenario                                   Will energy efficiency remain                                   in the lan...
Investment and affordability   Attracting investment will be central to meeting the future electricity   demand challenge....
Finance is identified as the biggest risk in              Energy prices and affordability     the capital project value ch...
Companies find themselves having to            These concerns are echoed by survey                                  balanc...
Cleaner energy     All around the world, companies and governments are committed to a     move to cleaner low or no carbon...
Impact on global warming                              Can CCS help make the                                               ...
Removing barriers to                          Only 20% of our survey participants think                                   ...
The new gas era                                A majority in our survey (54%) believe                                     ...
2030 scenario                            Electricity transformation                                               Will new...
Smarter energyThe future of electricity is set to move a long way from the centralisedgrids that have dominated modern pow...
Customer engagement                                       Distributed generation     There is increased recognition of the...
Electricity storage                               Superconducting Magnetic Energy Storage          breakthroughs          ...
2030 scenario                              Electric-powered personal                              transport               ...
Company strategiesContinuing growth in regions such as Asia Pacific and South Americais contrasting with more limited grow...
12th PwC Annual Global Power & Utilities Survey
12th PwC Annual Global Power & Utilities Survey
12th PwC Annual Global Power & Utilities Survey
12th PwC Annual Global Power & Utilities Survey
12th PwC Annual Global Power & Utilities Survey
12th PwC Annual Global Power & Utilities Survey
12th PwC Annual Global Power & Utilities Survey
12th PwC Annual Global Power & Utilities Survey
12th PwC Annual Global Power & Utilities Survey
12th PwC Annual Global Power & Utilities Survey
12th PwC Annual Global Power & Utilities Survey
12th PwC Annual Global Power & Utilities Survey
12th PwC Annual Global Power & Utilities Survey
12th PwC Annual Global Power & Utilities Survey
12th PwC Annual Global Power & Utilities Survey
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12th PwC Annual Global Power & Utilities Survey

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The 12th PwC Annual Global Power & Utilities Survey is based on research conducted
between October 2011 and April 2012 with senior executives from 72 power and
utility companies in 43 countries across Europe, the Americas, Asia Pacific, Middle
East and Africa. The majority of participants were senior vice-presidents, senior
general managers, directors or other department heads from power and gas utilities,
with interests covering supply, transmission, generation and trading.

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12th PwC Annual Global Power & Utilities Survey

  1. 1. www.pwc.com/utilities The shape of power to come Investment, affordability and security in an energy-hungry world12th PwC Annual GlobalPower & Utilities Survey
  2. 2. wordwide industry viewpointsArgentinaAustraliaAustria 72 power and utilities companiesBelgiumBotswanaBrazil 43 countriesCanadaChileColombia ContentsCzech RepublicDenmark Introduction 3Finland Executive summary 4GermanyGreece The big issues 8Hungary Huge demand growth 9IndiaIndonesia Investment and affordability 13Ireland Cleaner energy 16IsraelItaly Smarter energy 21Jordan Company strategies 25KenyaKorea 2030 scenariosMalaysia Energy efficiency 12MexicoNamibia Electricity transformation 20Netherlands Electric vehicles 24New ZealandNorway CEO perspectives 27Peru Eletrobras 28PhilippinesQatar Eskom 29Russia Exelon Corporation 30South AfricaSpain RusHydro 31Sri Lanka Around the world 32SwedenSwitzerland Regional survey highlights 33Thailand Contact us 37UAEUKUSAVenezuela About the survey The 12th PwC Annual Global Power & Utilities Survey is based on research conducted between October 2011 and April 2012 with senior executives from 72 power and utility companies in 43 countries across Europe, the Americas, Asia Pacific, Middle East and Africa. The majority of participants were senior vice-presidents, senior general managers, directors or other department heads from power and gas utilities, with interests covering supply, transmission, generation and trading. Acknowledgements PwC thanks all the participants who took time to participate in the survey. This is the 12th power and utilities sector survey. We take this opportunity to thank everyone who has participated over this 12 year period, both within PwC and in the power and utilities sector. Published April 20122 12th PwC Annual Global Power & Utilities Survey
  3. 3. IntroductionThe PwC Annual Global Power & UtilitiesSurvey goes to the heart of boardroom thinkingin utility companies across the globe. In this,our 12th edition, we look ahead to how theworld of electricity will look in 2030 and assessindustry thinking on the changes that will needto take place along the way. The changes that lie ahead are of great potential significance. New technologies, unforeseen possibilities, different ways of generating, distributing, storing and using electricity will all play their part. The challenges are equally great. The development of effective policy frameworks and the attraction of adequate investment continue to be big uncertainties facing the sector. Until they are resolved, power systems will be on a knife edge in terms of whether they will cope with the huge scale of demand growth ahead. Cleaner energy and the decarbonisation of electricity generation will be central to efforts to reduce global warming. Issues such as energy affordability, security of supply and energy efficiency could have major positive or negative impacts on the sector itself and the wider economic landscape in the coming decades. Our survey highlights a considerable degree of concern about whether there will be good outcomes on these fronts in the next 20 years. We look at these big issues through the viewpoint of a survey that is extensive in scope as well as intensive in its depth. We have talked to 72 senior power and utility company executives in 43 different countries around the world. The survey is supplemented by the ‘on the record’ perspectives of a number of CEOs that are also included in the report. We report their findings on a range of questions and also, in a series of 2030 scenarios, their assessment of what key aspects of the world of electricity will look like in 2030. Manfred Wiegand Global Power & Utilities Leader 12th PwC Annual Global Power & Utilities Survey 3
  4. 4. Executive summary The world faces a huge electricity demand challenge in the coming decades. A range of bottlenecks and investment barriers will need to be overcome if power systems are to keep up with demand. Our report examines industry opinion on these issues as well as a range of other important challenges facing the sector in the period to 2030.4 12th PwC Annual Global Power & Utilities Survey
  5. 5. Investment outlook Energy affordability and Cleaner energy security of supplyThe capital funding requirement in all Many in the industry can see a time whenmarkets, both mature and growth Energy affordability is becoming a renewable energy will compete withoutterritories is considerable. 68% of survey concern. Two thirds (66%) see the ability the need for subsidy – 80% plus thinkparticipants are making major or very to recover costs fully from customers as a onshore wind, biomass and all forms ofmajor investment in upgrades and barrier to meeting demand growth. solar will not need subsidies to compete byreplacement generation. New gas Worries about the outlook for fuel poverty 2030. There is less confidence in offshoregeneration heads the generation priority persist. Half see a medium to high wind but, even so, 69% say it will belist. 55% are making major or very major probability that the number of customers competitive by 2030. 66% also thinkgas generation investments versus only in fuel poverty will increase significantly marine energy will be competitive by21% for new coal and nuclear generation, over the next 20 years and this is 2030.24% for offshore wind and 37% for particularly a concern in Europe and Southonshore wind generation. America. The fossil versus non-fossil fuel generation mix of our survey participants is highlyBut investment has become more difficult. Worries about affordability and the pace of representative of world electricity78% report that the financial crisis and infrastructure investment in western power generation fuel mix. This provides a goodeconomic downturn has had a medium to markets are translating into concerns base for views on the future fuel mix.very high impact on shortage of capital for about security of supply. In Europe, 53% of Looking ahead to 2030, they expect ainfrastructure projects. Overall, more than our survey respondents predict an major ramping-up of non-hydrotwice as many survey participants say increased risk of blackouts in the period to renewables. In overall terms, they expectobtaining finance for generation and 2030 compared with only 16% expecting a their fuel mix to change from 66% fossiltransmission is tough compared to those decreased risk. In North America, 40% fuels versus 34% non-fossil fuels today towho are finding it relatively easy. anticipate increased risk versus 20% saying 57% versus 43% in 2030. blackout risk will reduce. In developing markets, where power cuts are a current These projections suggest that the world’s power utility companies are alreadyPolicy priorities fact of life in many countries, industry looking beyond current policies. They sentiment is moving in the opposite direction. Modernisation of power systems anticipate fossil versus non-fossil fuel mixThe policy message from the industry to is expected to reduce the incidence of adjustments that are closer to the ‘newgovernments is a clear one – if the demand failures in these regions. policies scenario’ of the Internationalchallenge is to be met, put potentially Energy Agency1. But they fall significantlydisruptive market reform on the back short of the 42% versus 58% split neededburner and focus on the removal of by 2035 if the world is to limit globalplanning bottlenecks and the promotion of warming to an average 2OC increase, whichan investment-friendly regulatory remains the current climate change globalenvironment. policy goal.Three issues are rated of priorityimportance:• a regulatory environment that encourages network investment – highlighted by 80% of the survey participants• removal of strategic infrastructure planning bottlenecks (76%) 80%• increased interconnection between different electricity systems (76%).In contrast, far fewer attach priority tomoves such as further liberalisation (38%) overor unbundling of distribution networks think onshore wind, biomass and all(31%). forms of solar will not need subsidies to compete by 2030.1 International Energy Agency, World Energy Outlook 2011, page 178, table 5.2. 12th PwC Annual Global Power & Utilities Survey 5
  6. 6. Energy efficiency A new gas era Can we expect energy efficiency to help Gas heads the list of investment priorities the supply and demand outlook in the for new generation. Our survey highlights decades ahead? Industry opinion is the growth in new gas generation, the divided on this issue. Just over half (55%) emergence of shale gas and demand from of the survey participants are optimistic China and other fast-growth countries as but the remainder assign a medium to high major developments affecting the gas 43% probability that energy efficiency programmes will have largely failed to fulfil their promise by 2030. An important factor in promoting energy efficiency is the phasing-out of fossil fuel subsidies in many market in the next ten years. More gas generation will certainly play a big role but the industry does not yet see it as a game- changer. Overall, survey participants expect gas’s share of their companies’ fuel is the forecast share of non-fossil parts of the world. But less than a fifth mix to rise from 29% now to 33% in 2030. fuel in generation by 2030 but (18%) expect such a move to have taken Despite all the shale gas hype, many it won’t be enough to limit global place by 2020. Instead, the overwhelming questions still remain about its accessibility warming to an average 2OC increase. industry sentiment in our survey is that a in some locations and its environmental fossil fuel subsidy phase-out is improbable safety. and that such subsidies will persist into the next decade. In Europe, where gas prices remain indexed against the oil price, gas remains relatively expensive and the market has Industry sentiment is sceptical about attracted liquefied natural gas (LNG) fossil fuel subsidies being phased out in cargoes that would previously have served North America. A majority in our survey the next ten years. (54%) believe that a move away from oil indexation to more liquid, traded markets will be an important major development affecting the gas market in the next ten years. In turn, this could reduce differentials in global gas pricing.6 12th PwC Annual Global Power & Utilities Survey
  7. 7. Smarter energy 2030 scenarios Company strategies in a changing worldThe industry is confident that smart grid We also include a series of glimpses intotechnologies will be in place by 2030, the future with our industry survey’s We conclude with a look at some aspects ofgiving the technological backbone needed viewpoint on three important issues that current company strategies as they prepareto efficiently balance different generation could shape the 2030 electricity world – for the decades ahead. We see a world ofsources, flexible generation and energy efficiency, transformation of energy much greater internationalisation ofinterconnections between grids or energy systems and electric transportation. On the operational footprints and investmentstorage technologies, such as pumped last of these, three fifths of our survey partnerships with companies and investorshydro, compressed-air and large-scale respondents think there is a medium to alike stepping up their ‘go abroad’batteries. Some see a potential ‘power to high probability that electric cars will form strategies in pursuit of growth and value.gas’ breakthrough in electricity storage. a significant proportion of the world We are likely to see more strategicNearly one in five in our survey even go so vehicle fleet by 2030. partnerships between power and utilityfar as to say it will be the most common companies and organisations that have gotform of electric storage by 2030. They anticipate a marketplace where large pools of capital, such as sovereign competition for the customer will be wealth funds. We also anticipate moreThe smart grid revolution with the intense. Such a marketplace will pose joint venture project and investmentdomestic customer, though, may be more significant challenges for power and utility relationships across the energy chain, suchof a challenge for utility companies. Our companies, particularly those used to more as between upstream gas and downstreamsurvey participants express concern that captive customer bases. It will demand utilities.customer engagement may be a barrier to agility, customer management systemsthe kind of behaviour change needed to able to cope with a more mobile customer The changing geographic focus of powerfully realise the system efficiency potential and the ability to forge effective and utility industry strategies is reflectedof smart energy grids. Interestingly, as they partnerships with a range of other retailers in the expansion priorities of our surveyembark on a smart energy world, more and brands. participants. Only 12% ranked westernthan one in four (27%) say the biggest Europe and 13% ranked North America ascompetitive threat to their companies a number one or number two priority forcould come from companies with powerful expansion despite the fact that 24% andcustomer brands from outside the sector. 28% of the survey sample were from companies based in these regions. Instead, China (getting 40% of number one and number two mentions as a priority target for expansion) and other growth markets around the world rated higher as priority targets for expansion. More than one in four say the biggest competitive threat to their companies could come from companies with powerful customer brands from outside the sector. 12th PwC Annual Global Power & Utilities Survey 7
  8. 8. The big issues8 12th PwC Annual Global Power & Utilities Survey
  9. 9. Huge demand growth 80%World electricity demand is projected to increase from 17,200 TWh in2009 to over 31,700 TWh in 20352. Economic and populationgrowth, as well as technological change and urbanisation, are drivingthis demand. The result is an increasing electrification of the world.More people will gain access to electricity and more activities and emphasise the importance of aapplications will be powered by electricity. regulatory environment that encourages network investment.Meeting this huge demand growth is going What policies are needed?to need more investment, effectiveregulatory policies, better and smarter The role of government is pivotal. Powerinfrastructure and good energy markets continue to walk a sometimesmanagement. The total investment needed ambiguous line between market operationby 2035 in the power sector is estimated at and government direction. GovernmentsUS$16.9 trillion, an average of US$675bn have long moved away from directingeach year3. demand but remain the key influence on supply through a variety of policies. What does the power and utilities industry say are the most important policy priorities? Figure 1: What policies are needed to help meet world power demand growth in the period to 2030? Most important A regulatory environment that encourages network investment 80% Increased interconnection between different electricity systems 76% Fast-track planning and permitting procedures for strategic infrastructure 76% Medium important Demand-side management schemes 69% A liquid wholesale electricity market 68% Renewable generation subsidies 66% Subsidies and grants for new technology (e.g. CCS, tidal power, etc.) 52% Energy efficiency subsidy schemes 52% Least important The unbundling of transmission from other utility market activities 43% Further market liberalisation 38% The unbundling of distribution networks 31% A minimum carbon price to help support nuclear new build 27% Source: 12th PwC Annual Global Power & Utilities Survey2 Ibid, page 176, table 5.1.3 Ibid, page 98, table 2.4. 12th PwC Annual Global Power & Utilities Survey 9
  10. 10. Their focus is clear – they believe greater Removing bottlenecks Other issues, such as demand-side emphasis needs to be on the promotion of management schemes, liquidity in a more certain and investment-friendly Governments also have a big role to play in wholesale markets and subsidies for regulatory environment rather than the second and third issues that the renewable generation, are also viewed as potentially disruptive market reform. The industry sees as essential in meeting the important in helping meet demand in the importance of ‘a regulatory environment growth in future power demand – greater period to 2030. But they are seen as that encourages network investment’ is interconnectedness between different underpinning factors of medium highlighted by 80% of survey participants electricity systems and the need to importance compared to the major issues and heads the ‘most important list’. In streamline planning processes (76% of of investment-friendly regulation, power contrast, policies such as unbundling and respondents rate each of these as system interconnectivity and faster further market liberalisation are seen as ‘important’ or ‘very important’). Planning planning processes. ‘least important’. Also, perhaps reflecting obstacles are proving a major barrier to the the changed outlook towards nuclear development of new generation sources power post-Fukushima, carbon prices to and transmission networks. They are support nuclear build are also seen as least pushing renewable generation offshore important. and are a cause of significant large project delay. The focus on regulatory policy reflects the fact that the stance of governments can be Interconnections across state or national an investment dealmaker or breaker. boundaries will be important to enable a Changes, delays and uncertainty in better balancing of supply and demand regulatory frameworks can inhibit and prevent power shortages but they will investment and increase the cost of capital. need a high degree of intergovernmental Stable regulation is essential for successful cooperation. The incorporation of more project financing. Factors such as long- electricity from renewable sources, term tariff certainty and power purchase sometimes in remote locations, will require arrangements are important for investors. additional grid connectivity and Regulatory changes need to be well- investment in transmission networks. planned and signalled. Retrospective regulation, such as has occurred in some European countries in respect of renewable subsidies, can undermine market confidence. Figure 2: Security of supply – will the risk of blackouts increase or decrease in the period to 2030? In mature markets... In developing markets... North America and Europe Asia, South America, Middle East and Africa 46% Increase 13% 18% 53% Decrease Source: 12th PwC Annual Global Power & Utilities Survey10 12th PwC Annual Global Power & Utilities Survey
  11. 11. Are we heading for a supplycrunch?The scale of the demand growth challengebetween now and 2030 begs the obviousquestion – are we heading for a supplycrunch with blackouts becoming morecommonplace? Governments and powercompanies face a tricky balance – reducingdependency on high carbon fossil fuelgeneration while expanding supply andrenewing or replacing ageing generationand transmission assets.The risk to security of supply is real.European and North American power andutility companies are putting themselveson blackout watch for the period ahead. InEurope, 53% of our survey respondentspredict an increased risk of blackouts inthe period to 2030 compared with only16% expecting a decreased risk. In NorthAmerica, 40% anticipate increased riskversus 20% saying blackout risk willreduce. In developing markets, wherepower cuts are a current fact of life inmany countries, industry sentiment ismoving in the opposite direction.Modernisation of power systems isexpected to reduce the incidence offailures in these regions (see figure 2).Figure 3: Probability scenario“By 2030, energy efficiency programmes will have largely failed to fulfil their promise andwill have had limited impact on dampening demand growth” Medium to high probability* (percentage of responses) 46%Low probability 55%* Figure 4: Probability scenario “Fossil fuel subsidies, which support oil- and coal-fired generation in places such as the Middle East, Russia and parts of Asia, will be phased out across the world by 2020” Medium to high probability* (percentage of responses) 41% Low probability 59% *Probability in the range of 40% - 100% Source: 12th PwC Annual Global Power & Utilities Survey 12th PwC Annual Global Power & Utilities Survey 11
  12. 12. 2030 scenario Will energy efficiency remain in the land of promise? Energy efficiency undoubtedly has an important role to play in easing the demand growth challenge. Back in 2007 the Intergovernmental Panel on Climate Change observed: “It is often more cost-effective to invest in end- use energy efficiency improvement than in increasing energy supply to satisfy demand for energy services.” But since that time, despite the priority given to energy efficiency in many policy initiatives, global energy intensity has begun to increase for the first time in more than 20 years. Can we expect energy efficiency to help the supply and demand outlook in the decades ahead? Industry opinion is divided on this issue. Just over half (55%) are optimistic but the remainder assign a medium to high probability that energy efficiency programmes will have largely failed to fulfil their promise by 2030. Much will depend on the phasing-out of fossil fuel subsidies. These are a major barrier to energy efficiency as the artificial reduction in energy costs leads to higher than optimal demand for energy. In countries like Iran as much as one third of government spending is used to subsidise fossil fuel prices. Countries such as China, Russia and India are making efforts to reform their subsidies but overall world progress remains slow. The energy efficiency prize is immense in countries where such subsidies exist. Russia, for example, could save almost one third of its annual primary energy use if it increased its energy efficiency in each sector to the levels of comparable OECD countries4. If a phasing-out of fossil fuels is to have an impact on energy efficiency in the period to 2030, it needs to be well underway by 2020. Our survey asked about the probability of fossil fuel subsidies being largely phased-out by 2020? Less than a fifth (18%) see this as highly probable. The overwhelming industry sentiment in our survey is that this is improbable and that such subsidies will persist. If this is the case, it will be a major factor undermining energy efficiency. Even in territories without such significant fossil fuel subsidies, the prize of energy efficiency is a difficult one. The EU, for example, has set a goal of a 20% efficiency savings target as part of its 20-20-20 objectives. On current trends EU states are set to achieve less than 9% savings on 1990 levels by 20205. 4 Ibid, page 262 5 The Political Economy of Renewable Energy in Europe, IHS Global Insight, Dec 2011.12 12th PwC Annual Global Power & Utilities Survey
  13. 13. Investment and affordability Attracting investment will be central to meeting the future electricity demand challenge. But many power and utility companies are facing a reduction in capital raising options. Investment has become more difficult. 78% of our survey participants report that the financial crisis and economic downturn has had a medium to very high impact 78% report that the financial crisis and on shortage of capital for infrastructure projects, with 63% saying it economic downturn has had a has had a high or very high impact. medium to very high impact on shortage of capital for infrastructure projects. Tough funding environment Overall, more than twice as many survey participants say obtaining finance for The large European utility companies have generation and transmission is tough faced particular constraints. Between 2010 compared to those who are finding it and 2011 many European companies have relatively easy (figure 5). But despite the seen larger share price falls than the pressures on companies in Europe, our market average. On the debt side, survey shows that concerns about shortage issuances have declined from 75.6bn euros of capital for infrastructure projects are felt in 2009 to 14.6bn euros in 2011 as debt even more acutely among companies in markets contracted. In addition, across the Asia and the Middle East and Africa. whole European utilities sector, 15 groups Survey participants in both these regions suffered downgrades in 2011 and 30% are were more likely to report shortage of on negative watch or facing downgrade capital as a result of the recent world reviews6. economic and financial uncertainty than their counterparts in Europe and North America (figure 6). Figure 5: Extent of the financing challenge Obtaining finance for generation Tough 44% Easy 17% Obtaining finance for transmission and distribution Tough 44% Easy 21% % scoring 1 (very small challenge) to 5 (very large challenge) Source: 12th PwC Annual Global Power & Utilities Survey6 PwC, Power Deals: 2012 outlook and 2011 review. 12th PwC Annual Global Power & Utilities Survey 13
  14. 14. Finance is identified as the biggest risk in Energy prices and affordability the capital project value chain – 85% see it as a medium to very high risk versus only But tough as it is in the capital project 15% rating it low risk. It outweighs context, financing is actually not the construction risk, which was rated as biggest challenge for power and utilities medium to high risk by 76% of survey businesses as a whole. Investment is participants. Construction risk will reduce running up against regulatory risk, price in the next five years as companies gain and affordability worries. The level of more project experience but the industry is regulatory returns and a reasonable degree not as optimistic about finance risk. Nearly of forward certainty are critical for long- as many expect finance risk to be as great term capital investment. Regulatory risk, in five years’ time. cost recovery from customer tariffs, price uncertainty and workforce skills shortages all outweigh the difficulty of obtaining finance in the minds of survey participants (see figure 7). Figure 6: Impact of the global financial crisis and economic downturn on shortage of capital for infrastructure projects Middle East and Africa 4.6 South America 4.0 Asia 3.9 Europe 3.3 North America 3.1 1* 5 Investment is running up against Global 3.6 regulatory risk, price and affordability worries. *1 = very unimportant, 5 = very important Source: 12th PwC Annual Global Power & Utilities Survey u Figure 7: Finance versus other challenges v Regulatory risk 4.1 Ability to recover costs fully from customers 3.9 Wholesale price uncertainty 3.8 Finding and retaining a skilled workforce 3.6 1* 5 Obtaining finance 3.4 *1 = very small challenge, 5 = very large challenge Source: 12th PwC Annual Global Power & Utilities Survey14 12th PwC Annual Global Power & Utilities Survey
  15. 15. Companies find themselves having to These concerns are echoed by survey balance government directives with market participants. Two thirds (66%) see the dynamics. ‘Command and control’ ability to recover costs fully from approaches continue to be blended with customers as a barrier to meeting demand market mechanisms and they can growth. Worries about the outlook for fuel sometimes be uneasy bedfellows. Energy poverty persist. Half see a medium to high prices are a hot issue in many countries as probability that the number of customers the cost of investment and decarbonisation in fuel poverty will increase significantly puts pressure on customer budgets. over the next 20 years. Set against this, Concerns about energy prices are creating many more see a very low probability of a ‘trilemma’ in the triangle that has to be this scenario (23%) than see it as a high balanced between affordability, probability (3%). Concern about future sustainability and security of supply and fuel poverty was greatest among South adding to the social pressures on American and European survey governments. participants (figure 8).Worries about the outlookfor fuel poverty persist. Figure 8: Probability scenario “The number of consumers in fuel poverty will increase significantly over the next 20 years” Medium to high probability* (percentage of responses) South America 63% Europe 58% Middle East and Africa 50% North America 45% Asia 44% Global 51% *Probability in the range of 40% - 100% Source: 12th PwC Annual Global Power & Utilities Survey 12th PwC Annual Global Power & Utilities Survey 15
  16. 16. Cleaner energy All around the world, companies and governments are committed to a move to cleaner low or no carbon power generation. The United Nations Climate Change Conference meeting in Cancun made a 2°C average warming goal explicit and acknowledged that greater ambition is necessary if it is to be reached. But time is running out and the recent economic downturn and austerity policies in some 66% fossil versus 34% non-fossil fuel current generation mix of our survey countries are testing governments’ resolve. Also, the Arab Spring and participants closely mirrors that of the overall world electricity the impact of the Fukushima emergency in Japan have focused generation mix. attention on security of supply with possible impacts on the pace of travel towards cleaner energy. Moving away from fossil fuels The move to low or no carbon fuels has Will the move to cleaner fuels been given extra uncertainty by the impact happen fast enough? The fossil versus non-fossil fuel generation of the Japanese tsunami on the outlook for mix of our survey participants closely nuclear power. Our survey participants The following table shows our survey mirrors that of the overall world electricity expect nuclear’s share of their own participants’ 2030 fuel mix projections and generation mix. They report a higher than companies’ generation to remain much the compares them with the 2035 assumptions world share of hydro and non-hydro same in 2030 as it is today, implying an in three of the IEA’s World Energy Outlook renewable generation and a lower than expansion of nuclear capacity to match projections – the ‘current policies scenario world share of nuclear generation. In total supply expansion. Different (CPS)’, the ‘new policies scenario (NPS)’ terms of the overall fossil versus non-fossil governments have reacted in different and the 450 scenario. fuel mix, they are highly representative. ways but a recent World Energy Council This degree of representativeness provides report makes the point that the Fukushima The industry survey projections suggest a good base for views on the future fuel accident has not so far led to a significant that the world’s power utility companies mix anticipated as our survey participants retraction in nuclear power programmes in are already looking beyond current look ahead to 2030. They say non-hydro countries outside Europe, except Japan policies. They anticipate fossil versus renewables, which account for an 8% itself 7. In Europe, changes in nuclear non-fossil fuel mix adjustments that are share now, will double to a 16% share in policies have taken place in Germany, consistent with the IEA’s World Energy 2030. Windpower’s share is also forecast to Switzerland and Italy. Among our survey Outlook 2011 ‘new policies scenario’ and, double and solar power will more than participants, around half of them (48%) indeed, anticipate moving ahead of these. quadruple its current share. think only a small number of countries will But we would emphasise that such turn their back on this source of energy, estimates need to be viewed cautiously. 25% expect the impact to be greater and They are based on interview forecasts another 27% expect a large number of rather than detailed projections and countries to pull the plug on nuclear cannot be weighted to take account of power. different survey company generation capacities. Indeed, if we restrict predictions to the main regions of Europe, North America and Asia, the path charted by survey participants is markedly less optimistic and indicates that they will fall short of the ‘new policies scenario’. Figure 9: Future fuel mix scenarios versus industry expectations8 IEA 2035 IEA 2035 IEA 2035 PwC survey 450 ‘new policies ‘current policies participants’ 2030 Industry expectations scenario scenario’ scenario’ projection Fossil fuel 41% 58% 66% 57% Non-fossil fuel 59% 42% 34% 43% 8 World Energy Outlook 2011, ps 546 (NPS) and 547 (CPS and 450 scenarios - generation). Source: 12th PwC Annual Global Power & Utilities Survey 7 World Energy Council, Nuclear Energy One Year After Fukushima, March 2012. 8 World Energy Outlook 2011, ps 546 (NPS) and 547 (CPS and 450 scenarios – generation).16 12th PwC Annual Global Power & Utilities Survey
  17. 17. Impact on global warming Can CCS help make the difference? These projections certainly fall significantly short of the adjustments The commercial development of carbon required to achieve the 450ppm CO2 capture and sequestration (CCS) reduction needed to limit global warming technology has got off to a slow start. to an average 2OC increase, which remains Governments have sought to give a spur to the current climate change global policy such technology but, in the UK for goal. The 450ppm CO2 reduction scenario example, agreement on demonstration is the trajectory needed to achieve the still projects has been deferred followingCCS could make all stated world goal of limiting global difficulties on technology definitions andthe difference but warming to an average 2OC increase. funding terms. Nonetheless, our survey respondents still see CCS making athe pace of Instead the survey forecasts a fuel mix significant future contribution in thedevelopment needs closer to the ‘new policies scenario’. Such a generation mix. They expect over a third scenario would result in a level of (35%) of their coal-fired generation andto accelerate. emissions consistent with a long-term around a fifth (21%) of gas-fired average temperature increase of more than generation to be equipped with CCS by 3.5°C. The IEA points out a rise in excess of 2030. It puts the industry part-way 3.5°C “would have severe consequences: a towards but still significantly short of the sea level rise of up to two metres, causing 60% and 27% 2035 targets that form part dislocation of human settlements and of the IEA’s 450 scenario. changes to rainfall patterns, drought, flood and heat-wave incidence that would severely affect food production, human disease and mortality.9” Current policies would leave global warning on an even more dangerous path – with temperature increases of 6°C or more.Figure 10: Industry CCS expectations IEA 2035 PwC survey 450 participants’ 2030Industry expectations scenario10 forecastProportion of coal-fired generation with CCS 60% 35%Proportion of gas-fired generation with CCS 27% 21%10 International Energy Agency, share of total electricity generation fitted with CCS, data supplied to PwC.Source: 12th PwC Annual Global Power & Utilities Survey9 International Energy Agency, World Energy Outlook 2011, p207.10 International Energy Agency, share of total electricity generation fitted with CCS, data supplied to PwC. 12th PwC Annual Global Power & Utilities Survey 17
  18. 18. Removing barriers to Only 20% of our survey participants think renewables the issue of renewable energy affordability will have fully resolved as a constraint by Major barriers remain in the way of 2030. Renewable energy subsidies will renewables in the next decade. Three remain key – two thirds say they will be of quarters (75%) of our survey participants high or very high importance in meeting point to the high cost compared with other future energy demand. Another 18% rate generation as an important or very them of medium importance. But many in important barrier. Two thirds (66%) the industry can see a time when 75% highlight the unwillingness of consumers renewable energy will compete without to pay and 62% stress the cost and the need for subsidy – 80% plus think difficulty of grid connections (figure 11). onshore wind, biomass and all forms of Cost competitiveness and pricing solar will not need subsidies to compete by constraints vary from region to region, 2030. There is less confidence in offshore affected by a complex interplay of local wind but, even so, 69% say it will be point to the high cost of fossil fuel prices, carbon policies, other competitive by 2030. 66% also think renewables compared with other subsidy frameworks and capital costs. In marine energy will be competitive by 2030 generation technologies. (figure 12). North America, for example, low gas prices would, on the face of it, disadvantage renewables but one of their main effects has actually been to disincentivise the construction of new gas generation. Figure 11: Ranking of major barriers to development of utility-scale renewables High capital costs compared to other generation technologies 75% The willingness of consumers to pay 66% Cost and difficulty of connections to the transmission grid 62% Unstable subsidy regimes 58% Intermittent output 55% Impact on grid stability 49% Lack of suitable control systems to manage them 28% S Figure 12: Do you think renewable generation technologies will be able to compete without subsidy by 2030? Residential scale solar PV 85% Commercial and industrial scale solar PV 85% Onshore wind 82% Biomass 82% Utility scale solar PV 80% Concentrating solar power 80% Offshore wind 69% Marine 66% Source: 12th PwC Annual Global Power & Utilities Survey18 12th PwC Annual Global Power & Utilities Survey
  19. 19. The new gas era A majority in our survey (54%) believe that a move away from oil indexation to With gas heading the list of generation more liquid, traded markets will be an investment priorities (see page 25) and important major development affecting the new sources of gas coming onstream or gas market in the next ten years which, in being exploited in different parts of the turn, could reduce differentials in global world, we are entering a new era of gas. gas pricing. Chinese demand will be an important factor shaping the market with the Much of Chinese gas demand will need toThe economics of country’s compound average annual be met by LNG imports but China has alsothe new gas era are growth in primary natural gas demand released an ambitious five year plan for the expected to increase at a rate of 6.7% per development of its own shale gas. It isbeing played out in annum in the period to 203511. Among our aiming for 6.5bn cubic meters of shale gasdifferent ways in survey participants, 70% attach high or production by 2015, around 2-3% of very high importance to gas demand from projected 2015 Chinese gas production,different parts of China and other fast-growth economies and more than 60bn cubic meters of shalethe world. (figure 13). gas production by 202012. In total, China has an estimated 1,275 trillion cubic feet of The economics of the new gas era are technically recoverable shale gas reserves, being played out in different ways in making it the largest repository of shale different parts of the world. In North gas in the world13. America, the shale gas boom has led to the so-called gas glut and low gas prices which are at a level that is inhibiting new gas generation build. In Europe, where gas prices remain indexed against the oil price, gas remains relatively expensive and the market has attracted LNG cargoes that would previously have served North America. Figure 13: Major developments affecting the gas market in the next ten years Demand from China and other emerging economies 70% Growth in gas-fired generation 61% The development of shale gas resources 58% The move from oil-indexed long-term contracts to traded gas markets 54% Major new gas pipeline projects 51% Source: 12th PwC Annual Global Power & Utilities Survey11 World Energy Outlook 2011, table 4.2, ‘new policies scenario’.12 China sets target for shale gas development, Financial Times, 16 March 2012.13 World Shale Gas Resources: an initial assessment of 14 regions outside the United States, US Energy Information Administration, April 2011. 12th PwC Annual Global Power & Utilities Survey 19
  20. 20. 2030 scenario Electricity transformation Will new sources and supplies of gas transform the generation mix? Will breakthroughs in electricity storage, such as ‘power to gas’ technology, dramatically alter the utility of intermittent renewable power and the wider operation of electricity systems? Will smarter grids deliver on their potential and even lead to some convergence of the sector with telecoms, IT and other technology areas? Our survey respondents are cautious. More gas generation certainly has a role to play but it’s not a game-changer. Overall, they see gas’s share of their companies’ fuel mix rising from 29% now to 33% in 2030. Despite all the shale gas hype, many questions still remain about its accessibility in some locations and its environmental safety. But the survey does lend strong support to a 2030 outlook where onshore wind and a range of solar generation facilities, including utility-scale concentrating solar power, compete and play a major role in the energy mix without the need for subsidy. There is the potential for a ‘power to gas’ breakthrough in electricity storage. One in five in our survey even goes so far as to say it will be the most common form of electric storage by 2030. But they are outnumbered three to one by those saying that current pumped storage technologies will be the main answer to storing electricity. What is certain is that the industry is confident that smart grid technologies will be in place. This will give the sector the technological backbone needed to efficiently balance different generation sources, flexible generation and interconnections between grids or energy storage technologies, such as pumped hydro, compressed-air and large-scale batteries. The smart grid revolution with the domestic customer, though, may be more of a challenge for utility companies. They express concern that customer engagement may be a barrier to the kind of behaviour change needed to fully realise the system efficiency potential of smart grids (see next section). Interestingly, as they embark on a smart energy world, more than one in four (27%) say the biggest competitive threat to their companies could come from companies with powerful customer brands from outside the sector (see figure 19).20 12th PwC Annual Global Power & Utilities Survey
  21. 21. Smarter energyThe future of electricity is set to move a long way from the centralisedgrids that have dominated modern power systems to date. We are fastmoving towards a new energy eco-system with a blurring ofdistinctions between distribution, transmission and generation. Arange of technological innovations are expected to make possible astep change in grid efficiency. They will facilitate automation to 66% of survey participants see smart grids and smart metering as an importantreduce cost and improve quality and enable the optimal use of or very important opportunity to get close to their customers.distributed generation. Crucially, they will promote interactionbetween supply and demand technologies and between the consumerand the utility that will provide benefits for both.Smart energy motivations But companies would be wise to be cautious about the customer opportunity,Smart grids and smart metering are high particularly among residential customers.on the list of investment priorities – second The nature of the customer-utilityonly to the need to upgrade or replace relationship varies widely across differentgeneration capacity in the view of our regulatory regimes and marketsurvey respondents and on a par with frameworks. The experience of smart gridinvestment in transmission and and smart metering deployment so fardistribution networks. Interestingly, our suggests that gains such as an increasedsurvey participants rate the customer level of ‘smart’ end-user energyrelationship potential of smart grids and management and peak load shifting aremetering as the most important factor in difficult to achieve. Customer inertia is asmart grid investment (figure 14). Two potential barrier to realising the fullthirds (66%) see it as an important or very potential of smart energy systems.important opportunity to get close to theircustomers with the management of peakdemand (62%), which involves changes in Figure 14: Smart metering and smart grid rationalecustomer behaviour, also at the top of thelist. These ‘customer interaction’ goalsedge out pure operational gains, such as Get closer to our customers 66%improved grid reliability (59%) andreduced operational costs (55%). Manage peak demand 62% Improve grid reliability 59% Manage a more complex grid 55% Reduce operational costs 55% Enable distributed generation 48% Develop new products and services 45% Enable electric vehicles 42% Regulatory requirement 38% Enable renewable generation 35% Limit consumer debt 30% Enter the telecom or internet sector 14% Source: 12th PwC Annual Global Power & Utilities Survey 12th PwC Annual Global Power & Utilities Survey 21
  22. 22. Customer engagement Distributed generation There is increased recognition of the Nearly half (48%) of the survey population challenge of customer engagement by the stress the importance of smart grids as an industry. Two thirds of survey participants enabler of distributed generation. But they say there is a medium to high probability also point to barriers in the way of that the technology will be in place but distributed generation, the biggest of shortcomings in customer engagement will which is cost-effectiveness. Nearly three limit the potential of smart technology, quarters (73%) say the long return on even as far ahead as 2030 (figure 15). This investment time for customers remains a view is particularly strong in the mature major barrier and 69% point to the lack of markets of North America and Europe (see policy support. Fewer than one in six regional chapter). expect distributed generation to supply more than a 10% share of electricity In contrast, in Asia and South America demand by 2025. The consensus estimate respondents were more positive about the is that distributed generation will prospects for customer engagement and contribute a 2-5% share by that time. behaviour change with fewer than half Within this share, solar PV is expected to anticipating a medium to high prospect account for 42% of distributed generation that customer engagement would limit the (49% in Europe), compared with a 22% potential of smart grid and smart metering share for fuel cell technology and 22% for technology. Industry survey participants in geothermal. developing markets see more positive potential for customer smart grid interaction than their counterparts in mature markets where a greater proportion of smart metering and grid systems have to be ‘retrofitted’. Figure 15: Probability scenario “Smart metering and smart grid technology will be successfully in place by 2030 but its impact will be limited by shortcomings in customer engagement” Medium to high probability* (percentage of responses) 66% Low probability 34% *Probability in the range of 40% - 100% Source: 12th PwC Annual Global Power & Utilities Survey Two thirds say there is a medium to high probability that shortcomings in customer engagement will limit the potential of smart technology.22 12th PwC Annual Global Power & Utilities Survey
  23. 23. Electricity storage Superconducting Magnetic Energy Storage breakthroughs (SMES) systems store energy in the magnetic field created by the flow of direct The intermittency and, in some cases, the current in a superconducting coil which location of renewable and distributed has been cryogenically cooled to a generation sources will make temperature below its superconducting breakthroughs in electricity storage critical temperature. SMES systems are important for the future energy eco-system highly efficient, power is available almost (figure 16). Pumped-storage power instantaneously and very high power stations are a good solution for short-term output can be provided for a brief period load balancing, but there is only limited of time. They are currently used for some capacity available and it is only suitable in grid stability applications but major cost certain locations. Long-term storage is and scale barriers need to be overcome therefore a major challenge when it comes before they could be used for large-scale to transforming the energy supply system storage. and for power utilities. Researchers in Europe are testing ‘gasified’ Electric cars could play a significant role or ‘power-to-gas’ technology that involves with smart grids and metering enabling a the use of excess power to produce country’s stock of electric cars and their hydrogen by electrolysing water and, if batteries to provide an outlet for required, in a second step converting intermittent renewable energy that is hydrogen into synthetic methane by surplus to other grid requirements. But reaction with carbon dioxide (CO2). The battery technology, both for vehicles and existing natural gas infrastructure, namely wider applications, needs to improve in the gas grid and its associated terms of capacity and cost if it is to greatly underground storage facilities, could be transform transportation and renewable used to store this methane and also, up to energy storage. Research continues in a certain volume, the elemental hydrogen. improving battery performance and The idea is not new, but it has become longevity, and breakthroughs are expected more important in the light of growing with new technology, such as the lithium- share of renewable generation in the air battery. If successful, new batteries will energy mix. replace gasoline-fuelled engines, improve electricity transmission and impact a host of other potential uses.Figure 16: Top five forms of large scale electricity storage expected to be most in use by 2030Pumped storage 54%Batteries 38%Electric vehicles 27%Superconducting magnetic energy storage 21%Gasified power storage 18%Source: 12th PwC Annual Global Power & Utilities Survey 12th PwC Annual Global Power & Utilities Survey 23
  24. 24. 2030 scenario Electric-powered personal transport Three fifths of our global power survey respondents think there is a medium to high probability that electric cars will form a significant proportion of the world vehicle fleet by 2030. But two thirds (67%) express frustration that regulatory agreement on standards for electric vehicle infrastructure is evolving too slowly. What will an electric car world look like in 2030? Most of our survey participants expect competition for the customer will be intense. Only 7% think this is unlikely. But who will own the customer relationship? A majority think car retailers will sell up-front energy deals with the car. Others see the potential for relationships between power utility companies and other retailers or petrol retailers. Some see the electric car market becoming like the mobile phone market with the car and the electricity wrapped together in contract deals. Such a marketplace will pose significant challenges for power and utility companies, particularly those used to more captive customer bases. It will demand agility, customer management systems able to cope with a more mobile customer and the ability to forge effective partnerships with a range of other retailers and brands. Of course, there are many technological barriers to be overcome before electric-powered transport can become more commonplace, principally the evolution of batteries and engine technology. If these can be overcome, there is then the development of electric vehicle charging infrastructure. Nearly three fifths (58%) of our survey participants believe such infrastructure will be a major challenge for power utility companies. A future electric car marketplace will pose significant challenges for power and utility companies. Figure 17: What are the most likely electric car customer strategies? Car companies will seek to sell up-front energy 54% deals (1 year of energy, etc.) with the car Utility companies will create partnerships with 44% retailers and supermarkets Utility companies will create partnerships 35% with petrol retailers The market will become like the mobile telecoms market 35% with the car and the energy tariff wrapped up together Source: 12th PwC Annual Global Power & Utilities Survey24 12th PwC Annual Global Power & Utilities Survey
  25. 25. Company strategiesContinuing growth in regions such as Asia Pacific and South Americais contrasting with more limited growth prospects in North Americaand in Europe. Power and utility companies in these mature marketsare turning their sights to growth opportunities elsewhere but arehaving to balance their acquisitive growth appetite with theirconsiderable renewable energy and infrastructure commitments in 68% of survey respondents are making major or very major investmenthome markets. in upgrades and replacement generation. Investment priorities Utility companies have a relative advantage over companies in some other The capital funding requirement in all sectors when it comes to bank financing markets, both mature and growth and the debt markets. But given the scale territories, is considerable. 68% of survey of capital required and market constraints, respondents are making major or very some are exploring alternative options, major investment in upgrades and such as the investment in Iberdrola by replacement generation (figure 18). New Qatar Holding, a subsidiary of the Qatar gas generation heads the priority list for sovereign wealth fund, and GDF Suez’s generation. 55% of the survey participants partnership with Chinese sovereign wealth are making major or very major gas fund China Investment Corporation. generation investments versus only 21% for new coal and nuclear generation, 24% for offshore wind and 37% for onshore wind generation. Away from generation, major or very major investments in smart grids (56%) and transmission and distribution infrastructure (52%) also feature strongly. Figure 18: Where are you making major new generation and related investments? Replacing/upgrading existing generation capacity 68% New gas generation capacity 55% Onshore wind generation capacity 37% LNG infrastructure 27% Offshore wind generation capacity 24% New nuclear generation capacity 21% New coal generation capacity 21% Solar PV generation capacity 18% Carbon capture and storage 17% Source: 12th PwC Annual Global Power & Utilities Survey 12th PwC Annual Global Power & Utilities Survey 25

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