1. PwC
The utility of the future must act
now
Australia Energy Week
21 June 2016

2. PwC
The utility of the future must act now!
The 3 things…
1. Factors driving the emergence of the utility of the future?
2. Its all about the customer
3. Surely we can wait?
2

3. PwC
The utility of the future must act now!
What factors are driving the creation of the
utility of the future?
3

4. PwC
• Carbon
management a
core focus
We are seeing the impact of megatrends on all sectors across
the globe
4
• Impact of
digital natives
• West to East
• Capital market
shifts
• 2/3 of global
population will
live in cities by
2050.
• Plummeting unit
costs and take-
up speed rising.
• How long to
ubiquity?
Demographic
and social
change
Shift in global
economic
power
Rapid
urbanisation
Climate change
and resource
scarcity
Technological
breakthroughs
Most impactful on energy markets

5. Four broad interconnected themes that will have a
significant impact on the industry over the next decade
• Decline of the core fossil
fuel generation market
• More players and
broader service
offerings change nature
of competition
• New profit pools emerge
• Maturing solar PV,
electric vehicles, battery
storage, energy efficiency,
demand-side
management and smart
grid technologies
• Policy-makers and
regulators can’t ignore
what customers want
• Market models are
changing and new
markets being built
• Customers more mobile,
social, interconnected -
expect engagement
• Customers demand
greater control
Disruptions to
energy value chain
Influence of
technologies on the
energy value chain
Impact of the new
energy customer
Changing tasks and
roles of regulators
5

6. PwC
A range of business models expected to deliver success in the
new and evolving market environment
• One size won’t fit all
• Only a quarter of view
that current business
models will remain
durable.
• The view that ‘change is
becoming urgent’ is
shared by 66 per cent.
6

7. PwC
The utility of the future must act now!
Its all about the customer
7

8. Strategy& | PwC
Price
Reliability
Services
The telecom sector provides insight into how technology
evolution and customer buying attributes can reshape markets
Buying Attributes
Control
Attribute
Importance
Time1984 1992
ILLUSTRATIVE

9. The energy value chain is evolving - value and control
shifting downstream, away from centralised generation
Centralised
generation
Transmission Distribution Metering/
Data Distributed generation Demand
response
EV
Storage
Behind-the-connection
• Falling
demand
• Significant
overcapacity
• Growth in
higher-priority
renewables
and distributed
generation
• Plug and play
• Increasingly
complex and volatile
energy flows
• Emerging role of the
complex system
operator
• Creating value?
• Growth in
smart tools to
optimise
demand
patterns
• New data-
driven
services eg.
energy
advisory
Retail
• High churn
• Price-based
competition
• Expanding
into energy
services
• New
competitors
• More power
to consumer
• Maturing DG,
storage and
EV
technologies
Driversofvalue
shift
Value is broadly shifting to behind-the-connection services and offerings
Home
Automation
Energy
mgmt
services
• ‘Make my life easy’
• Demand for usage
insights and control
solutions
• Is home automation
and the IoT nirvana?
Valuegrowth
/decline
9

10. The future consumer has a choice of becoming smart and
sustainable while having their own business model
Traditional Utility Model Value-added Model Energy Enabler Model
• Electricity as a commodity
• Supply-driven system
• Competition: Price-
fighters, pure-play green
energy retailers
• Value-add services – solar
PV installation, EV
charging, visualization
• HVAC & EV-based
flexibility
• Competition: Innovative
service offerings
• Platform-based balancing and
demand response services
• Behind-the-meter data becomes a
key asset
• Competition: Innovative
contracts, real time pricing,
platform offerings, cross-bundling
Traditional customer Connected consumer Prosumer
• Commodity market
• Intense competition
• Low barriers for switching
Customer focused on cost
and reliability – commodity
centricity
• Customers sensitive to
technology adoption
• Significant investment in
new services
Customer alignment
required to maximize RoI
and lock-in
• Customer in control - negotiating
power increases significantly
• Disruptors entering the market
• Customer trust become a
competitive factor
Customer centricity and agility
are key to stay relevant
Business
Model
Characteristics
Why customer
centricity is key
Business
Model
Customer
typology
Today Intermediate Term Longer Term

11. PwC
The utility of the future must act now!
Surely we can wait?
11

12. Strategy& | PwC
The network is rapidly evolving to a distributed and digital
micro-network that more directly engages customers …
ILLUSTRATIVE
Sources: IEA; Strategy& analysis
Electrical infrastructure
Communications
Gas infrastructure
Future
Industrial
customer
Commercial
customer
Residential
customer
Energy
storage
High-temperature
superconductor
Storage
Sub-
station
Sub-
station
Electric
vehicles
Products
& services
Distribution
control center
Transmission
control center
Products
& Services
Distribution
control center
Transmission
control center
CNG
vehicles
72

13. Strategy& | PwC
Confluence of ‘triggers’ provides the right conditions for a
market reflecting both ‘technology push’ and ‘customer pull’
Technology Dimensions Customer Dimensions
Regulatory policy – particularly in pricing and cost recovery –
lags technology introduction
New Entrants
Improved Functionality
Increasing Parity
Expanding Production
Accelerating R&D
Increasing Awareness
Emerging Choices
Changing Behaviors
Financing Availability
Broadening Offerings
Industry
Disruption

14. Strategy& | PwC
Several innovative technologies, each with unique growth
drivers, have the potential to disrupt the utility value chain
14
NOT EXHAUSTIVE
High efficiency gas turbines
• Low fuel prices
• Steady retirement of coal plants
• Environmental policy pressures
Small modular reactors
• Reduced capital needs compared to ‘big-box’
nuclear
• More flexible production profile to match load
• Potential path to decarbonization
Distributed generation
• Falling component, soft, and financing
costs
• Cost savings vs. retail electricity rates in
more markets
Microgrids and networks
• Mitigation of outage risks on large concentrated load
or critical infrastructure
• Initial uptake in university, military, and corporate
campuses
Behind the meter energy services
• Integration requirements of solar, EV, and
storage
• Improved automation to achieve energy
efficiency savings
• New entrants looking to partner with utilities
and consolidate offerings
Energy storage
• Rapid reduction in cost – continued innovation in
chemistry and applications
• Evolving rate structures, gov’t mandates, and
incentives supporting market
Electric vehicles
• Increased number / variety of electric
vehicles with improved range and
performance
• Cost declines, gov’t mandates /
incentives, and charging station
penetration
72

15. Strategy& | PwC
Possibly over $0.5 tn global market size for new tech by 2020
15
High Efficiency Gas Turbines
• Consider retrofits and further integration into long term
resource planning, including as low-cost option for
renewables integration
Small Modular Reactors
• Start considering SMR as data from SMR
pilots become available and costs become
more predictable
Distributed Generation
• Monitor technology cost trajectories and
policy dynamics to assess threat and
identify new business model
opportunities
Micro-grids and Networks
• Monitor service territory for potential micro-grid
expansion threats
• Consider role as micro-grid developer in de-
regulated business
• Evaluate potential use to manage peak demand
Behind the Meter Energy Services
• Develop new ways to engage customers and
meet efficiency mandates / demand
• Consider partnerships and new offerings to
avoid customer disintermediation
Energy Storage
• Collaborate with regulators on new rate
mechanisms, tariffs, and policies
• Evaluate different storage applications and funding
mechanisms
• Leverage to defer T&D investments
Electric Vehicles
• Develop economical, sustainable, and
convenient ways to charge EVs
• Equip real-time awareness of energy
supply and demand to enable vehicle-
2-grid
72
$50-100B
$10-50B
$1-5B
$150-200B$5-10B $50-100B
$50-100B
Estimated 2020
Global Market
Sizes

16. Strategy& | PwC
Five divergent potential futures exist for the utilities industry
16
Losing Touch
Utilities
72
Smart Hub
Players
Customers
Off Grid Mobile & Virtual Data Rich Scaled Down
Smart Analytics
Companies

17. Strategy& | PwC
… which are likely to arise under different timescales with
variations by geography
17
Primary Adoption Timeframe
2016 2020 2025
GenerationGrid
Beyond-
the-Meter
‘Scaled Down’
‘Data Rich’
‘Mobile and Virtual’
‘Off-Grid’
‘Losing Touch’
ILLUSTRATIVE

18. The utility of the future must
act now!
www.pwc.com/utilities
Australian Energy Week
June 2016
Mark Coughlin
Energy Utilities and Mining Leader
https://au.linkedin.com/in/coughlinmark