Shift to energy efficiency, clean fuels

New Delhi, 14 June 2007: A huge shift in thinking and action around energy efficiency and cleaner fuels is taking place in the power utilities sector, according to the ninth annual PricewaterhouseCoopers report ‘Energy and Efficiency: Utilities Global Survey 2007’. The annual survey goes to the heart of boardroom thinking of 114 power companies in 44 countries and this year reveals a complete shift in the extent to which energy efficiency, renewables and nuclear power are at the top of company agendas.

Utilities companies world-wide expect wind and nuclear power to provide an increasing share of their market’s energy consumption in the next five years. Last year, only 17% and 19% were looking toward these two fuel sources. By 2007, in the space of just 12 months, they were being mentioned by 48% and 45% of respondents. Climate change appears to have cemented its place in utility company strategies.

But the report warns that, without effective and consistent world-wide regulatory and market frameworks, actual progress may be limited. The climate of thinking and action around cleaner power, renewables and energy efficiency is shifting fast. The big question is the extent and pace of the actual shift that will take place in the energy mix. Economic signals and incentives will be critical for utility companies to be able to make a big shift.

Kameswara Rao, Executive Director and India utilities leader, PricewaterhouseCoopers, said, “The electricity sector in India, the fifth largest in the world, needs significant investments to overcome current shortages and supply a strongly growing economy. It must also invest to improve efficiency of invested capital and modernise processes. The Government of India has taken steps to bring in investment in thermal, hydro, nuclear energy, renewable energy and in transmission. But to achieve desired results, further regulatory reform and more sincere efforts in restructuring are necessary.”

The survey shows an industry that believes that technological advances can take the world into a new era of energy efficiency. Expectations that technology can have an impact on energy efficiency have again shot up over the last 12 months – from 22% to 81% among American respondents, from 33% to 43% in Europe and from 41% to 62% world-wide.

Utility companies believe that the greatest energy efficiency gains could come from end-users, of all kinds – industrial, commercial and, especially, residential customers. Although utility companies feel that governments and end-users must set a lead on energy efficiency, companies are ready to invest significantly in efficiency, not just in their own production and transmission but also to help their customers become more energy efficient. Indeed, 72% of respondents from companies with supply businesses are making some investment in demand-side efficiency measures. “Utilities in India have a strong incentive to invest in energy efficiency as it goes some way to bridge the shortages. More so as end-user inefficiency is the highest among consumer groups that are charged subsidised tariffs. Our studies show that proper targeting of energy efficiency interventions, along with local participation such as through distribution franchisees, a good return on investment can be achieved”, adds Kameswara Rao. For the first time, the annual survey includes the viewpoints of top leaders from big industrial consumers of electricity in the metals, chemicals and paper sectors. Companies in these sectors are increasingly seeking to be in control of their own energy production and reduce dependence on utility companies. Investment in energy efficiency is a priority for all companies. In some instances, companies are considering moving production to lower price energy territories and many companies are stepping up investment in their own generation. There is also a view that utility companies could do more to structure their tariffs around the needs of their big energy consumers.

As per Kameswara Rao,“Structural reforms in India’s power sector are gradual but gathering pace. The state regulators have notified phased retail open access plans covering consumers up to 1 MW by 2009. This permits large industries, totaling at least 20 GW, to choose their own supplier. It is a wake up call for utilities: to lower industrial tariffs and redesign them appropriately for different types of users. State regulators must also develop proper framework to facilitate a healthy competition, by detailing operating rules and settlement mechanisms. Governments must also extend more autonomy to state generators and distributors, so that they respond to market opportunities and consumer needs quicker and effectively.” Other report highlights:

Security of supply concerns

Concerns about security of supply are intensifying. Utility companies across the world report that they expect to have to deal with supply and demand conditions that are significantly or, indeed, ‘immensely’ challenging (figure 10). Seventy-one per cent of respondents rated the outlook in these terms – a major rise from 51% in 2006. This includes 62% of North American respondents, 88% in South America, 70% in Europe, 76% in Australia and New Zealand, 66% in the BRIC countries and all respondents in the Middle East and Africa.

Interesting, last year only 19% of utility companies surveyed were seriously considering nuclear power. Only 12 months later, this has increased to 45%.

Value chain repositioning

Forty-eight per cent of utility company executives say they expect regulatory moves to unbundle transport and transmission distribution from vertically integrated businesses will have a strong or very strong impact on their power and gas market in the period ahead.

Indeed, a third (32%) of all respondents world-wide say they will reposition their company in the value chain in the next five years, including 40% of Americas and 34% of European respondents. A similar proportion of respondents say that they also intend to reposition by country.
Skills and knowledge shortages become a deal driver

For the first time, skills and knowledge shortages are becoming a leading factor in M&A activity. They were mentioned by just a third of respondents as a deal driver in 2006 but, by 2007, this had increased to half. Shortages of knowledge and skills are becoming a crunch issue for utility companies world-wide. Investment in infrastructure, new generation and technology is driving up the demand for expertise. However, this is against a background of an ageing workforce and, in some countries, fewer graduates studying relevant engineering subjects. “In India too, the state power utilities face a serious experience shortage with a large number of senior staff retiring and many young managers moving to the private sector. Power utilities of course need to recruit, but to attract reasonable talent they must professionalize their operations and introduce modern management methods. It is time they invested in their people and processes”, concluded Kameswara Rao.
ENDS

Notes to Editor:

1. Energy and Efficiency: Utilities Global Survey 2007’ is a major survey of boardroom opinion inside utility companies conducted annually by PricewaterhouseCoopers.
2. It includes data from 119 senior executives, from 114 utility and utility investor companies across 44 countries. Research covers Europe, the Americas, Asia-Pacific, Africa and the Middle East. The majority of utility participants were senior vice presidents and presidents, CEOs and other senior managers.
3. The report includes a series of regional reports covering the Americas, Europe, Asia Pacific and the Middle East and Africa; individual country and regional surveys covering the US, Canada, South America and Australia; and a round-up of developments in the fast-growing BRIC countries (Brazil, Russia, India, China).
4. The PricewaterhouseCoopers Global Energy, Utilities and Mining group ( www.pwc.com/energy ) is the professional services leader in the international energy, utilities and mining community, advising clients through a global network of fully dedicated industry specialists.
5. About PricewaterhouseCoopers : PricewaterhouseCoopers Pvt. Ltd. (www.pwc.com/India) provides industry - focused tax zand advisory services to build public trust and enhance value for its clients and their stakeholders. PwC professionals work collaboratively using connected thinking to develop fresh perspectives and practical advice.

Complementing our depth of industry expertise and breadth of skills is our sound knowledge of the local business environment in India. PricewaterhouseCoopers is committed to working with our clients to deliver the solutions that help them take on the challenges of the ever-changing business environment. PwC has offices in Bangalore, Bhubaneshwar, Chennai, Gurgaon, Hyderabad, Kolkata, Mumbai, New Delhi and Pune. “PricewaterhouseCoopers”, a registered trademark, refers to PricewaterhouseCoopers Private Limited (a limited company in India) or, as the context requires, other member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.

The name PricewaterhouseCoopers is one word, with uppercase P, uppercase C, and all other letters in lower case.