UK: The Future Of The Global Power Sector - Preparing For Emerging Opportunities And Threats

Last Updated: 1 May 2015
Article by Deloitte Energy & Resources Group

Most Read Contributor in UK, August 2017

Power industry challenges

There is little doubt that power is a key driver of human progress. In fact, to maintain our way of life and the economic development of our society, we require continuous access to power at an affordable price.

Given the impact of power on personal welfare and economic effectiveness, power suppliers must maintain strict quality standards to provide their services at competitive costs. As a result, utilities around the world must adhere to extremely high performance ratios. At the same time, they need to:

  • Collaborate effectively to develop an infrastructure that guarantees supply over the medium and long- term, and
  • Remain very respectful of the environment, particularly given society's reluctance to continue relying on polluting power generation technologies.

In light of these realities, utilities are facing a range of short-term challenges, which are driving the need to transform their business models. As part of this transformation, some utilities are looking for ways to:

  • Manage their investment and operating costs more effectively.
  • Integrate multiple power generation sources effectively, from small-scale renewables generated by micro-grids and other distributed generation sources, to larger scale conventionally fueled plants.
  • Promote the effective development of new electric technologies capable of properly managing power systems that have a large penetration of renewable generation, distributed generation, energy storage, electric vehicles, demand management programs, etc.
  • Nexus between power and water, e.g. 39% of all freshwater withdrawals in the US are used for power production.
  • Develop outstanding commercial capabilities to proactively access the market.
  • Adopt large scale IT technologies to improve service effectiveness and efficiency.
  • Predict and prepare for ongoing regulatory, political and environmental changes, which could include re- regulation in certain cases.
  • Internationalize the business by pursuing opportunities to grow in new markets and achieve the economies of scale they need to be competitive.

Although no single vision exists for the way the global power sector will evolve in the future, one truth is clear: the industry sits on the cusp of massive change. The way power companies respond will depend on where they operate, their regulatory environment, the structure of their portfolio of assets, evolving customer demands, their economic maturity and the level of technology adoption they require.

Yet, in most scenarios, the utility of the future will act as the glue that maintains the connections between multiple power generation sources – from small-scale distributed renewables to larger scale conventionally fueled plants, micro-grids and electric charging stations – and customers.

To succeed in this goal, the utility of the future will transform into that of a service company that enables effective energy solutions defined by high-quality service standards. This, however, will require major transformation of business and operating models. In short, today's utility model is outdated. Struggling to meet client needs while maintaining acceptable shareholder returns are currently common concerns.

Of course, the speed of change depends on where businesses are located. Conditions related to demand evolution, CO2 regulation, regulations for distribution, transmission and retail, market structure, etc. are completely different in different regions.

In this assessment, our aim is not to provide a roadmap for the future, but rather to identify the drivers shaping this future in different global regions.

The current power company environment

Historically, the power sector was characterized by a mature technology and a stable legal framework that guaranteed the profitability of the business: companies were managed according to the excellence of their technical criteria.

However, due to the sector's social and economic impact, companies are under strong pressure to improve their efficiency to achieve not only greater cost competitiveness, but also an outstanding level of environmental performance.

This situation differs from one region to another, because of the different market growth levels:

  • Mature markets, characterized by slow growth, typically experience a high level of competitiveness between players (as is the case in many European Union countries and the United States).
  • Developing markets, such as South America, Asia or Africa, tend to have higher rates of growth coupled with a lower level of competitiveness. These circumstances tend to create more opportunities for doing business (and/or investments) in new markets and providing new services.

Additionally, power companies are under pressure to demonstrate responsible practices, innovation, flexibility, sustainability, resilience and tolerance.

To expand, improve their profitability, gain a competitive advantage and maintain their commitment to high levels of environmental performance, companies will have to make changes to their strategy and operational models, related to at least the following areas of focus:

Areas of focus

As power companies seek to position for the future, they will need to resolve issues around:

  • Energy demand
  • Penetration of renewable energies
  • The degree of commitment to CO2 emissions reduction
  • The different cost of fuels and generation mix infrastructure
  • Coal: an effective (cheap) solution?
  • The increase in shale gas production
  • Nuclear power upgrading or decommissioning
  • Pressures to reduce power prices
  • Ancient grid infrastructure and the need to adapt
The Future Of The Global Power Sector - Preparing For Emerging Opportunities And Threats

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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