PwC has released a report highlighting the pace and scale of disruption in the power and utilities sector.
PwC’s 14th global power and utilities report shows that over two-thirds (70 perc ent) of senior executives in the sector who were surveyed expect significant or very significant market model change by 2030, up from 41 per cent in 2013 who said utility business models would be ‘completely transformed’.
Mark Coughlin, PwC Australia’s and Strategy’s regional power and utilities leader, believes this shift is also happening locally, with the Australian sector facing a ‘trilemma’ of regulation, technological disruption, and changing customer behaviour.
“We knew disruption was coming to the sector, and last year we predicted that ‘peak disruption’ would happen around 2025 – today’s report is telling us it’s likely to happen much sooner than we expected,” he said.
“Locally, the sector is facing significant headwinds from distributed generation, declining demand, increased costs and regulatory rulings.”
“The challenge for local operators is creating room to invest in new businesses and establish new business models, at the same time as ‘keeping the lights on’ – that is, meeting the immediate needs of their customers and investors.”
The report found that power utilities businesses around the world are reporting a difficult transition as energy transformation takes hold with increased concern about immediate risks to the power system as well as challenges adjusting to longer-term changes.
In the short-term period to 2020, concerns about nearly all of the major risks facing the power sector are rising.
Alongside the leading risks of regulatory uncertainty and the difficulties of attracting investment, companies are moving to high alert on other key risks, particularly:
- Sophisticated cyberattack – 52 per cent highly concerned for 2020, up from 12 per cent now
- Emissions/air pollution – 42 per cent highly concerned for 2020, up from 16 per cent now
- Market dislocation – 45 per cent highly concerned for 2020, up from 37 per cent now
The survey reflects a sector that is mindful of the challenges facing it but is uncertain about how successfully they can be addressed. For example, in the case of technological change, more survey participants say their company is struggling to respond effectively than are dealing with it successfully – 38 percent versus 25 per cent, with the remainder somewhere in between.
“Looking ahead, we think predictions of a ‘death spiral’ for companies in the power and utilities sector are overdone, but the potential for a ‘near death’ experience is very real.”
“On the upside we’re confident that the energy companies who ‘grasp the nettle’ and respond quickly to these new market conditions and customer demands will reap the benefits over the medium term.”
“We are already seeing operational moves in our local market that are in line with global predictions, for instance, large Australian utilities are moving into distributed generation and looking to shift away from centralised fossil fuel generation.”
“On top of this, Australian utility companies and their global counterparts are seeing a much bigger future for electric vehicles and smart homes – much of this will be underpinned by new market players focused on energy services and big data management.”