Forecasting the future is risky, but businesses that fail to look forward will almost certainly be left behind in an increasingly competitive, globalized world. This report takes the pulse of current thinking, insights and expectations from industry executives and Ernst & Young specialists. The results can be used as a benchmark for your business and can feed into strategic decision-making.
Based on a survey of companies in 20 countries, we identified a top 10 list of risks and opportunities, many of which are interlinked. Each ranked risk and opportunity was then discussed with relevant business executives and Ernst & Young specialists, to gather the insights and perspectives on which this report is based.
Results reveal that disruptive energy policies, regulations and compliance demands are front-of-mind risks for utility executives in most regions, while economic volatility and unprecedented infrastructure investment requirements remain major concerns. Opportunities are, perhaps predictably, dominated by emerging markets, but acquisitions, alliances and ancillary services are key areas of interest for many power and utility companies around the world.
This year, we have chosen to present our results in the context of four key themes. These include: economic volatility, compliance and stakeholder confidence, business model evolution and operational challenges. The 10 risks and the 10 opportunities are divided over these four themes, based on their relevance to each, and discussed in that context.
These themes of risks and opportunities are previewed in the executive summary, to give an overview and a dual perspective on the themes contained within them. Ultimately, though, the purpose of this report is to provoke discussion and debate about how your company is meeting today’s, and tomorrow’s, challenges and opportunities. Are the items on the global lists similar to those you are monitoring? Are they your top 10?
Finally, we would like to extend our thanks to all our survey participants who took the time to share their thoughts and experiences with us. We look forward to discussing further the implications of these survey findings with our clients and prospects, regulators and governments, as well as analysts and universities.
A shift in thinking is evident in this year’s report of the top risks and opportunities of the world’s leading power and utility companies. It is clear that utilities recognize that their traditional business model is under threat and that new approaches are needed to ensure future success.
Since our 2011 update,1 the risk surrounding the cost and accessibility of capital has eased while regulation and compliance obligations are now considered the sector’s biggest concern.Opportunities are seen mostly in emerging markets while acquisitions or alliances to gain new capabilities are also desirable, as is interest in new energy or ancillary services. New risks this year include capital project execution, which vaults to number six, and aging generation fleet and network infrastructure, which comes in at ninth. Increased investment in generation capacity and delivery infrastructure in emerging markets enters the top 10 list of opportunities for the first time as does improving the onshore and offshore wind supply chain.
Top 10 risks and opportunities radars
The risk and opportunity radars in this section present a snapshot of the top 10 most highly ranked risks and opportunities facing power and utility businesses around the world.
At the center of the radar are the risks and opportunities that our survey respondents described as having the biggest impact on power and utility organizations worldwide. Arrows indicate the extent to which the ranking is expected to increase, decrease or remain the same between 2013 and 2015.
We have grouped the risks and opportunities for power and utility businesses into four areas that correspond to Ernst & Young’s
Growing Beyond model:
? Customer reach: maximizing the potential market opportunity for products and services
? Operational agility: improving organizations’ ability to deliver effectively in a quickly changing market
? Cost competitiveness: sustaining companies’ economic viability
? Stakeholder confidence: allowing firms to build stronger relationships with their stakeholders
This provides a useful means of comparing risks and opportunities across other sectors analyzed by Ernst & Young.
Top 10 risks
The figure opposite reveals the top three risks:
? Compliance and regulations: responding to an incessant stream of regulatory demands consumes resources and limits the effectiveness of long-term planning
? Commodity price volatility and access to competitively priced long-term fuel supplies
? Political intervention in power and utilities (P&U) markets, which survey respondents anticipate being the top risk by 2015
New risks this year include capital project execution, which enters the top 10 in sixth place, and aging generation fleet and network infrastructure, which comes in at ninth.
Top 10 opportunities
With risk comes opportunity. The figure opposite reveals the top opportunities that are forecast to remain the same in 2015:
? Rising energy demand in emerging markets
? Acquisitions or alliances to gain new capabilities
? Growth in energy and ancillary services markets
Increased investment in generation capacity and delivery infrastructure in emerging markets is a new opportunity this year, placing eighth in our survey, and is seen as a good strategy to partially offset falling revenues from reduced demand in domestic markets. Improving wind generation supply chain efficiency is also a new opportunity this year, reflecting the growing demand for wind generation and the need to minimize deployment costs.
