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< Ofgem voices concern at the pressure energy companies are putting on debtors to repay quickly | Gazprom and Siemens to work together on smart metering >
Utilities hit by recession 'must rethink business' says Capgemini
The fall in energy demand caused by the recession is causing European energy utilities to fundamentally re-examine their business plans. That was the conclusion of Capgemini's regular European Energy Markets Observatory (EEMO) report.
The report found that as global electricity demand has fallen by 3.5 per cent - the first time it has fallen since World War 2 - while global gas demand has fallen by 3 per cent. Falls are still higher in the European bloc - as much as 8 per cent lower gas demand and 5 per cent reduction in electricity demand.
Capgemini said utilities had to respond to this new reality. In the short-term, they are deferring or cancelling investments in infrastructure and divesting assets. In the longer term, a deeper change in their business models is needed.
Capgemini noted that utilities had invested heavily in cross-border acquisitions in recent years and as a result their 'war chests' have dwindled. Meanwhile, price reductions and lower consumption have reduced revenues, creating a perception of financial risk and a drop of rating ratios.
To recover their footing, utilities now need to put in place a number of measures, Capgemini said.:
In the short-term, they need to restore investors' confidence. Many European Utilities have postponed their investments and announced large divestment plans, particularly around network infrastructure. These assets, with their recurrent and predictable revenues, can attract new types of investors.
In the mid-term, utilities have to adapt to the new EU legislation including the Climate and Energy Package. They need to strive for more CO2-free generation through renewables and nuclear energy, as well as act on the demand-side management by implementing new technologies such as smart metering and smart grids.
In the longer term, utilities actually could become advisors on energy and CO2 savings to their clients. However, their incentive to do so is unclear today, the company said.
Many UK energy executives still believe the UK can be a green energy leader and can be in the forefront of installing smart meters and smart grids. That view was revealed in exclusive research carried out jointly by Utility Week and Capgemini. For full details of the executives' views on meeting carbon emissions targets, and the possibilities for measures such as smart grids and dynamic demand, see Utility Week this Friday.
The Eemo is an annual report that tracks the progress in establishing an open and competitive electricity and gas market in EU-27 (+ Norway and Switzerland) as well as the progress on the EU Climate-Energy package objectives. The eleventh edition - built on a majority of public data sources combined with Capgemini methodology and knowledge - is based on 2008 and winter 2008/09 data sets.
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