The road ahead Gaining momentum fromgy transformation - PDF document

The road ahead Gaining momentum fromgy transformation www.pwc.com/utilities PwC global power & utilities Megatrends anddisruptionsare havingofound implications forthe strategies and futurerole of companies all alongthe power utility value map the imhe power sector and lookmean for futurmarket and Making the right moveswill be vital ifpanies are to be asuccessful part of energytransformation. Introduction The impact on the power sector from the convergent forces of changes in customer behaviour, new forms of competition, renewable and distributed energy andregulation is creating new opportunities and challenges. The root causes for thesedevelopments are global megatrends that are affecting all markets and are havingparticular impacts on power. This report looks at the overalltrends that are shaping tomorro矕smarket environment and the marketmight ensue. It looks at thedisruptions affecting companies and introduces PwCÕs Energyormation framework. The framework helps companiesmap the effect on them all the waycauses through toimpacts on future market designsand business models, addressingmarket design look like? Who will be your competitors?want?responding?ꔀWhat are the implications for the 秕s purpose, role and utilities sector have provoked sometic phrases from headline픀re much more optimistic.True, if companies don픀t stay aheade, the dangers they face willmoves to address the challenges theyace and embrace the opportunities,energy transformation. Norbert Schwieters Global Power & Utilities Leader The road ahead Gaining momentum from energy transformation he forces of transformation 3Disruption dynamics 6ooking ahead: future market and business models11 Discover more29 The road ahead Gaining momentum from energy transformation Energy transformation is being driven by five global megatrends interacting withand amplified by a set of shifts taking place within the power sector. The fivemegatrends Ð technological breakthroughs; climate change and resource scarcity;demographic and social change; a shift in global economic power and rapidurbanisation Ð are challenges for all businesses. The forces of transformation But in the power sector their impact is madeall the greater by a number of simultaneousdisruptions, involving customer behaviour,competition, the production service model,tribution channels, government policyand regulation. The extent and nature ofthese disruptions vary from market tomarket. But in many markets, their intensityis making their impact transformational rather than incremental.Some of the changes arise from themegatrends Ð for example the regulatoryencouragement of renewables in response to climate change concerns while others heighten the impact ofparticular megatrends Ð for example the potential for rapid urbanisation totributedenergy and micro-grids. Together these megatrends and thechanges taking place in and around the sector have profound implicationsfor the strategies and future role ofcompanies all along the power utilityvalue chain. They are combining to have a disruptive impact which will marketmodels and require companies to pursuenew business models (see figure 1). Demographic How are megatrendsaffecting the disruption factors mean for future market models? are likely to evolve?ansformations are necessary? Customer behaviourpetitionservice modelGreen command Ultra distributedLocal Energy RegionalchannelsregulationShift in AcceleratingClimate change and resource scarcityTechnological breakthroughs Operating model/Financial performance Power & utility company transformation Figure 1: PwC energy transformation framework The road ahead gy transformation Global forces Ð five megatrendsimpact power Climate change andresource scarcity The energy sector is on the frontline of concerns about climate change. he sector as a whole accounts for morethan two-thirds of global greenhouse-gas with just over 40% of thisstemming from power generation.Resource scarcity or availability, and thessociated geopolitics and economics ofs, oil and coal supply, are key factorsshaping power market policy. growing emphasis on renewables is aresponse to both climate change andsecurity of supply concerns. In the USalone, over 30% of new electricitygeneration capacity added in 2010Ð2013involved solar and wind power, up from photovoltPVPVw present on morethan 1.2 million Australian homes and In Germany, renewables accounted for24% of gross electricity consumption in2013 placing the country slightly abovethe growth trajectory needed to reach its2025 target of 40 to 45%. ficiency has also risen up theenda. Together,renewable technologies, energy saving and a different customer outlook aretransformation of theelectricity environment. They are causingthe value chain to shift, away from largeconventional power plants towards localpower generation, and a greater focus ondistributed energy and demandTransformation is also very relevant todeveloping countries, many of which faceexisting demand for electricity whilealso facing huge demand growth and thextend access to those who don해have electricity. The need for good demandery familiar inmanaged outages and demand restrictionsare commonplace. Technological advancespresent the opportunity for expansion ofpower in ways that may leapfrog theaditional grid evolution route. Technologicalbreakthroughs Technological innovation is at the heart of the shifts that are occurring in theower sector. Advances are happening inmany parts of the sector Ð for example, in large-scale technologies such as offshorewind and high-voltage DC transmission, in distributed and smaller-scale customer-ased energy systems and on the load wer is being transformed from atop-down centralised system to one that is much more interactive but alsodecentralised and fragmented. Elements of the old centralised system are becomingstranded and there픀s a need to find analternative investment model thatrecognises technological advances. enewable power isreplacing or has the potential to replacefossil fuel generation. Smart grids areor greaterinteractivity with customers. And thescope for even more transformativetechnological breakthroughs is beingtaken more and more seriously all thetime. A breakthrough in the cost andacticality of battery storage technologyrid customer self-sufficiency when used in combinationwith Ôown generation픀. ÔPower to gasÕ istential transformative technology.All bring opportunities for incumbentpower companies but many also have theeffect of eating away at a utility compan秕straditional revenues and undermining thetraditional utility business model. Other technologies, notably thecombination of the internet, mobiledevices, data analytics and cloudtering, present opportunities for utilitycompanies to get closer to the customer,gy partnerÕ role and exploit data opportunities. Analyticsare generally utilities, will need to be a core strength in the future if companies are to fend entrants whoalready have these capabilities at the heart of their business. The road ahead Gaining momentum from energy transformation Shift in economic power The focus of global growth has shifted.ooked at historically, we come to realisethat western economic strength is arelatively recent phenomenon and thecurrent developments we see are essentiallyrebalancing of the global economies. As fast-growth economies become exportersof capital, talent and innovation, thedirection of capital flows is being adjustedin a way that is quite different from thetraditional routes from developed-to-emerging and developed-to-developedcountries. We are already seeing significant east-westt-south investment flows in powermarkets, involving both financial investorsand power sector corporate investors. ate-owned powerand utilities companies have been activein their search for suitable internationalpower utility and grid investmentopportunities. Europe, South America,Australia and other parts of Asia have allargets for expansion. Sovereign wealthestments in thealso become multi-directional.power companies isscarce capital from this global flowof capital, minimising the risk of strandedinvestments and seeking innovative ways oftment in replacement assets. Demographic changes Within the next minute the global opulation will rise by 145. By 2025, weÕll have added another billionpeople to reach about eight billion.Explosive population growth in someareas set against declines in othersakes for very different power marketgrowth potential in different parts ofthe world. AfricaÕs population isprojected to double by 2050 whileEurope픀s is expected to shrink. The growth prize for power companiesof serving expanding populations is big one. For example, NigeriaÕspopulation is expected to exceedicaÕs by 2045. But the infrastructurechallenge in many countries is immenseand not all growth markets are readilyCompanies seeking to reposition theirgeographic footprints towards faster-growth countries will also need to haveclear view on the impact of energytransformation on these countries.ospect of bypassing the grid andnew local distributedket models is notechnologicalreductions continues. Accelerating Over the next two decades, nearly all ofthe worldÕs net population growth isxpected to occur in urban areas, withabout 1.4 million people Ð close to thepopulation of Stockholm Ð added eachweek. 2050, the urban population willase by at least 2.5 billion, reachingtwo-thirds of the global population. Fast urban expansion presents a majorchallenge and an opportunity for powerutility companies. The speed of urbangrowth puts a big strain on infrastructuredevelopment. In Africa, already large citiessuch as Lagos, Kinshasa and Cairo aregoing to become megacities, with moreNairobi is set to more than double betweennow and 2025.Power companies can play a pivotal role in ensuring future cities become ÔurbansmartÕ rather than Ôurban spraw法. They have the potential to be lead playersat the heart of future city infrastructureequire a new mindset and theelopment of new partnerships. urbanisation in fast-growth anddeveloping economies takes a differentorm than in the west. In the former, thechallenge is very fast growth on top ofalready stretched or absent infrastructure.In the west, rural urbanisation is a trendalongside big city growth. Faster technology development, falling costs The time it takes to go from breakthrough technology to mass-market application is collapsing. In the US, it took the telephone 76 years to reach half the population. The smartphone did it inunder ten years.The price of new technologies is falling equally rapidly. An analysis by UBS predicts shrinking ts will make the combination of electric vehicles, solar panels and stationarybatteries for excess power a compelling proposition in many markets within the next ten years. It estimates the combination of an electric vehicle + solar + battery should have a payback of s, depending on the country-specific economics. hat, the electricity generated istruly Ôfree electricityÕ for the remainder of the lifetime of the equipment.Falling costs have the potential to introduce a new challenge to the power utility business model. If they translate into actual falls in the price of electricity itself, the industry will have to move away from the default assumption of ever-rising prices, on which many of its deals and investmentare based. The road ahead Gaining momentum from energy transformation The disruption taking hold in the power sector is just the start of an energytransformation. It픀s not a question of whether the business models pursued in the sector will change but rather what new forms they will take and how rapidlycompanies will have to alter course. Companies need to be sure they have fullyfactored into their strategic planning the megatrends and changes discussed in the previous chapter. Disruption dynamics hange will be different ineach market and each specific situation.The important thing for companies is thatthey assess their strategy and implementthe changes they need to make in time or,even better, ahead of time. Already, ofeset their compassesBut will this be enough and what moresee five areas in which disruption ishaving an impact and where it will beimportant for companies to assess theirstrategies: ꔀcustomer behaviour competition ꔀthe production service model ꔀdistribution channels ꔀgovernment and regulation. Together they form the context in whichet and business models willidentify developments that are happeningand which, if they accelerate orimpact in combination, could intensifydisruption dynamics. Snapshot: Google eyes power opportunity oundtable on customer transformation, ibed the internet as Òmachines talkingto machines. It can develop in all sorts of ways whether it is components on a 747eplace me, IÕm starting to leakÕ.Ó Movingved: ÒAll electronic devices will talk about theirpower needs to an aggregator and you can have an auction for the power for eachates are.팀he US. Its January 2014acquisition of Nest Labs for US$3.2bn also gives it a position in home automationwith ownership of a company that has built a position selling thermostats andhe home. At the time of the acquisition, Tony Fadell, CEO of Nest,said: ÒNest will be even better placed to build simple, thoughtful devices that makelife easier at home.팀 The road ahead Gaining momentum from energy transformation Customer behaviour We픀re already seeing a gradual erosion power utility company revenues asdistributed energy gains an increasingfoothold. Some commentators go so far as to predict that customers will besaying Ògoodbye to the gridÓ in theuture. In some places, it픀s alreadyhappening. Significant changes in the economics and practicalities of self-generation and storage are neededsuch a scenario to occur on any kind But even if customers donÕt literally saygoodbye to the grid, power utilitycompanies face the prospect of playing therole of being providers of secondary orback-up power to customers. Instead, theycould become part of the change by being more active participants in the self-generation market, providing adviceuipment, metering and using thesecure more of the homeand business services space. The growth in self-generation can create areinforcing dynamic. As well as the declinehereis the impact of cost pressures on thecentralised system which, in turn, reinforcesmovement to decentralisation. The reaction of some in the industry hasbeen to press for new regulatory policies to allow for some form of cost recovery in recognition of utilities being left withthe fixed cost of the grid but a shrinkingrevenue base. But as one academic studytepsvery well could insulate the utility fromsolar PV competition but at the same timeeate substantial medium- and long-termrisks, including those of customererral of adaption, andstimulation of enhanced competition.팀 Both in terms of regulatory relations andalign their ambitions with those of their customers in a new energy future,ensuring their services are relevant to and cost-effective for as many customer Competition Energy transformation is shifting thepportunity for good margins into newparts of the value chain. But lowerbarriers to entry in these areas of thevalue chain and the need for newcapabilities mean there is the prospect existing companies being outflankedand outpaced as more nimble and ablecompetitors seize key revenue segments. ew roles for companies come into view.In a distributed energy community with its own micro-grid, players other thanpower utilities can play an energymanagement role. This could be for localsystems such as transport networks,residential communities or industrialFor example, distributed energy is a keyfocus both for incumbent power utilitypanies and for new entrants. It픀s a biget space, worth tens of billions. It covers a wide spectrum of opportunities,management activities that save energy, to local generation, both small-scale andnetworks, through to distributed storagethat can shift loads or, ultimately, end rid dependency.Engineering and technology companiesuch as GE, Siemens and Schneiderlectric have long been important playersas equipment providers in larger-scalesegments of the distributed energy market. The growth and extension of distributednergy is likely to blur the boundariesbetween such companies and the powerutility sector, both at the individualcustomer and community levels. emand management services are anotherkey area and, already, we see companiessuch as Kiwi Power in the UK providingservices to industrial and commercialclients, offering demand reductionstrategies that they claim might typicallysee larger businesses reduce theirelectricity bills by around £100,000. 10 In addition, there is considerable interestfrom companies seeking to explore theopportunities that come from existingrid and distributed energyprovision. ÒThe battleground over the in electricity will be at thehouse,Ó David Crane, CEO of NRG Energy,told Bloomberg Businessweek. ÒWhen wethink of who our competitors or partnerswill be, it will be the Googles, Comcasts,We arenÕt worried about the utilities,hey have no clue how to getbeyond the meter, to be inside the house.팀 1 툀Utility companies need to align their ambitions with those of their customers in a new energy future, ensuring their services are relevant and cost-effective.팠 The road ahead Gaining momentum from energy transformation The production service model The production service model ofcentralised generation and grids is beingoined by a much more disintermediatedand distributed model. New supplysources requiring centralisedinfrastructure, such as offshore wind, are coming onstream but the danger or utilities is that other assets andinfrastructure are left stranded. The centralised infrastructure that haslong been a source of strength of theindustry can be a source of weaknessvulnerable to market, policy or disasterrisk. And we픀re seeing all three of theserisks currently playing out in Europe, In Europe, the changing economics ofgeneration brought about by acombination of the rise of renewables, thecollapse in the carbon market and cheaperinternational coal prices has left much gasgeneration out of the market. Even modernpleted as recently as 2013, havehad to be temporarily mothballed andhers have been taken out of themarket more permanently. In total, overthe course of 2012Ð13 ten major EUof over 22GW of combined cyclegas turbine (CCGT) capacity in response topersistently low or negative clean spark8.8GW was either builtor acquired within the last ten years. 12 Disaster risk led to all of Japan픀s nucleareactors being gradually taken offline fter the 2011 Fukushima disaster andthey remained offline three years later.Across the world in Germany, the reactionto Fukushima was to begin to phase outuclear power altogether. Official policy in Japan is to bring plants back intooperation, with the first restart expectedto be announced in late 2014, as and whenthe atomic regulator deems new stricterafety standards are being complied with.But opinion polls have consistently shownthat a majority of Japanese are opposed torestarting reactors and nuclear assets areunlikely to regain the same role in Japan픀senergy system as they had beforeFukushima.In the US, one can draw a direct line fromenvironmental policy to the stranded asset risk faced by many of the countr秕scoal generation plants. Coal-fired powerthe Mercury and tandards (MATS), whichrequire significant reductions in emissionsoxic metals. The standards are scheduled to take effect in 2015 and 2016, with generatorsneeding to install costly pollution-controlequipment if they want to keep their Information Administration expects of coal generation to shutdown between 2012 and 2018 Ð areduction of about a fifth. 3 furtherorm of theproposed Clean Power Plan, which willrequire carbon emission from the poweror to be cut by 30% nationwide below 2005 levels by 2030.These developments highlight the risk ofover-reliance on a concentrated centralisedpower generation asset mix. The wrongvulnerable to rapid transformation, arising from market or policy forces or the forces of events, in the case of nuclear.Such forces provide a wake-up call whichely to accelerate the move totems. Distribution channels In a digital-based smart energy era, thexpectation is that the main distributionchannel will be online and the energyretailing prize will hinge on innovativedigital platforms to secure the energyautomation, own generation and energyfficiency customer space. Already, many companies are shifting theirpositioning to cluster energy managementfferings around a central energyefficiency and energy saving propositionand using new channels such as socialmedia to engage with customers. But dopower utility companies risk losing out tonew entrants from the world of online data and digital technology?risk for energy companies is that theirdistribution channel to end customersbecomes disintermediated in ways that not dissimilar to what has happened and booksellers with the advent of Amazon. Not only is ket for incumbentsdominated by the new platform but theactual demand for product is eroded as or for And, of course, the offering is now wider than just books, with thecombination of a trusted brand and sheer presence providing a marketplacejoining consumers to a wide range ofproduct providers. Smart grids, micro-grids, local generationopportunitiesto engage customers in new ways.Increasingly, we are seeing interest in he power sector from companies in the online, digital and data managementld who are looking at media andentertainment, home automation, energysaving and data aggregation opportunities.In a grid-connected but distributed powerare roles for intermediariessupply and demand ratherthan meet demand itself. 툀Do power utility companies risk losing out to new entrants from the world of online data and digital technology?Ó The road ahead Gaining momentum from energy transformation key consideration for incumbent powertilities is if their brands are perceived being part of the past that is beingbroken away from rather than the futurefor customers. An energy saving ordemand management proposition may beerceived as more credible coming from new entrant rather than an incumbent, so use of the brand needs to be carefullyconsidered. nother important challenge forcompanies arises from the need to beexpert at managing data in a smart home, smart city and smart companyenvironment. As well as data from smartdevices and the grid, additional layers of information about demographics,behaviour, customer characteristics andother factors will often be required to bestexploit the data opportunity. Many powerutility companies already use sophisticateddata analytics for customer segmentationbig data from social media and learning Snapshot: A weakened capital base In Europe, the erosion of utility company earnings has had an inevitable estment attractiveness. The Economist reported that Òin 2008 the top ten European utilities all had credit ratings of A or better. Now (in 2013) only five do.팀 4 Share prices were similarly hit over the In the US, the power utility share price story has been much healthier but the association representing US shareholder-owned electric utilities arning note about the capital implications of energy transformation: ÒWhen customers have the opportunity to reduce their use of a product or find another provider of such service, utility earnings rowth is threatened. As this threat to growth becomes more evident, investors will become less attracted to investments in the utility sector. This will be manifested via a higher cost of capital and less capital vailable to be allocated to the sector.팀 15 Government andregulation Energy is by its nature a key economicand political issue. More than in manyther sectors, firms in the power sectordepend on the political context for theirlicence to operate and public trust intheir activities is a big factor. he cost of power is an important element in household budgets as well asbusiness and industrial competitiveness.The availability of power is a Ômake orbreakÕ matter for everyone. And itsinfrastructure is the centre of oftencontroversial planning debates. So it픀s inevitable that the activities ofpower utility companies are never far from the centre of the public and politicalspotlight. Recent and current events indifferent countries discussed in the earliersection on the production service modelhighlight the potential for the public andpolitical will to alter the nature of theThe political context shapes the utilityusiness model. Changes in that contextan dramatically impact utilities. This hasalways been the case but, in a moredynamic energy transformation context,political and regulatory decisions becomeven more significant. The differentpolitical approaches to energytransformation in different countries arekey to explaining why the impact on fossiland nuclear generation has been faster nd more dramatic in Europe compared to elsewhere.more dynamic environment also elevates the importance of public trust and perception. Energy transformation is extending the scope for the public tovote with their feet, not just by switchingsuppliers but by reducing dependence on utility companies altogether. 10 The road ahead Gaining momentum from energy transformation The need for innovation Incumbent companies that donÕt innovatecould risk seeing themselves succumbingto the pressure points and being eclipsedthe same way that incumbents likeKodak, Blockbuster video stores and highstreet booksellers were in other sectors.Certainly, sector transformation couldshrink the role of some power utilityompanies to providers of back-up power. In our most recent Global Power andUtilities survey, only a minority of oursurvey participants expect centralisedgeneration and transmission to play thelead role in meeting future demandgrowth across the main markets of Asia,Europe and North America. 16 Instead,energy transformation will gather paceexpect that growth will becomemore innovation-dependent, with successinnovative technologies, products,services, processes, and business models stayahead of change and create new marketsfor their products and services. In Africainnovation will be driven in part by thefact that power utilities will not be able to support the increasing demand forevaluate other solutions, such as looking eneration.Business model innovation is just oneelement of the innovation required but islikely to be a key part. The difficulty is that business history tells us that theajority of business model innovations areintroduced by newcomers and incumbentsoften find it hard to respond successfully.Incumbent companies sometimes try toold on to the existing model for too longor fall between two stools as they try tomanage two competing business models at the same time Ð the original businessmodel and the new model. One way to avoid this trap is to separateout responsibility for developing newbusiness models and value propositions.For example in banking, this is what HSBCdid in the UK when it developed its highlysuccessful First Direct telephone, and nowinternet, banking service in the 1990s. Not only was branding separate from itsthen ÔMidland/HSBCÕ traditional branchhe service operatedindependently of the parentcompany. Another route for separation isentrants and smaller firms. The incumbentutility can then nurture these innovationsand help scale up the emerging dominantproducts or services. voiding a capital crunch As well as innovating, utilities need toake sure that a weakened investmentcase doesnÕt close off growth routes.Energy transformation is eroding thecapacity of utilities as investors. Some havesuffered rating downgrades. Others havead to deleverage, reducing debt relativeto cashflow, to maintain credit ratings.These developments, primarily affectingcompanies in Europe and some in Africa,ome at a time when they also face majorcapital investment challenges to replaceageing infrastructure as well as makeenergy transformation investments such as smart grids. In parallel, many suchutilities need to deploy capital to pursuediversification away from mature, low orflat-growth markets towards fast-growthregions. Global competition for capital is intense,and all the more so because the capitalconstraints faced in some markets stand incontrast to other markets. In the US, thechallenge for power companies has been to convince investors that peak stockained, a key part of which will be to demonstrate that theyhe challenges of energytransformation without facing the kind ed theirEuropean peers. Innovative and oaches to financing arebecoming more commonplace in thesector. Partnerships and strategic tie-upsvereign wealth funds, insuranceand pension funds, already becoming likely to increase in importance. 툀We expect that growth will become more innovation-dependent, with success coming to those companies that use innovative technologies, products, services, processes, and business models to gain competitive advantage.팠툀Sector transformation could shrink the role of some power utility companies to providers of back-up power.팠 The road ahead Gaining momentum from energy transformation 11 No-one can predict the future but it is important that companies take a clear viewon the ways in which their marketplace is likely to evolve and their compan秕sarious different possible scenarios. Looking ahead: future market At its heart, this means addressing keyquestions such as: ꔀWhat will future market design look like? ꔀWhat are the implications for my compan秕s purpose, role and ꔀWhat are the business models that need to pursue? PwCÕs energy transformation programmeincludes joint activities with companies to support their future strategies and map out the risks and opportunitiesinvolved. ꔀWhat are the implications for people and operational change? ꔀWhat will existing and new competitors ꔀHow best to continue to deliver shareholder value throughout the transformation process? Figure 2: The power sector has reached an inflection point where its future direction is much less predictable industrialisationArab oilnuclear and gasgenerationtechnologies destruction MarketliberalisationÔGolden ageÕ of utility reinvention?Flat and declining grid value?ÔDeath spiralÕ from disintermediation, technology disruption and customer Few disruptive elementsLess predictable future ukushimaemergency 12 The road ahead Gaining momentum from energy transformation Green command and control The Green Command and Control marketscenario represents a market in whichovernment owns and operates theenergy sector and mandates the adoptionof renewable generation and digitaltechnology. this scenario, we see vertical integrationas the norm (particularly betweengeneration and retail), and investmentdecisions made as a response to regulatorydirection. It is a market in whichrenewables may be cost-competitive orsupported under renewable policyinitiatives, whilst stranded thermal assetsmay remain operational even when privatesector owners would have taken closuredecisions. Ongoing capital investmentwould be subject to policy approval andwould feed into regulated tariffs.The market may combine a central gridwith distributed networks where the lattersocial policy initiatives such asrural electrification or reducing the level ofestment in major transmissioninfrastructure. There is likely to be anincreased level of investment insupport back-upeas of the grid.Consumer tariffs will reflect policydecisions and recovery of stranded costs,ed across central anddistributed networks.There may be some limited opportunitiesfor new market entrants Ð potentially asoutsource partners supporting state-ownedibutednetworks, or as compliance advisors to the regulator supporting tariffterminations and investment casebusiness approvals. Outsourcing supportfer local small-scaleas well as large project opportunities. For example, in South Africa theDepartment of Energy has mandated theprogramme with the goal of one millioninstallations on households andcommercial buildings over a period of five years, providing significant potentialor local capacity-building.ÔBusiness as usualÕ with the maintenance classic centralised Ôcommand andontrolÕ energy system may continue to be an option for some countries,although we expect to see an increasedfocus on technology and innovation ashis model develops. But already over thelast two decades or so, many countrieshave moved away from this ÔclassicmodelÕ and, through a combination ofregulator-led and market-led innovation,ave created markets characterised bydifferent ownership structures withvarying degrees of market liberalisation,customer choice and technologyadoption. Current change has so far, on the whole,been incremental and stopped short ofÔtransformative change픀, although many would see aspects of currentdevelopments in Europe astransformative. But we believe that, vation leads toenewable andsmart energy technologies, we are likelymarket models. Each market scenario can be described by a unique set ofcharacteristics and illustrates differentpoints along a series of transformationrange of characteristics in developing he scenarios, including ownershipstructures, the level of adoption ofrenewable technology, level ofthe wholesale market by customers,regulatory and policy involvement inket structure and operations, use ofdigital media and the mix of large-scaleWe outline below four new marketscenarios which represent transformativefrom wherewe are today. Power utility companies are unlikely to be in only one of thesescenarios but, instead, experience a blend of them with perhaps one beingappropriate path local, as well as global, factors. Future market We foresee a number of market modelsmerging. Unlike markets for manyother products and services, the role of governments is significant given theimportance of power to everyday lifeand economic activity. So the exactmarket shape for individual countrieswill depend on policy direction as wellas on other local factors such as theextent of competition and customerchoice, access to fuel, the nature ofexisting infrastructure, the degree of electrification and degrees ofinterconnectedness or isolation fromneighbouring territories. And, ofcourse, a crucial factor will be the pace of global technological change. The road ahead Gaining momentum from energy transformation 13 How might this market arise? We see two routes. In the first, it mightdevelop directly from a traditional,entralised Òclassic modelÓ where thegovernment takes policy decisions to investin renewable generation, smart technologyand local energy hubs. In the second, themarket may have undergone some degreeliberalisation and/or new entrants ingeneration or retail, but policy decisionsresult in control reverting to the publicsector. This might be the case, for example,the event of a political decision torenationalise or when a company fails andprivate sector entities are not prepared tostep in. We would see private sector players exiting the market and may see mergers of generators and/or retailers to supportgovernment policy preferences (forexample, a state-owned generatoroperating stranded assets as back-up or renewable generation, another state-pany operating small-scalerenewable generation and supplyinghin distributed networks). Which countries might adopt our view, a green command and controlmarket scenario is most likely to evolve inkets where there remains significantpublic ownership, single-buyer models orlimited interest from the private sector ininvestment, e.g. in China, selected SouthAmerican, Middle Eastern and Africanmarkets. Further, in some countries,renewable energy dominates the energyNorway. In such situations, it makes sensefor governments to encourage green poweror own use, thereby reducing any importof fossil fuels, and for earning extravenue from export of green power. Ultra distributed generation The Ultra Distributed GenerDGDGmarket scenario represents a market inhich generators have invested indistributed renewable generation, withinvestment decisions based on policyincentives and/or economic businesscases. It is a market with full unbundlingnd strong customer engagement, both in retail and as micro-generators. Market operation becomes more complexfor both transmission and distributionoperators, given the increased volume ofdistributed and renewable generation andthe continued operation of large-scalethermal generation, but remains centrallyoperated and does not fragment.Regulatory oversight and revenue pricecontrols are likely to address efficiency ofsystem operation and equitable treatmentgeneration in dispatch and systemsupport. In particular, determining whichmarket participants pay for the centralansmission grid becomes a criticalregulatory question.We expect to see stranded thermal assetsas distributed resources become cost-werlexibility of some distributed generationand the ensuing volatility of wholesaleprices. Risks to security of supply increaselikely to see continued policyand regulatory intervention to maintain anlevel of thermal capacity onthe system. Generators with distributedcapacity will have increased volumes ofoperational data to manage as they matchRetailers will need to continually reviewtheir trading and hedging strategies toprice volatility and to determinethe tariffs that can be offered to differenties of consumers Ð particularlyprosumers who offset their demandthrough micro-generation. challenges for system operators withcomplexities such as reverse flows, voltagemanagement, fault maintenance etc.,placing even greater importance on dataement capabilities. Generators,transmission system operators (TSOs) anddistribution system operatorDSOsDSOsneed to revisit the capability and skillsed from their staff and we expect tosee an increased emphasis on technologyspecialists over time.There are significant opportunities for ew entrants in addition to investment inenewable and distributed generation. We expect to see growth in participantsproviding aggregation services, both forsmall-scale distributed generation and foroad management. Offshore TSOs orprivate sector, localised DSOs linked to aportfolio of distributed generation willbecome more prevalent. There may be newroles for managing the interconnectionetween local networks or for managingand interpreting generation data. How might this market arise? We see the main driver of this model being policy decisions which result in asignificant increase in small-scaledistributed capacity over a relatively shortperiod of time. This might be led byretailers encouraging their consumers toreduce demand through becoming aprosumer owning micro-generation, byconsumers or by generatorstments to meet local communityneeds at a distribution grid level.Integrated investments in newcommunities that include distributedgeneration and a back-up connection tothe grid also support an Ultra DG marketarise through an evolving spiral ofvelopments, where there has been noconscious policy decision but investmentsover time have led to the closure ofreducing local demand requirements andrebalancing the system operations roles he TSO and DSOs. this market scenario? our view, an Ultra DG model is mostlikely to arise in markets where there isestment in distributedgeneration but where there is a strongnational infrastructure supported by policyobjectives, e.g. Germany or California. It could also arise in markets where thetunity for significant investment indistributed generation could support localnetworks or isolated developments whichequire periodic back-upgeneration from the transmission grid, e.g. Middle Eastern markets or Australia. 14 The road ahead Gaining momentum from energy transformation Local energy systems The Local Energy Systems marketcenario represents a market in which we see significant fragmentation of theexisting transmission and distributiongrids and local communities demandgreater control over their energy supply,market in which a local approach isadopted for serving remote communities. The market is likely to have undergone ull unbundling and experienced strongcustomer engagement, both as consumersand micro-generators, but recognises thebenefits of vertical integration for off-gridsolutions. Financial viability of distributedgeneration and distributed grids is a prerequisite. Strong policy support forfragmentation is required, either to allowlocal initiatives or to encourage andbusinesses to take control and build andate their own local energy systems.In its purest form, there would be a limitede-scale generation connectedto a central transmission grid. It wouldcontinue to support industrial customerswould be able to provide back-up forsecurity of supply reasons. We wouldxpect significant levels of strandedcapacity, which may close without policysupport. We see generators focusing on developingand operating small, distributedgeneration assets, sized to supportcustomers and most likely connected todistribution networks. Tariffs may wellacross the country as the costs ofsupply would be based on the localation assets. Customers may be ableto invest in the generation assets so thatthey have an incentive to manage theirdemand at times when the local capacityWe see a need for new approaches toecurity of supply, which we would expectbe provided by DSOs in the main,providing interconnections betweenlocalised grids. The role for the TSO wouldbe greatly reduced and would result inignificant overcapacity in transmission.The market provides a new set ofchallenges for the regulator, particularly in relation to a customer protectionbligation. Regulators will need to addressinterconnections between local energysystems, review the risk of disconnectionand put in place reporting oversightmechanisms to check that customers arenot being overcharged. Where a territoryhas existing transmission capacity, theregulator might also need to determineappropriate charging mechanisms for thetransmission grid, both in terms of whichcustomers should pay and what proportionof the stranded capacity should beThere are a number of new roles that temsmarket. Generators may wish to becomelocal energy operators providing a fullrange of generation, network and retailservices across a range of technologies.look at the option of becoming localsystem operators. Marketparticipants may look at the opportunitiesto link the power and gas markets. ovideO&M services to micro-grids to maintainthe capability and skill base required totheir stranded assets. his market arise? We see the main driver for Local EnergySystems to be policy decisions, based on an objective to increase ruralcaused by using diesel generation inisolated communities or to deal withcurrently unreliable/intermittent supply.Coupled with technology improvements icity storage and reductions in wind generation (for example), tariffsbecome affordable and Local Energyems become practical. Which countries might adopt his market scenario? see Local Energy Systems as havingmost relevance in developing countrieswithout a strong national transmissioninfrastructure. The fall in costs ofenewable generation and the improvedtechnology to support distributed gridsmeans that isolated communities could beelectrified without the need for majorcapital investment in transmission or fuelnfrastructure. We would expect to seecombinations of solar, wind, biomass andstorage technologies used in thesemarkets, for example in Africa, where anumber of such systems have already beenput into place. But in a country like India,where almost all generation capacity isgrid-connected, local energy systems based on renewable energy are likely tobe limited to island systems such as in the Sundarbans or Lakshadweep.gy Systems as beingsuitable for isolated islandsystems, such as are found in Indonesialikely to be cost-competitive storagetechnology to support distributedrenewable technology, CHP generationand limited thermal generation. carbon-intensive diesel generation, forxample in Alaska or the Philippines. In India, a new local approach to energy is taking root in some states in the form cing, whereby theDSO contracts out part of its licence areato franchisees. The road ahead Gaining momentum from energy transformation 15 Regional supergrid The Regional Supergrid market cenario represents a market which ispan-national and designed to transmitrenewable energy over long distances. It is likely to embrace some degree ofunbundling and customer choice. requires large-scale renewablegeneration, interconnectors, large-scalestorage and significant levels oftransmission capacity. The main challenge that will need to beovercome is regional regulation thatapplies across borders. National regulatorswill have limited responsibilities and willbe required to oversee national marketswithin the regional context. In somesituations, geopolitical risk will also be amajor factor, for example if supply reliesgeneration located in neighbouring butpolitically sensitive regions. approach to generationinvestment decisions, where generators ormerit order and interconnector accessrequirements as part of their business casethe Democratic Republic of the Congo inthe case of the Inga hydro dam project).phasis on large-scale renewablegeneration means that we are likely to seestranded thermal assets, which wouldrequire regulatory support to remainavailable for national or local grid supportfor security of supply reasons.retailers, who will either become regionalretailers or will enter into partnerships access customers in other countries. Brand management and customercomplexas retailers embed their products andservices in multiple countries.ors and retailers will place eased emphasis on trading and risk management. The presence ofconstraints, for example through limitedinterconnector capacity, means thathe most likelyoutcome, so market participants will needto manage both national market prices andmarket prices in neighbouring countries. The intermittent nature of some renewableeneration is likely to mean volatility inarket prices, particularly with long-distance transmission, and managing thepricing differentials between differentcountries will be crucial. Skilled regionalraders will be vital, particularly formerchant generators.National TSOs will enter into agreementswith other TSOs in the region or, ifgreement can be reached betweencountries, a regional TSO will manage theoverall system. Decisions on where newtransmission capacity is required toimprove the efficiency of the system will be taken on a regional basis, and willrequire a new charter to be developed to lay out the objectives, rules andoperational processes of the regionalmarket. Distribution businesses willremain national or local but are likely torequire restructuring so that their focusmanagement of small-scale localables and of the interface with thetransmission grid. How might this market arise? The main driver for a Regional Supergridpolicy, jointly created and pursued byneighbouring governments who recognisegeneration sources and linking them totant demand centres. It could arise frommarket coupling initiatives, where thegovernments and regulators determinewould become moreefficient and pricing signals would becomemore appropriate if the two markets this market scenario? We see forms of a Regional Supergrid, but without common regulation in theis the potential for furtheraggregation and adoption of commonapproaches. Looking at where a RegionalSupergrid could arise through investment,we think that the Middle East has thetential to adopt this model. The EU electricity market which would effectivelybecome a Regional Supergrid, but theregulation across multiple countries withdifferent legal structures makes the puremodel less likely to be achievable. A hybridmarket adopting certain aspects would bemore realistic option.India has proposed the development of aenewable energy grid, the ÔGreen Energyorridor픀, with support from the Germangovernment. It aims to handle growth inrenewable energy from the current 30GWto 72GW by 2022. In southern Africa, withhe support of the Southern Africa PowerPool (SAPP) and the different utilities inthe region, a supergrid called Zizabona is being established between Zimbabwe,Zambia, Botswana and Namibia, providingor the import/export of electricity viaeither PPAs or day-ahead trading throughthe SAPP. Combined models Each of the four potential market scenariosve represents a transformativeaway from current markets. Thereare common themes across the models actice, countriesmight adopt certain components fromthan one model. The seeds are in place for transformativechange but there is still a lot of inertia stem. The pace of change will vary from territory to territory. Some will see a gradual evolution whileothers will see parts of the sectorormative change.Such transformative change might bedefined by locality or by the part of thevalue chain. believe that these transformativeenergy market scenarios provide a futurein which market participants and newentrants can thrive and the role of policyors is clear. The mostappropriate market scenario will come out of an assessment of the impact of themajor disruptors and the local factors thatapply in each individual situation. 16 The road ahead Gaining momentum from energy transformation Within the next decade we anticipate that tep-change milestones will be reached least some of the key disruptivetechnologies Ð grid parity of solardistributed generation, lower cost andmass-scale storage solutions, vibrant nd secure micro-grids, attractive electric vehicle options and ubiquitousbehind-the-meter devices.In this newtechnology-enabled, customer-engagedmarketplace, companies need to defineheir desired purpose (see figure 3). We foresee a distinction between energysuppliers, integrators, enablers andoptimisers with different points of focusalong the value chain. Incumbents and new entrants need to ask themselves how they intend to position themselves as market participants, i.e. the ÔroleÕ they will play in market development, customerengagement and business execution.ve distinct options on thisom Ôpassive and market-followingÕ to Ôinnovative andining the future role of the entity is fundamental to shaping the business model to deliver onaspirations.In defining future business models,ompanies need to first understand andhallenge their company purpose andpositioning in the markets of the future.We call this Ôblueprinting the futureÕ and it consists of several fundamental steps,tarting with defining where to pla秕 terms of business segments, markets,products and, services (see figure 4). Core, adjacent and growth marketparticipation areas are assessed based attractiveness, capability to competeand potential for profitable success. Next comes assessing Ôhow to pla秕 these selected areas, which defines the go-to-market strategies to be adopted byparticipants in pursuing their marketaspirations, e.g. new products, innovativeunbundled pricing.We then focus on the most importantdimension of the blueprint, Ôhow to win픀 This element defines the particulared approach that is most appropriateto achieve competitivemarket success, e.g. partnering or channel Future utility Companies need to determine the uture direction of their own markets, how these markets are affected bytechnological advancement and whatthis means for their business strategies.While the urgency of their responsesmay vary by location and value chainpresence, we believe companies can픀tafford to wait as the next decade is crucial. igure 3: Future role evolution Enabler Integrator Energy Supplier Transmission/distribution customer Customer Optimiser Emergent rolesfocus ÔSystem-focusedÕ퐀Value-focusedÕÔInsight-focusedÕill doÕ regardless of new area participationate into depending on roleolve into as new business models matureꔀFacilitating grid other transmission developersꔀExtending the deployment of thnologies equipment into the distribution Generation퐀Asset-focusedÕꔀÔHave to doÕ if assetheavy or short in ꔀEnsuring assets are market to match price signals Achieving the right and notional transactions within risk parametersꔀEnhancing the alue of the grid to all stakeholdersꔀAddressing how to leverage technology stem performance and customer engagementꔀEnabling customers age behind-the-meter technology Broader engagement he customer by providing value through advanced data analytics The road ahead om energy transformation 7 To fully evaluate the above choices,ompanies need to examine their currentore capabilities against the type and level necessary to effectively compete andprosper in a more decentralised anddisaggregated marketplace. In particular,ncumbents and new entrants need to takestock of which capabilities are distinctiveand differentiable, e.g. asset managementor regulatory prowess, and which may need to be developed or strengthened, .g. innovation or commerciality.The energy value chain of the future willbe more interconnected than ever before.This value chain forms an integratedecosystem of unique elements that arehighly interrelated, notwithstanding thespecific focus of these individual elements(see figure 5). Incumbents will need tofocus on extending beyond independentviews of each value chain element into more integrated view of how theseact with each other the benefits ofincreased knowledge about systemthe gap toenhance the customer experience. Non-traditional entrants will need todetermine how they interact betweenincumbents and customers in a mannercustomer relationships. Just as we are entering the era of the Ôconnectedcustomer픀, we are also seeing the broaderemergence of the integrated grid. Figure 4: ÔBlueprinting the future픀Figure 5: A networked model Engage with customersActively manage the grid market Distribution tor Storage used to manage grid Determine our Ôpurpose픠 and desired outcomes, e.g. Ôend-to-endÕ participationor selected areas Micro-grids Customers gooffgrid Customer Become an activeparticipant New entrants products and services Demandresponse Customers becomeactiv generation producers generation Focus on ransmission Link supply to load 퐀Where do we playÕ? ÔHow do we playÕ? ÔHow do we win픿 Establish the ÔpositioningÕ wish to achieve, e.g. Ôfull offering portfolio orhighest value product Define the 푲ole픠 we would like to perform, e.g. sole player or Ôpartner of partners픀 uture strategy How competitorschoose to play impactsthese choices 8 The road ahead om energy transformation igure 6: Business model choices The range of future Much comment has been directed at theusiness model of the future. We do notbelieve there will be a single winningbusiness model but rather that there willbe a range of business models that willeliver success in the new marketenvironments. Just as we see a number of transformational market models, we see a range of business models that buildxisting models or fill new service orproduct needs. We outline eight businessmodels which we believe will emergeindividually or in combination (see figure6). These individual business models coverthe full power sector value chain; each hasindividual characteristics and several arebased on integration and/or collaborationwith non-traditional partners.Some market participants Ð incumbents orew entrants Ð may be prevented fromlaying in all segments, while others mayseek to specialise in selected segments orintegrate into broader market areas.Whatever the case, the adopted businessssso be tailored to enablecompanies to succeed in three key ways Ðstrategically, financially and competitively. Traditional core model Alternative business models of the futuremay be very different from the traditionalmodel that dominated power and gasdelivery for decades. In the past, operatingan integrated utility from generationthrough to customer supply was wellunderstood because the utility controlledthe entire value chain. However, thismodel has been supplanted in manycountries through market restructuringendered further obsoletehe convergence of distributedtechnology and customer engagement. this traditional model, both tangibleassets and franchise customers wereconsidered important to preserve thebenefits of physical integration, economiesof scale and access simplicity. As policiesncouraging competition emerge, to takeadvantage of market options or regulatorymandates, specific segments of the valuechain became available for specialisationnd for new entry. Now, unbundlingopportunities are starting to extend deeperinto the value chain and enable morespecialist participation. Value chain More integratedrated Generation Retail Traditional core business merchant Networkmanager Productinnovator Value-added 퐀Virtual utilityÕ partners픀 Gentailer id developer The road ahead gy transformation 9 the traditional model, makingmoney was easy to understand Ð investand earn a return on invested capital.In emerging business models, althoughwe consider that this feature may stillpply in selected segments, we believe greater emphasis will be placed onobtaining higher margin fromprices/revenues rather than cost eduction to get higher earnings and profit growth.Depending on how a traditional utilitythinks the electricity industry may evolvein its country/region and what marketmodels may emerge, it needs to evaluatewhere to play across the value chain.Should a traditional utility leverageones and how should theytransform their business to be successful? have identified eight alternativebusiness models, which we describe belowwith respect to their scope, rationale, basisfor competition, and source of earnings(see figure 7). This should help utilitieshink through which business modeloptions might be right for them and thekey decisions required to enable them todevelop their new market position inufficient time. igure 7: Business model elements ÒBeyond the traditional model, we foresee eight different future business models that could emerge either individually or in combination.팀 Traditional core businessGentailermerchantNetwork manager푐artner of partners픀Value-added enabler퐀VirtualÕ utility Assets Ð customersAssets Ð customersAssets CustomersCustomersCustomersGeneration Ð T&D Ð retailGeneration Ð retailTransmission Ð distributionRetailRetailDistribution Ð retailROICCompetitive margintitive marginRegulated ROICCompetitive marginCompetitive marginCompetitive margin Business modelsBusiness focusBusiness alignmentProfitability basis 20 The road ahead om energy transformation Description gentailer utility operates at both ends the value chain by owning generationassets and selling retail energy tocustomers in a competitive market.Gentailers pay a charge to transmissionnd distribution system operators todeliver this power and also buy and sellenergy on the futures and spot markets to manage any forecast or real-timedifferences between load and supply. This business model is a by-product of thedesign of the local market and not relevantto all markets. Advantages of the gentailermodel are that it provides a natural hedgeor the business, i.e. a ÔsinkÕ for capacitywhen the generator is ÔlongÕ and a Ôsource픀for the retail business when it is Ôshort픀. key risk to the gentailer model is thatretail consumers may gradually switch tocompetitors or invest in behind-the-meterdistributed energy resources, which couldpotentially strand part of the gentailer픀seneration assets over time. Market/model examples entailer model is typically applicablein markets where the generation and retail portions of the value chain arecompetitive and the transmission anddistribution companies operate as aregulated monopoly. Australia, the UK ew Zealand are countries that havesuccessfully deployed this model. In Newmajor generators are retailers. This type ofmarket development often has regulatoryinfluencefuture development of this business This model has also developed in areaswhere traditional IPPs have moved intoetail energy sales as energy markets havederegulated. NRG Energy and NextEraEnergy are two examples of utilitiesoperating in this model in the Unitedtates that developed or acquired retailcapabilities to complement theirgeneration positions. Capabilities On the generation side, a successfulgentailer has strong capabilities in demandand market insights, project development,project finance and asset management.hen planning to add new capacity, agentailer applies its strong marketknowledge to determine cost-competitivegeneration technology choices based onfuel markets, operating constraints andconsumer preferences. On the retail side, successful gentailer has strongcapabilities in energy trading and hedging,igination and product development,pricing, customer acquisition and customermanagement. Strengths in these areasentailer to cost-effectivelyacquire and maintain customers whiledelivering higher margin services. What utilities should do now Monitor and understand the way differenttomer segments use smart technologyand assess how to harness theseences into mobile and/or tariffhelp develop behind-the-meter distributedmake/buy decisions to support their assetposition and investment requirementsernative market scenarios todetermine what generation products tooffer in the future. Invest in understandingtomer segmentation and what thatmeans for switching rates and retainingthe most profitable customers. tomer or third-party owned behind-the-meter distributed energy resourcesꔀRegulatory change enabling transmission and distribution operators to develop, own, and operate distributed energy esourcesNew entrants offering products/services that increase omer engagement in through mobile tools or Maximising competitive position against potential competitive threats he-meter distributed energy resource business, organically or through networks partnerships or acquisitionsꔀIncrease customer engagement via new energy management solution offerings and intelligent Develop alternative pricing packages and approaches that vide greater optionality or to customersbundle, price, and cost-effectively deliver a wide range of energy products (low cost, high renewables, local premise-based generation etc.) with selected value-enhancing partnersꔀEnergy trading approaches to hedge business riskꔀCost-effectively plan, develop, inance, construct, and operate the right asset mix itability drivers Gentailer model Relevance for transformative arket scenarios Green command and control Low egional supergrid edium Ultra distributed generation High Local energy systems Low The road ahead gy transformation 1 Pure play merchant Relevance for transformative market scenarios Green command and control Medium Regional supergrid Medium ltra distributed generation edium Local energy systems Low Description pure play merchant utility owns andperates generation assets and sells powerinto competitive wholesale markets atmarket clearing prices, or throughnegotiated bilateral contracts with otherenerators or large industrial consumers.This entity occupies a very narrow portionof the value chain and competes within theriskiest part of the business when marketsare volatile and positions are uncovered.Assets are built and financed by investorson a speculative basis, pre-contracted inpart or in full or acquired from anothergenerator. Pure play merchants haveraditionally developed baseload orpeaking plants with mature generationtechnologies from gas, which also enablesparticipation in ancillary grid servicesmarkets. However, wind merchant plantshave increased in popularity over the lastdecade and solar merchant plants arestarting to emerge. Market/model examples Merchant players prefer liquid marketsrising and/or high peak wholesaleenergy prices and high price volatility.Examples include deregulated regions likeTexas, California and New England in theUS and countries in emerging markets likeChile. Areas with low natural gas and coalices are typically not well suited formerchant players because these low-costen depress wholesale energyvide significantÔspreadÕ for merchants to leverage. Capabilities Similar to a gentailer, a successful pure play merchant utility has strongapabilities in demand and marketinsights, project development, projectfinance and asset management.Additionally, a successful player has strong market origination, trading,hedging and risk management capabilities, including the ability toexecute a variety of complicated purchase and sales agreements e.g. using derivatives) that effectively lock in the price of fuel and electricity to eliminate as much market risk aspossible. As more low-carbon energyenters a market, mitigating market riskbecomes more challenging because market prices become more volatile, so a merchantÕs strategy needs to beflexible and adaptive. What utilities should do now Implement world-class operationalprocedures to minimise costs ofoperations, manage price and volume risk exposure. Develop robust investmentplans to create a balanced generationportfolio, either across technologies orets. Investigate alternative products to offer from the generation portfolio tomarket change or meritꔀHigh penetration of behind-the-meter distributed energy resources and solutions like demand response hat reduce peak demandDevelopment of disruptive grid-level solutions such as energy storage that compete with merchant generators ꔀDevelopment of ultra-efficient xcellence in operations Maximising competitive position against potential competitive threats ꔀAssess feasibility of expanding capacity of traditional fossil fuel plants with solar or energy torage to expand ability to play using same grid interconnectionꔀExplore options for developing distribution level or behind-the-meter projects (e.g. solar, charging ucture).vestment to enhance plant operational capabilities to capture value of flexible thermal ꔀIdentification of profitable regions for future merchant potential and key early invese.g. lande.g. landꔀAbility to cost-effectively plan, velop, finance, construct, and operate the right asset mixꔀStrong analytics and energy trading capabilities to hedge business risk petitor threats addressedMerchant actionsuture merchant profitability drivers 22 The road ahead om energy transformation Description This utility acquires, develops/constructs,owns and maintains transmission assetsthat connect generators to distributions. In most cases, it operatesas a natural monopoly, although there single market. Some grid developers seekto build new transmission lines to connectremote renewable generation to loadcentres, while others will also maintainastructure that have been inor years. If a grid developerket,it must manage the stability of the powersystem in real time and coordinateicity supply and demand to avoidimbalances and supply interruptions. Grid developers must constantly assess the ability of their systems to adequatelyeet current and future needs and plancost-effective system upgrades to meetthose needs, usually governed byregulation which may incorporatencentive mechanisms. Where thesetransmission developers construct ormaintain assets with an organised regional transmission operator present,close coordination with that operator is necessary to achieve grid coordinationand support the regional market model. Market/model examples rid developers are typically establishedby regulation in areas with existinginfrastructure. Examples of this modelinclude transmission system operators(TSOs) in Europe and independent systemoperatorISOsISOshe US. Additionally,new grid developers may be formed inareas that lack sufficient transmissionastructure between generation andload centres. or example, a grid developer may becreated to build and operate transmissionlines between remote generation assets like a hydropower facility or wind farmand a distant urban area, or to providenew transmission infrastructure wherehere are transmission constraints.Examples of the newer grid developers inransmission Texas Capabilities successful grid developer has a verystrong operating track record and excellentmaintaining high-voltage transmissionlines and supporting infrastructure. In wholesale markets, they have verystrong capabilities for managing electricityemand and supply in real time and inensuring reliability standards are fulfilled.Grid developers are also very good atengaging with key stakeholders, includingandowners, communities, local and stateofficials, customers and equipmentsuppliers to facilitate siting and permitting.Newer grid developers typically havestrong relationships with investors and joint venture partners to enable access tolow-cost capital and to leverage creativefinancing and ownership arrangements. As remote generation capacity increasesnd a larger proportion of connections are made at distribution network levels,the number of interfaces a grid developerneeds to manage will increase and theobligations and responsibilities willbecome more complex to oversee. What utilities should do now locations (within their ownmarket or in new markets) for large-scalerenewable generation, flexible thermaleneration and associated transmissionbuild. Work with alternative owner classes,e.g. financial sponsors, to shape marketbidding processes where competitivetransmission protocols will exist in thefuture. Review existing contracting andocurement procedures to assess whetherthey are maximising value for money, her they reflectttlements. Streamline gridconnection processes to improve resourceConsider whether alliances with DSOs may provide economics of scale andeased scope for new investment.ꔀHigh penetration of distributed energy resources in urban areas combined with strong distribution system operators and micro-grids, reducing the need for transmission elopers obtaining first-mover advantages in new marketsꔀRegulatory imposed incentives risks cannot be managed by the grid developer alone titive position against potential competitive threats ꔀDevelop close relationships with distribution system operators and regulators to support large-scale tners to invest in large scale, low-cost renewable project developments equire new transmission to urban areasoperational procedures toimprove cost-effectiveness and orms of contracts with generators, load managers incentivise strong performance and cost managementꔀAccess to low-cost capitalꔀPartnering with generation developers to expand project accessꔀRobust operations to cost effectively manage transmission and for future expansionꔀInnovative contracting with the supply chain to manage risks veloper profitability drivers Grid developer model Relevance for transformative arket scenarios Green command and control High egional supergrid igh Ultra distributed generation Low Local energy systems Low The road ahead gy transformation 23 Description network manager operates transmissionnd distribution assets and provides accessto their networks to generators and retailservice providers. Similar to someincumbent grid developers, they typicallyperate as natural monopolies. Networkmanagers also manage power stability inthe network in real time and coordinateelectricity supply and demand to avoidimbalances and supply interruptions. new role for network managers isemerging in the area of an ISO-like entity that will assume responsibilities as a Ôdistribution system operatorÕ andave specific, expanded responsibilities for network integration of incumbentsystems and distributed energy resources.As distributed generation increases, theopportunity for an entity to manage allinterfaces between local energy systemsand traditional distribution gridsincreases. Market/model examples The network manager models typicallyxist in regions where the generation andretail portions of the value chain arecompetitive and the transmission anddistribution companies operate as aregulated monopoly. Australia, the UK and New Zealand are countries that ve successfully deployed this model,though with the expansion of distributedo-grids, we expectxpand and become morerelevant in many global regions. Capabilities Similar to grid developers, networkmanagers have strong capabilities inesigning, constructing, operating andmaintaining transmission and distributionlines and supporting infrastructure. They also have strong capabilities formanaging electricity demand and supply in real time and integrating power fromdifferent central and distributedgeneration resources. These networkmanagers also have deep skills in systemperations data analytics that can enable insight into asset and networkperformance and optimisation. Thesecapabilities are provided through thedeployment of Ôsmart grid technologies픀that utilise multiple sensors to monitor and collect system performance data toenable enhanced analysis of power flows, equipment failure risks and assetdeterioration. What utilities should do now Invest in the evolution of the network and the deployment of Ôsmart gridtechnologiesÕ throughout the system. Move toward the next stage of Ôbig dat懕management and the analytical evaluationer quality, equipment failure, circuitrisks and investment priorities. Anticipateibuted energyage, micro-grids,distributed generation, electric vehicles,ation into thenetwork and management of all deployedresource impacts. In some markets,instigate discussions with the regulator to develop and implement appropriatehanisms to facilitate the new services.orld-class operationalocedures to manage costs.ꔀHigh penetration of behind-the -meter distributed energy resources o-grids, reducing the need for a network manager to deliver powerꔀRegulatory mandates that create an independent entity that assumes Maximising competitive position against potential competitive threats ꔀWork with regulators to approve investments focused on stem capabilities (smart grid)ꔀHarden the infrastructure through geted investmentdvance reliability standards distributed generation developers to install, operate and manage ꔀAccess to low-cost capitalꔀInvestment recovery mechanismsꔀData analytics systems ꔀPredictive failure softwareꔀDistributed energy resource integration Competitor threats addressedetwork manager actionsFuture network manager ofitability drivers Network manager Relevance for transformative market scenarios Green command and control Low Regional supergrid Medium ltra distributed generation igh Local energy systems Medium 4 The road ahead om energy transformation Description product innovator is a company thatffers electricity as well as behind-the-meter products to customers. This modelfocuses on expanding the role of theenergy retailer and changing the level ofustomer expectations. We expect behind-the-meter products to evolve into a mix of retail supply packages, e.g. the provisionof Ôgreen energyÕ options, the developmentof service and pricing ÔpackagesÕ that offer more flexibility to customers and the provision of behind-the-meter smartdevices, e.g. power monitors, smartthermostats. The products offered ill empower the connected customer tomanage its energy control and provide alink to the network to advance insights into consumption patterns and impacts onnetwork stability. We anticipate that manyproduct innovators will seek to be activeplayers in electric vehicle charging, theprovision of premises-based infrastructurehe management of roof-top solar and fuel cell markets. ket/model examples The product innovator model will be mostrelevant in markets where the regulatoryframework allows choice and the level ofcustomer acceptance of new technologiesand products is high. A market with a tration of distributed energy willbe attractive for a product innovator whooducts that enable ored energy. Examplesof product innovators that have movedEnergy and TXU Energy in the US andPowershop in New Zealand. Capabilities successful product innovator will behighly effective at customer acquisitionnd retention as well as cross-sellingproducts. Keeping operating costscompetitive will be essential to preservingan acceptable margin. To this end, theproduct innovator needs competitivecontracts with energy suppliers and otheroperational efficiencies, and contracts with technical asset providers for customersupport and management of faults. A keyuestion is whether the product innovatorcan succeed in offering a compelling set of products at the right price. Companiesparticipating in this space will needexceptional skills in customer knowledge,product development, channelmanagement, pricing and productbundling. Product innovators will alsoneed robust customer data analytics andbuying propensity insights to shape theright offerings to the market. What utilities should do now Focus on knowing their customersÕ needs,their customersÕ willingness to pay forsolutions, and the value of their ownbrand. Assess whether a new brand wouldhaps throughpartnering with a product provider oructure). Market research will provide views of what productin different markets in the past, and thepotential products that could be offered insmart homes or through mobile devices. We expect that companies will enter intoproviders from otherets, e.g. Google Nest, to discuss how partner around customer productelopment and provisioning, rather than default to automatic competition.Multiple new entrants offering a range of new energy products to omersentrants innovating on specific customer offersꔀRegulatory change enabling retail energy salesꔀBundling of offerings to enhance tariffs offering risk/reward position against potential competitive threats ꔀDevelop a compelling product suite including everything from he commodity to the home deviceꔀDevelop opportunities for oducts that integrate with other needs, such as home or building security or automationꔀInvest in data analytics tools to cellence in customer acquisition and retentionꔀEnhance brand reputation to support product expansionꔀKeep customer acquisition costs low and operating costs overall low active energy supply contracts or own energy supply)ꔀDiversify the product portfolio ond commodity products to preserve marginꔀEstablish partnerships to enhance product rangeꔀFocus on retention of profitable and high-volume customers and Competitor threats addressedroduct innovator actionsFuture product innovator ofitability drivers Product innovator Relevance for transformative market scenarios Green command and control Low Regional supergrid Low ltra distributed generation igh Local energy systems High The road ahead gy transformation 25 Description Incumbent utilities will need to assesshether they have the requisite experienceand portfolio breadth to address futurecustomer needs for products and services.Ôpartner of partnersÕ utility is a companyhat offers not only standard power andgas products and associated services, butalso a range of other energy-relatedservices, from life-cycle EV battery change-out, to home-related convenience serviceslike new service set-up coordination, tomanagement of net metering-driven gridsell-back. These services can be providedsolely by the utility but are more likely toain customer acceptance when they can be bundled through an expandedrelationship with high quality brandedproviders, like Vivint, OPower, Honeywell,GE, Tesla or Solar City. Market/model examples The Ôpartner of partnersÕ model is mostelevant in markets where there is a highproliferation of energy technology andchoice and customers are seeking ways toplify their lifestyle while loweringupfront costs. A market with a highpenetration of distributed energy isattractive for a Ôpartner of partnersÕ whocan help provide simple and innovativeservice-based solutions. One example of atner of partnersÕ model is NRG Energyin the US, with its eVgo and Sunoraings. Few utilities have embraced ves non-traditionalpartnership arrangements. Capabilities successful Ôpartner of partnersÕ will behighly effective not only at customercquisition, but also provide superb servicedelivery. A distinguishing characteristic ofthese companies will be their ability toinnovate in a manner that customerswould not expect from their traditionalpower retailer. These companies will alsopossess deep customer insights and acommitment to satisfy customers across all touchpoints. A Ôpartner of partners픠ay find that many customers want asimple, low upfront cost approach,enabling these utilities to not only installbut also continue to own certain assets, for example installing and then servicing solar system, or installing and continuing to manage energy management equipment. One challengewill be for companies to determine themost appropriate brand with which to go to market, overcoming customers픀perceptions of the constraints on servicesthat can be successfully offered by a utility company. What utilities should do now Evaluate brand strength to understandaints and the need for innovativepartnerships. Invest in data analyticstand customer needspartners with complementary technologyservices and engage in introductoryconversations. Understand the impact ofnew products and services on customerswitching, margins and long-term rowth objectives.ꔀIncreasing choice and complexity in the market in terms of technologies and providersꔀMultiple new entrants offering gy and associated vices to customersIncumbents and new entrants innovating on service delivery ꔀRegulatory change enabling retail energy sales Maximising competitive position against potential competitive threats ꔀDevelop a compelling suite of solution provider partnersꔀCreate a range of relationships with solution partners ꔀExpand the range of channels to ket that can be leveragedDevelop bundles of offerings customerꔀEnhance brand valueꔀKeep cost of service low,to a single customer ꔀKeep customer satisfaction high by establishing clear customer service tandards, pinpointing and quickly and offering a wide range of innovative yet convenient services Competitor threats addressedPartner of partnersÕ actionsFuture Ôpartner of partners픀profitability drivers 푐artner of partnersÕ Relevance for transformative market scenarios Green command and control Low Regional supergrid Low ltra distributed generation igh Local energy systems High 26 The road ahead om energy transformation Description value-added enabler leverages itsundamental capacities for informationmanagement to expand the role that autility can provide on behalf of itscustomers. While many customers seek toain more control over energy consumptionor more choice with respect to energysupply, these customers do not share auniform desire to always be Ôhands-onÕ inmaking decisions regarding their energyuse patterns. Many customers are Ôinert픀, i.e. they do not easily adapt to theexistence of choice or accept the role ofÔhigh touchÕ in energy management. This ishere an incumbent can play a new andvaluable role that is difficult for otherproviders to fulfil. Utilities collect andmanage massive amounts of data from two primary sources Ð system operationsand customer load. These data provideinsights into energy usage patterns that are valuable to the customer and fromces that a customer cannot access.Thus, the utility has the ability to become value-added energy manager fortomers given the Ôcustomer knowledge픀it possesses and the customersÕ lack ofdesire to perform these same activitiesthemselves. Market/model examples utilities have performed value-addedroles that are knowledge-based in the past,ound energy efficiencygy management inindustrial processes. The level ofanticipated in this model, however,dramatically extends the scope and scale hese activities into the mass market to a much deeper level.ers such as Honeywell andMitsubishi are focused on addressingcertain control elements, like powermonitors and smart thermostats. Others, such as Google Nest, are playing in a similar vein with the objective ofroviding customers a Ôset and forget픀experience, leveraging their massive datacentres to provide real-time and predictiveenergy consumption data. This space iselatively wide open to utilities,particularly if they understand how toleverage system and customer data toprovide premise and action-based insightsand solutions. Utilities may also benefitfrom constraints on third party data usageunder data privacy laws, enabling them tooffer solutions or to become a partner ofchoice for solution providers. Capabilities Managing large amounts of data in amanner where insights can be rapidlygleaned to guide customer energydecisions and behaviours will befundamental to success in this businessmodel. In addition, skills in customerkey to delivery of value to the customer.Beyond these analytical and interfaceprovide customer experience where value isreadily demonstrated so that customersfeel comfortable sourcing their energydecision-making to a utility rather than non-traditional entrant. Utilities willdemonstrate to customers thatthey can keep personal data secure andleakage are remote. What utilities should do now enabler need to harness the data that they already possess and determine how extract value from this information. These companies will need to invest inadditional information technology capacitysupport, leverage and protect this data.Customer acceptance of the utility in anon-traditional role will require both acampaign to expand customer awarenessorsestablish the parameters of the value-added services to be provided. -priced/free behind-the-meter devicesꔀRegulatory change preventing erage of third-party brandfor market entry Maximising competitive position against potential competitive threats ꔀBuild-out Ôbig dataÕ platformsmanagement optionsꔀDesign innovative methods for sharing customer benefitꔀDeploy data synthesis methods security protocolsꔀEnter into partnerships with managers to improve ꔀRobust data analytics systems ꔀPricing mechanisms for performanceꔀDecision tools for customer adoptionꔀHigh quality data security management systems and protocols Competitor threats addressedalue-added enabler actionsFuture value-added enablerability drivers Value-added enabler Relevance for transformative market scenarios Green command and control Low Regional supergrid Medium ltra distributed generation igh Local energy systems High The road ahead gy transformation 7 Description virtual utility can aggregate theeneration from various distributedsystems and act as the intermediarybetween and with energy markets. virtual utility can also act as anntegrator of non-traditional servicesprovided to customers by third parties, e.g. distributed energy resources outside its traditional service territory. In thismodel, the utility does not own assets but merely provides integration services on behalf of the supplier, provider orperformer. A primary focus of companiesin this space is to optimise the sourcing ofnergy, with respect to costs, sustainabilityand customer needs, and to manage thedistribution system. The virtual utility canalso undertake demand-side managementfunctions for commercial and industrialloads and smart residential appliances, to help balance demand and supply, eitherin the wholesale market or contractingthe TSO or DSOs. Market/model examples kets with high penetration ofgeneration connected at distribution level(Germany, US states of Hawaii andCalifornia) or a regulatory setting thatoffers a high degree of freedom forcustomer choice (US states of New York orexas, the UK and Australia) are ideal forthe virtual utility model. Island systemssystems are also ideal marketscombine distributed generation with theiroute tomarket for independent generators andexpanding their own asset portfolios. Capabilities successful virtual utility will be highlyefficient at energy sourcing, managing interfacing with local distributionnetworks, real-time balancing of demandand supply, and providing intelligent tools for managing customer engagement.Sustainability and increased reliability(back-up power) may be offered asadditional products, beyond the traditionalreliable and affordable grid power. To develop the additional capabilities, he virtual utility will need to buildpartnerships with developers, systemintegrators, energy service/energy savingscompanies (ESCOs), software/technologyvendors and online energy marketplaces. What utilities should do now Companies wishing to become virtualutilities should develop an aggregationservice offering to small, distributedgenerators, merchant generators and loadreducers. Build capabilities to monitordevelopment of innovative technologiesand potential partners to leverage toexpand solution offerings for thewholesale market and for balancingservices. Additionally, they shouldermine pricing structures that provideappropriate incentives for the energyficient margin for theirshould instigate discussions with theappropriate mechanisms to facilitate thenew services.ꔀHigh penetration of non-utility- owned distributed generation systems change enabling retail energy salesꔀNew entrants offering products/services that increase customer engagement in managing their energy needs Maximising competitive position against potential competitive threats ticipate in distributed generation and storage projects ꔀDevelop partnerships with technology-based providersꔀIncrease customer engagement via intelligent toolsꔀDefine future roles for incumbents in concert with regulatorser structure and pricing of a wide range of energy products (low cost, high renewables, local generation etc.) ꔀAbility to trade energy (sourcing and consumption) ꔀPartnering with key players across the energy value chain Competitor threats addressedirtual utility actionsFuture virtual utility profitabilitydrivers Virtual utility model Relevance for transformative arket scenarios Green command and control Low egional supergrid ow Ultra distributed generation High Local energy systems High Where do we go from here? Utilities may choose from a range of pathsto move forward from where they areoday. But frankly, business model claritymay be difficult to achieve as a lot ofuncertainty exists on how future marketsmay develop and mature. And multiplemodels may need to be deployed to meetiverse market needs or specific regulatorystructures in various countries, or evenjurisdictions. Companies will need to beagile in designing their future businessmodel and recognise that an imperfectview of the future will likely lead to anunfinished product that evolves throughRegardless of the business model chosen,tilities need to understand how they caneverage their current business positionand the external market to enhance theirfuture competitive positioning. While notalways obvious, companies have severalevers that can be used to advance theirreadiness for the future and positionthemselves for success (see figure 8). Incumbent companies may not be asimble or focused as some new entrants.But they have a number of potentialadvantages with regard to data, policy,relationships, pricing, partnering andregulatory decisions. These can helpleverage the successful development oftheir future business models. At the sametime, it픀s important for companies torecognise that future markets are likely to create networks of participants in new partnerships and collaborations that become a norm of the go-to-marketCompanies can take advantage of thesetrengthen their starting point for defining their future roles and forsubsequent market participation. For example, utilities already hold largequantities of data that have not beenopportunity to add value through betterdata. Similarly, utilities are a naturalollaborator with regulators in the haping of responsive policies toaccomplish public interest objectives,including how to enable customers toachieve greater control and choice.tilities are also attractive partners tonew entrants that wish to offer high-valueproducts but do not wish to support themin the manner customers are used to from their utility.Utilities will need to determine ÔwhereÕ itmakes sense for them to participate in the future energy market and ÔhowÕ theycan best position themselves for success. No single business model will be thepanacea for utilities. Rather, they will have to be adaptive to the development of the marketplace and the evolution of the connected customer. Just as utilitiesare unsure of market direction, customersare equally uncertain of what reallyto them in energy decision-een foresight and expectations provide the Ôopen seas픀models that fundamentally reshape thehistorical relationship with customers andposition incumbents for a broader andmore value-creating future. Data Ownership of grid and customerinformation can provide ahe value proposition. olicy Mandates and legislation canenhance the incumbent픀s abilityto compete. Relationships The natural interfaces of theincumbent with customers,s, stakeholders and other providers create a orm. Pricing recognition models can providegreater certainty to cost recoveryrate Partnering Enhanced creative and deliverycapabilities can extend theand market reach. Regulatory Decisions can provide both(exploit) and defensive(preserve) mechanisms toenhance market competitiveness. 8: Future business model levers 28 The road ahead Gaining momentum from energy transformation Data icing Partnering Relationships Policy ory Key levers The road ahead om energy transformation 29 Discover more Global contacts orbert Schwieters lobal Power & Utilities LeaderTelephone: +49 211 981 2153 Email: norbert.schwieters@de.pwc.com Jeroen van Hoof Global Power & Utilities Assurance LeaderTelephone: +31 88 792 14 07Email: Jeroen.van.Hoof@nl.pwc.com David Etheridge er & Utilities Advisory LeaderEmail: david.etheridge@us.pwc.com Olesya Hatop Global Power & Utilities MarketingEmail: olesya.hatop@de.pwc.com Contact us to learn more about PwCÕs energy transformation programme and giveyour viewpoint on the themes and scenarios discussed in this report. Global subject matter experts Market design Karen Dawson Telephone: +44 20 7804 4591Email: karen.d.dawson@uk.pwc.com Paul Nillesen Telephone: +31 88 792 72 37Email: paul.nillesen@nl.pwc.com paniesÕ business models Brian Carey Email: brian.d.carey@us.pwc.com Tom Flaherty Telephone: +1 214 746 6553 Territory contacts acific Australia & East Cluster Mark CoughlinTelephone: +61 3 8603 0009Email: mark.coughlin@au.pwc.com China Gavin Chuielephone: +86 10 6533 2188Email: gavin.chui@cn.pwc.com India Kameswara RaoEmail: kameswara.rao@in.pwc.com Indonesia Sacha WinzenriedTelephone: +62 21 52890968ied@id.pwc.com Japan Yoichi Y HazamaTelephone : +81 90 5428 7743oichi.y.hazama@jp.pwc.com orea Michael KimTelephone : + 82 2 709 0707Email: MichaelKim@samil.com EuropeAustriaMichael SponringTelephone: +43 1 50mail: michael.sponring@at.pwc.comKoen HensTelephone: +32 2 710 7228Email: koen.hens@be.pwc.comCentral and eastern EuropeAdam Osztovitselephone: +36 14619585Email: adam.osztovits@hu.pwc.comDenmarkPer Timmermannelephone: + 45 39 45 91 45Email: per.timmermann@dk.pwc.comHŠtšnenelephone: + 358 9 2280 1946Email: mauri.hatonen@fi.pwc.comFrance Philippe Giraultelephone: +33 1 5657 8897Email: philippe.girault@fr.pwc.comJean-Christophe Bertrand Telephone: +33 1 5657 6171 Email: jean-christophe.bertrand@fr.pwc.com GermanyNorbert Schwieterselephone: +49 211 981 2153t.schwieters@de.pwc.comGreeceVangellis Markopouloselephone: +30 210 6874035Email: vangellis.markopoulos@gr.pwc.comIrelandTelephone: +353 1 792 8512Email: ann.oconnell@ir.pwc.comIsraelEitan Glazerelephone: +972 3 7954 830an.glazer@il.pwc.comItalyvanni PoggioTelephone: +39 06 570252588Email: giovanni.poggio@it.pwc.comNetherlandsoen van HoofTelephone: +31 88 792 1328Email: jeroen.van.hoof@nl.pwc.comNorwayŒle JohansenTelephone: +47 9526 0476Email: staale.johansen@no.pwc.comPolandPiotr Lubaelephone: +48227464679Email: Piotr.luba@pl.pwc.comPortugalJoao Ramoselephone: +351 213 599 296amos@pt.pwc.comatiana Sirotinskaelephone: +7 495 967 6318Email: tatiana.sirotinskaya@ru.pwc.comManuel Martin Espadaelephone: +34 686 491 120tin.espada@es.pwc.comSwedenelephone: +46 10 2124136Email: anna.elmfeldt@se.pwc.comSwitzerlandSchmidlielephone: +41 58 792 15 64Email: marc.schmidli@ch.pwc.comTurkeyMurat Colakogluelephone: +90 212 326 64 34Email: murat.colakoglu@tr.pwc.comed KingdomStevelephone: +44 20 7212 1449Email: steven.m.jennings@uk.pwc.comSteve MullinsTelephone: +44 753 205 8626Email: steve.mullins@uk.pwc.comMiddle East and AfricaMiddle EastJonty PalmerTelephone: +971 269 46 800mail: jonty.palmer@ae.pwc.comAnglophone & Lusophone Africa Angeli HoekstraTelephone: +27 11 797 4162Email: angeli.hoekstra@za.pwc.comFrancophone AfricaPhilippe Giraultelephone: +33 1 5657 8897Email: philippe.girault@fr.pwc.comThe AmericasArgentina/Latin AmericaJorgherTelephone: +54 11 5811 6952Email: jorge.c.bacher@ar.pwc.comBrazilRobertCorreaelephone: +55 31 3269 1525Email: roberto.correa@br.pwc.comothTelephone: +1 416 687 8522ian.r.poth@ca.pwc.comUnited StatesHermanelephone: +1 312.298.4462Email: michael.a.herman@us.pwc.comThe road aheadGaining momentum from energy transformation The road ahead om energy transformation 1 Redrawing the Energy-Climate Map: World Energy Outlook special report, 2013,OECD/IEA, Paris. The Global Commission on the Economy andClimate, The New Climate Economy Report,2014, p. 46, from US Energy InformationAdministration, 2014. EIA projects modest needs for new electric generation capacity.Today in Energy, 16 July 2014.PwC, Utility of the Future: a customer-led shiftin the electricity sector, an Australianperspective, April 2014.AGEE-Stat and AGEB, Federal Statistical Office(Destatis Statistisches Bundesamt), 2014.Seto and Dhakal, 2014. Chapter 12: Human Settlements, Infrastructure,mitigation of climate change. Contribution ofWorking Group III to the Fifth AssessmentReport of the Intergovernmental Panel on Climate Change.United NUNUN14. World Urbanization Prospects, the 2014vision. UN Department of Economic and Chemicals: Will solar, batteries and electric carsre-shape the electricity system? 20 August 2014.PwC, Staying ahead in an era of game-changingcustomer transformation, 2014.Grapy E. and Kihm S., Does disruptiveutilities? Energy Law Journal, vol. 31, no. 1,2014. www.kiwipowered.comBloomberg Businessweek, Why Google,nervous. May 29 2014.Caldecott B. and McDaniels J. StrandedGeneration Assets: implications for Europeancapacity mechanisms, energy markets andclimate policy. Working Paper, January 2014.Smith School of Enterprise and theEnvironment, University of Oxford.US Energy Information Administration, Annual Energy Outlook 2014 (AEO2014)reference case.The Economist, European Utilities: how to losehalf a trillion euros, 12 Oct 2013.Edison Electric Institute, Disruptive Challenges:financial implications and strategic responses to a changing retail electric business, January 2013.PwC, Energy Transformation: the impact on or business model, 2013. References PwC helps organisations and individuals create the value the秕relooking for. We픀re a network of firms in 157 countries with morethan 184,000 people who are committed to delivering quality inassurance, tax and advisory services. The Global Energy, Utilities and Mining group is the professionalservices leader in the international energy, utilities and miningcommunity, advising clients through a global network of fullydedicated specialists. For further information, please visit:www.pwc.com/utilities This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should notact upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express orimplied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law,PricewaterhouseCoopers does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone elseefraining to act, in reliance on the information contained in this publication or for any decision based on it.2014 PwC. All rights reserved. Not for further distribution without the permission of PwC. ÒPwCÓ refers to the network of member firms ofPwCIL is not responsible or liable for the acts or omissions of any of its member firms nor can it control the exercise of their professionalthe exercise of another member firmÕs professional judgment or bind another member firm or PwCIL in any way.