This is a turning point for utilities, says Capgemini in the eleventh edition of the EEMO. The global recession has put utilities under pressure from a 3.5% drop in electricity consumption and a 3% decline in gas demand, forcing them to take short-term and longer-term measures to survive.
To recover their footing, utilities need to put in place a number of measures to restore investor confidence in the short term. In the mid-term, utilities must adapt to new EU legislation on climate and energy, and need to strive for more CO2-free generation through renewable energy and nuclear, as well as act on demand-side management by implementing new technologies such as smart metering and smart grids.
Deployment of smart meters in the tertiary and residential sectors will help curb power consumption, reduce peak electricity demand and improve grid management, as well as the client relationships, it explains. Utilities need to establish their vision and plan for implementing smart grids which will enable the distribution grid to manage both centralised and decentralised generation, as well as intermittent renewable energy.
Investments in renewable energy has been hit by the economic crisis, with investment dropping to US$21.2 billion in the second half of 2008, a 14% decline from the same period in 2007. The report warns that the shift in renewable energy investment could make it a challenge for Europe to meet its goal of sourcing 20% of its energy from renewable energy by 2020.
The decision of many utilities to defer or cancel investments has impacted the significant growth of renewable energy in recent years. In 2008, investments in sustainable energy (renewable energy and energy efficiency) increased at 2%, slower than during the previous five years when the Compound Annual Growth Rate reached 56%.
Current power generation investment plans show that only 8% is aimed at renewable sources, while 50% is for gas-fired and 24% for coal-fired plants, according to an analysis by the Financial Times. Europe is still the largest market in the world for solar power, and is a leading builder of wind power as well.
Government stimulus spending, such as the €4bn energy infrastructure investment plan approved by the European Parliament in May, have helped to boost investor confidence, and spending on mergers and acquisitions in Europe’s clean tech and renewable energy sector increased to €8.8bn in the second quarter of this year, up from €1.1bn in the first quarter of the year.
At the Copenhagen climate change conference (COP15) next month, the EU may be the only developed region to show a decrease in CO2 emissions, but the EEMO notes that, even if CO2 emissions decreased in 2008 and 2009, this is mainly linked to the economic crisis and not to actual structural changes.
It says that three-quarters of power stations under construction will be supplied by fossil fuels and will emit CO2, and there is still more action to be taken around energy efficiency, transforming the electricity mix by building more CO2-free plants including renewable energy, and developing an affordable carbon capture and storage technology.
Capgemini is a provider of consulting, technology and outsourcing services, with a presence in 30 countries and global revenues of €8.7bn and a workforce of 90,000. It is supported by Société Générale Global Research & Strategy, CMS Bureau Francis Lefebvre and VaasaETT.
The European Energy Markets Observatory was launched in 2002, to assess the progress of deregulation in EU member states, and now addresses major issues faced by utilities. The report scans all segments of the value chain and analyses the hot topics, including renewables, to identify key trends in the electricity and gas industries.