Mounting utility challengesFrom solar to shale to Google
Environmental regulations related to water, emissions and incentives for renewables are uncertain.
US regulations are uncertain. EU hasn't yet agreed to new targets for 2030.
The EU set emissions targets for 2020 (reduce emissions by 20 percent). But the 2030 standards are still being negotiated. The US Environmental Protection Agency proposed reducing carbon dioxide emissions by 30 percent below 2005 levels by 2030, but firm targets haven't yet been set.
Demand is bifurcated between developed and developing nations.
Electricity demand in developed nations is flat or falling. Industrial and commercial use slowed with the economy, and users have become more efficient. By contrast, demand in developing nations is rising as new consumers plug in to the grid and economies grow.
US annual growth of 0.7 percent is expected through 2020. Japanese demand is seen as growing 2 percent a year through 2030. Meanwhile, German demand is expected to contract by 0.2 percent every year. Conversely, demand in developing nations is growing rapidly, with Indian demand forecast to double. Chinese demand should rise by 115 percent through 2030.
Solar panel costs are falling. Incentives and third-party financing and operation for renewables have emerged. The cost is shifting to non-users.
Distributed generation is rapidly increasing and peak demand is eroding, putting more stress on the distribution grid.
In the US, distributed generation could represent 2 percent of capacity by 2016. More than 290 gigawatts of Europe's capacity is expected to come from small-scale, household solar installations by 2030.
Utilities face a massive skill gap, with most of the workforce set to retire in coming years.
n the US, 30 percent of utility employees are eligible to retire in less than five years. In the EU, 30 percent of utility workers are older than 50.
In response, utilities are outsourcing more, simplifying and automating processes, and reinvigorating recruiting.
RISING OPERATING COSTS
The unit cost of electricity is rising due to required investments in major initiatives related to infrastructure, regulatory compliance and cybersecurity.
Retail electric rates are up due to storm response and catch-up infrastructure investments.
Global investment in transmission and distribution infrastructure is forecasted to grow annually by 5 percent through 2016.
New technologies and patterns of generation create demand for different types of infrastructure.
Utilities are making new, large-scale investments for needs that may not be timely.
The US needs to spend $1.5 trillion to $2 trillion to modernize its power grid by 2030. The EU must invest $1.35 trillion by 2020 to modernize its grid.
RENEWABLE ENERGY MANDATES
Standards and regulatory mandates are driving investment in renewables.
Investment in renewable generation is rising.
Investment in renewables is expected to increase exponentially. Through 2030, the Americas are expected to invest $816 billion while the EU will invest $961 billion.
UTILITY EARNINGS PROSPECTS
The North American utility sector has delivered strong, high-quality earnings and dividend growth. In Europe, new market dynamics have destroyed much of the value of utilities.
Most US utilities meet targets by investing in infrastructure and building their rate base. In the EU, large-scale renewables and distributed generation have hurt utility earnings.
US utilities are expected to deliver the 4-6 percent annual earnings growth. As renewables proliferated during the past five years, the top 20 utilities in Europe lost half of their value as they shuttered and wrote down many of their coal- and gas-fired assets.
NATURAL GAS PRICES
With the advent of shale gas in the US, supply issues in Europe and higher demand in Asia, gas prices in recent years have bucked historical trends.
The US will spend 24 percent of its investment in new power capacity on natural gas assets through 2026. In Asia, gas capacity is forecast to double through 2030. This is still less than coal-fired growth, as high gas prices prevent a larger build-out. In the EU, gas generation is forecast to shrink through 2030, from 25 percent of generation to just 17 percent, given the low cost of renewables and high gas prices.
As telecom and cable companies battle for home Internet market share, home energy management is becoming an attractive service offering.
Siemens, Schneider and SAS are ahead of utilities with their home energy management offerings. Google paid $3.2 billion for Nest to pursue the $400 billion retail energy market.