PWC report: underinvestment threatens electricity supply
Many parts of the world could face blackouts in the years ahead unless measures are taken to encourage greater investment in the utility sector, says a report by PricewaterhouseCoopers (PwC). According to PwC's seventh annual Global Utilities Survey – Under Pressure – regulatory uncertainty is holding back the investment needed to secure reliable power supply in the long term.
While a majority of the survey's 119 respondents believe industry deregulation is helping the climate for investment, a worryingly large proportion – 39% – say market reforms are "damaging confidence, highlighting the dangers of inconsistent regulation, energy, tax and environmental policies".
"The challenge for the utilities sector is immense," says Manfred Wiegand, Global Utilities Leader, PWC. "We urge governments, utility companies, investors and consumers to work together to find a truly sustainable and long-term strategy for the industry. This means getting the equation right in the market through a balanced view of renewables and a streamlined regulatory environment, generating market rates of return for investors and encouraging transparent and well-communicated business strategy among utility companies."
In the supposedly single-market European Union, for example, there are 25 separate regulatory systems for electricity and 25 for gas, points out Wiegand. On top of that, companies must also grapple with European-level regulations. Regulation in the US' energy sector is similarly chaotic. Half of the country's states are regulated and half are not, while regulations covering the interstate transfer of power and gas are inadequate.
PWC says anxiety over regulation means that, despite the utility industry's growth prospects, it is failing to attract sufficient investment. "Utility leaders feel that without regulatory certainty and high levels of investment, blackouts could become a more frequent occurrence," says PWC. Two thirds of utility company respondents in the report believe the likelihood of blackouts will increase or remain the same.
Meeting projected supply needs will, estimates the International Energy Agency, require investment of $12.7 trillion in the period to 2030 in power generation, transmission and distribution, and gas-supply infrastructure. "The utilities sector is failing to rise above the pack when it comes to attracting investment," says Wiegand. Investors, including those already involved in the sector, rate utility investments on a par with financial services, consumer and retail and pharmaceuticals.
Other trends highlighted by the survey are:
- More than half – 52% – of respondents expect a revival in the nuclear industry;
- Mergers and acquisitions activity has hit record levels, with deals worth a total of $123bn recorded in 2004; and
- Regionalisation is replacing globalisation. Only a minority of utility companies are considering expanding outside their broad continental boundaries, the report says.
Under Pressure's findings are based on interviews with 119 senior executives, from 108 utility and utility investor companies, in 36 countries. This year, for the first time, the survey also includes the views of equity analysts, private-equity executives, lending bank executives and fund managers considering investing in the utilities industry. Research covers Europe, the Americas, Asia-Pacific, Africa and the Middle East.