The future trends for Power & Utilities · For the P&U sector, population growth will continue to drive the demand for energy of all types. Demographic change • With a global population

The future trends forPower & UtilitiesNorbert SchwietersGlobal Power & Utilities Leader

www.pwc.com/utilities

PwC

Global Power & Utilities – evolutionor revolution?

“It is not the strongest of the species that survive, nor themost intelligent, but the one most responsive to change.”

Author unknown, commonly misattributed to Charles Darwin

2May 2013Power & Utilities

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A closer look at the drivers of global change

Demand for energy and water consumption isforecast to increase .Yet, 1.4 bn people have no accessto electricity (mainly in sub-Saharan Africa andAsia).

War for natural resources• Growing demand for natural resources and the

impact of climate change are of growingeconomic concern. 1

For the P&U sector, population growth will continueto drive the demand for energy of all types.

Demographic change• With a global population that has recently

passed 7 billion, demographic change is a keyconsideration across all industries. 2

For P&U companies these changes have a profoundimpact through a changing role of the consumer.

Social and behavioural change• The behaviour of individuals and communities is

changing as a result of the combined impact ofurbanisation, increasing personal wealth,migration, digital communication.

3For P&U companies, these regions hold more than50% of global gas reserves and are the future growthmarkets.

Rise and interconnectivity of emerging markets• Opportunity extends for South America, Africa, Asia and the

Middle East. These regions have growing consumer markets,manufacturing capabilities and access to labour. Also they havesignificant liquid investable capital incl. 78% of the world’ssovereign wealth funds.

4P&U sector technological breakthroughs likeshale gas, renewables, power-to-gas, CCS willhave a profound impact on our future.

Impact of new technology• For the last 200 years, technology has

changed society in unpredictable ways. 5

Global drivers What does it mean for P&U?


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A closer look at the drivers of global change

For the P&U sector, population growth will continueto drive the demand for energy of all types.

Demographic change• With a global population that has recently

passed 7 billion, demographic change is a keyconsideration across all industries. 2

For P&U companies, these regions hold more than50% of global gas reserves and are the future growthmarkets.

Rise and interconnectivity of emerging markets• Opportunity extends for South America, Africa, Asia and the

Middle East. These regions have growing consumer markets,manufacturing capabilities and access to labour. Also they havesignificant liquid investable capital incl. 78% of the world’ssovereign wealth funds.

4


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“He who rejects change is the architect of decay. The onlyhuman institution which rejects progress is the cemetery.”

~Harold Wilson


Driver of change #1:

The war for natural resources

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Global power generation fuel mix

2010

Coal41%

Oil5%

Gas22%

Nuclear13%

Hydro16%

Bioenergy1%

Wind2%

OtherRenewables

0%

21.408 TWh

Coal33%

Oil2%

Gas23%

Nuclear12%

Hydro15%

Bioenergy4%

Wind7%

OtherRenewables

4%

2035

36.637 TWh

+ 71%

Ø 2,2% p.a.

Profound changes in global fuel mix by 2035 due to substantial drop of fossil fuels(mainly coal by -8%) and growth of renewables (+11%).

Source: IEA World Energy Outlook 2012


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Other (8%)0.49

Bioenergy(11%), 0.67

Solar PV(19%), 1.16

Hydro (25%)1.53

Wind (36%)2.20

Nuclear (6%)1.0

Renewables(36%)

6.1

Transmission &Distribution

(43%)7.3

Coal (10%)1.7

Gas(6%)

1.0

Oil (0,4%)0.1

Power sector cumulative investment needs:US$16.9 trillion investment by 2035

US$16.9 trillion

Other includes geothermal,concentrating solar power andmarine


• Cumulative investmentneeded by 2035 is roughlyequivalent to the GDP ofthe entire European Unionin 2011

• Investment in powerplants accounts for 57% ofthe power sector total, over60% of it for renewables.

• Investment is greatest inChina, where total powersector spending is $3.7trillion, followed by theEuropean Union, UnitedStates, and India.Amounts are in US$ trillion, rounded.


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Global coal: drop in coal-fired generation in OECDoffset by big increase in China

Incremental coal demand in China and the rest of the world by major sector

In 2010, nearly 80% of China’s power output was coal-fired. China’s share in international coalmarkets increased by a colossal 18% over 2001-2011, accounting for 80% of coal demand growth.With China holding large unconventional gas resources, there is potential for gas to start playinga much bigger role in meeting the country’s rising power needs.



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• Gas is set to play a key role in meetingthe world’s energy needs

… demand rises by 44%, led by China& Middle East

• Unconventional gas accounts for 35%of the increase in global supply to2035, with new non-US producersemerging

• Gas glut is peaking up, keeping up thepressure on gas exporters to moveaway from oil-price indexation, notablyin Europe

• Lower prices could lead to strongerdemand for gas, backing outrenewables & coal in power generation

A golden age for gas

0

1 000

2 000

3 000

4 000

5 000

2008 2015 2020 2025 2030 20350%

4%

8%

12%

16%

20%

Shale

Coalbed methane

Tight

Conventional

Share of unconventional(right axis)

World gas production by type (bcm)



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Shale gas boomUnconventional gas production in leading countriesSource: IEA World Energy Outlook 2012, New Policies Scenario, 2035


• Government risks: level of government support for the development ofunconventional resources varies by nation and region.

• Market risks: access to markets for production will depend on pricing reformand in many markets could face export restrictions.

• Environmental risks: public discomfort with hydraulic fracturing, wastewatermanagement and earthquakes contribute to moratoria risk in some markets.

Above ground risks could slow shale boom

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Global nuclear: substantial growth forecasted…

Reactors under constructionOperational nuclear reactors

Currently 2 GWh of nuclearenergy is generated worldwide.

It is estimated to increaseto 4.4 GWh in 2035.

Source: BP Statistical Review 2012; International Atomic Energy Agency


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Renewables enter the mainstream ...

• Renewable energy is growing at double-digit rates but still only comprises about16% of global energy production.

• The main challenge with renewableenergy is producing it at a cost that iscomparable to other energy sources.

• Economies of scale have yet to beachieved, but with the global investmentin renewables, continued progress isexpected.

• By 2030, it is expected that 20-30% of theglobal energy supply will come fromrenewables.

Total: 840 Mtoe:

Total: 2.400 Mtoe:

Renewable primary energy demand

The use of renewables triples by 2035,driven by the power sector: share inelectricity mix rises to 32% in 2035


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Renewables: hydro remains the main source

Global hydropower forecast cumulative additions(2011-17)

Number of countries with non-hydro renewablecapacity above 100 MW

Hydropower production in 2011 accounted for80% of total renewable generation.

Source: IEA Medium-Term Renewable Energy Market Report 2012

• In 2017, the number of countries withcumulative renewable electricity capacitiesabove 100 MW increases significantly for mostnon-hydro technologies.

• China accounts for almost 40%, or 270 GW ofthe global renewables market, followed by theUnited States, India, Germany and Brazil.


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Onshore wind energy

Global Wind Power Capacity, Top 10 countries, 2011

Source: REN21. 2012. Renewables 2012 Global Status Report

Wind energy will grow in the global fuel mix from 2% to 7% by 2035, with onshore wind still remainingthe proven technology with less risk (in comparison to offshore).


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Offshore wind power – large potential

• Better wind resource than onshore (load factors > 35 %)

• Maturing technology/industrial scale projects

• High generation rate/limited track record of best practices

• Growth areas: Europe, especially UK and Germany

• Tight supply situation across value chain forsuppliers with proven technologies Vestas andSiemens Wind > 90% of markets for turbines

• High generation cost per MWh

• Attractive support policies

• High maintenance risks

Source: GWEC – Global Wind Power Market Potential, RWE Innogy Factbook Renewable Energy


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Solar energy: soaring despite market risks

• Solar investment dominated the renewables sector in 2011

• Governments in Europe have been transitioning from solar due to price tag and risingdominance of China

• China’s impressive growthtargets as part of 12th FYP mayindicate reaction to glut ratherthan long-term support.

• ME emerges with an ambitionto invest into solar

• Beyond the solar PV bubble: inrecent years, manufacturingcapacity of PV solar panels inOECD countries and China hasexpanded much more quicklythan actual demand

Source: IEA, World Energy Outlook, RWE Innogy Factbook Renewable Energy


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Commercial maturity of renewables

100% 300% 500% 700%

Coventional coal

Advanced coal with CCS

Natural gas advanced combinedcycle

Advanced nuclear

Wind onshore

Wind offshore

Solar PV

Solar thermal

Geothermal

Biomass

Hydro

More than twice asexpensive as the leastcost option

• Nearly all renewable technologiesare more expensive than gascombined cycle turbine.

• Electricity costs from offshorewind, solar (thermal & PV) are upto almost five times moreexpensive than current electricitycosts form fossil fuels.

• Geothermal and hydro have lowscaleability due to locationrestrictions.

• Wind onshore is almost at par withconventional coal.

ca. x 4.9

ca. x 3.3

ca. x 3.9

Source: PwC analysis


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Renewables subsidies: the multiple benefits ofcome at a cost

Renewable subsidies were $88 billion in 2011; over half the $4.8 trillion required to2035 has been committed to existing projects or is needed to meet 2020 targets

Global renewable energy subsidies

Source: IEA World Energy Outlook 2012, New Policies Scenario


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Energy efficiency: a new fuel?

Two-thirds of the economic potential to improve energy efficiency remains untapped inthe period to 2035

Energy efficiency potential used by sector

Source: IEA World Energy Outlook 2012, New Policies Scenario


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Driver of change #3 and #5

Social and behavioural change+ New Technology


PwC 22May 2013Power & Utilities

New global Power & Utilities ‘biosphere’

• Renewables are adding volatilityto the system and enabledistributed generation as a keydriver of the future business modelof a P&U company

• Role of the customer is changingfrom consumer to prosumer

• Growing number of differentstakeholders

• Demand has to follow supply

• New financing models will emerge

• The energy transformation willoccur at different time and pace invarious markets - BUT IT WILLIMPACT ALL P&UCOMPANIES GLOBALLY

need for back up capacity need for management of big data flows bidirectionally need for balancing of a complex system with many players need for a smart demand side management to ensure a reliable energy supply

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With Smart Grid, the balance between electricitysupply and demand can be restored

Hydro powerplants

Transmission lines

Distributionsubstations

Customers

Solar farms

Wind farms

Distributedstorage

Plug-in

electricvehicles

Rooftopsolar

Electricity supply Electricity demand

GW

15

0

5GW

15

0

5

10 10

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The impact of the components depends on the gridlevel – e.g. Smart Grid

• Smart Grid has different effects – inparticular depending on the grid level(transmission grid or distribution grid)

• The transmission grid connects huge,central power generation plants (e.g.wind farms) with urban centres

• In the distribution grid Smart Grid leadsto an increasing decentralized balancingof power generation and consumption

• The result is a growing number of(regional) markets which have to bemanaged

• DSOs will be existing on various levels

Power & Utilities

Source: Arosa Energie, Switzerland

Network level 1

Network level 2

Network level 3

Network level 4

Network level 5

Network level 6

Networklevel 7

Transmission SystemOperator 380/220 kV

Distribution System Operator36 to 220 kV

Transformation

Transformation

Transformation

DSO 1 to 36 kV

DSO up to 1 kV

24

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Smart Metering increases transparency for theconsumer

Examples for Smart Metering:

• By the exchange of mechanicalmeters with Smart Meters, variousbenefits can be generated:

Visualisation of energyconsumption increases theconsumer‘s benefit and can beused as feedback system

Active consumption controlledby price signals

Further services, such as buildingmonitoring and surveillance

Real time usage and pricinginformation

• However: Someone has to take careof, collect, analyse and secure thedata for an efficient management ofthe systemPower & Utilities

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The grid integration of new generation hubs is akey task of Transmission System Operators (TSOs)

• The extension of the transmission grid and the integration of transnationalgrid services becomes a challenging task for all participants in this grid level

• Beyond this, the integration of huge renewable energy plants tends tooverload the current transmission grid

• Hence, Smart Grid becomes a topic also for TSOs

Power & Utilities

•Transition of the energy supplytowards an activly managed grid dueto reversed load flows caused bydistributed generation (DG) and anincreasing share of renewableenergies

SmartGrids

• Integration of centralisedrenewable energy generation(e.g. offshore wind farms)

Centralised,

generation

Centralised,renewable

energygeneration

•Expansion of storage facilitiesand energy conversion(e.g. power-to-gas)

• Integration of pan-Europeanenergy projects (Desertec)

Infra-structure

•ENTSO-E: plans for 42,100 km gridextension (country focus: Spain-France, Germany, North Sea)

SmartEnergy

TSO

Gridextension

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•Establishment of further(yet to be determined)components as separatefields of activity

•Transition of the energy supply towards an activly managed grid due to reversed load flows causedby distributed generation (DG) and an increasing share of renewable energies

•Building-up decentralised, small storageunits

•Simultaneous use of storage facilities asconsumer and producer

•Bidirectional communication betweenpower suppliers and consumers

•Enables the proactive management of electricitysupply and demand

•Decentralised energymanagement systems toincrease energy efficiencyin the household sector

• Integration of electricalvehicles in the energysupply system

• Management of EVs as roll-ing energy storage facilities

• Combining decentralisedelectricity plants (micro-CHP, PV etc.) to built upvirtual power plants

In the future, DSOs operate more self-sufficient, butstill require the connetion to the TSOs

Smart Grid

Moreissues

DistributedGeneration

SmartHome

eMobility

SmartMetering

Storagefacilities

SmartEnergy

DSO

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Smart Energy is not only anissue for the enery industry

• Smart Cities can prospectively connect all existinginfrastructure components – and beyond

• Smart Grids interlink the energy sector with theinfrastructure of urban centres

• The driving forces are the increasing number ofregional energy markets as well as the expansionof ICT

• Smart Cities integrate further components, such asthe expansion of broadband, eBusiness andeGovernment

Smart City andeMobility

• Battery chargingsystems

• Telematics

• Intermodal mobility

• Shared Spaces/parking spacemanagement

• Car sharing

Smart CitiesPower & Utilities

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Smart cities

• Over the next 15 years, just 440emerging market cities will generatenearly half of global GDP growthand 40 percent of globalconsumption growth.

• Some Chinese cities already now areeconomically larger than entireEuropean countries.

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Source: McKinsey 2012, Winning the $30 trillion decathlon: Going for gold in emerging markets

Power & Utilities

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Cities around the world are reshaping their urbanand rural communities

Power & Utilities30

Source: Verdantix and PwC Analysis

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A Smart City is a holistic ecosystem

Where people are interconnected and contributing towards a common vision,creation of knowledge and exchange of ideas

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Industry convergence around Smart Cities

Power & Utilities32

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A holistic approach to visioning and execution ofcity strategy

Power & Utilities33

Source: PwC Analysis – Smart specialization for cities; A roadmap for city intelligence and excellence

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PwC’s thought leadership

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Contact

Dr. Norbert SchwietersGlobal Power & Utilities Leader

Telephone: +49 211 981 2153Email: [email protected]

Internal use only


Documents

The future trends for Power & Utilities · For the P&U sector, population growth will continue to drive the demand for energy of all types. Demographic change • With a global population