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?
3May 2013Power & Utilities
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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
4May 2013Power & Utilities
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“He who rejects change is the architect of decay. The onlyhuman institution which rejects progress is the cemetery.”
~Harold Wilson
5May 2013Power & Utilities
Driver of change #1:
The war for natural resources
PwC 6May 2013Power & Utilities
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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
Source: IEA World Energy Outlook 2012
• 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.
Source: IEA World Energy Outlook 2012
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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)
Source: IEA World Energy Outlook 2012
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Shale gas boomUnconventional gas production in leading countriesSource: IEA World Energy Outlook 2012, New Policies Scenario, 2035
11May 2013Power & Utilities
• 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
PwC
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
12May 2013Power & Utilities
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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
13May 2013Power & Utilities
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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.
14May 2013Power & Utilities
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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).
15May 2013Power & Utilities
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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
17May 2013Power & Utilities
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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
18May 2013Power & Utilities
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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
19May 2013Power & Utilities
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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
20May 2013Power & Utilities
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Driver of change #3 and #5
Social and behavioural change+ New Technology
21May 2013Power & Utilities
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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
PwC
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
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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
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Cities around the world are reshaping their urbanand rural communities
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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
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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
35May 2013Power & Utilities