New players and technologies, regulation, renewables and consolidation are just a few of the hot-button issues for Energy & Utility consultants. Then there’s the cost of carbon and the emergence of electronic vehicles… not to mention the sector’s slow growth projections and pending rate hikes. Navigating this new—and much more complex—industry will be tricky.
The U.S. utility industry entered 2011 searching for the same thing it has sought since 2008. Chances are, the industry will have to wait until after the 2012 elections for an answer.
“For years people throughout the industry have been looking for a price on carbon,” notes Robert Zabors, a founding director of Bridge Strategy Group. “One of my favorite stories is about a meeting that took place somewhere [in the energy industry] in which somebody finally yelled out, “There is a price on carbon: it’s $3. Now, let’s move on!”
The industry is doing just that following a couple of years of uncertainty thanks to still-looming carbon legislation (not to mention the possibility of a national renewable portfolio standard or a national energy efficiency standard) and a bruising economic crisis that reduced energy demand. As they struggle with low demand, some utilities are planning for zero to one- percent growth, notes KEMA President and Managing Director Hugo van Nispen.
“The power industry,” concludes Booz & Company’s 2011 “Energy & Utilities Industry Perspective” document, “is in a period of continued murkiness and increasing risk, but also one of selective opportunity.”
The growth opportunities relate to natural gas, new technology and a likely uptick in consolidation in the coming months. The risks relate to new players and partners entering the picture as well as to the transformation of customer relationship that is already underway. To help clients better exploit these opportunities and transform threats into opportunities, energy and utility consultants say it is important to clarify
the challenges ahead.
Presidential Elections + Economic Crisis = Uncertainty
The 2008 elections ushered in a regulatory uncertainty that the 2010 elections sustained. On the other hand, the 2008-2009 global economic crisis ushered in the unexpected: a decline in demand. Harken back to the summer of 2007, when every region was at or near minimum reserve requirements.
“The upshot of the recession was that it took the pressure off to make electricity supply decisions,” explains Branko Terzic, director of the Deloitte center for energy solutions and a former commissioner of the U.S. Federal Energy Regulatory Commission (FERC). “The recession bought us some time in that companies could delay decisions as to what their new electricity supply would be. We had hoped that during that time period there would be some certainty with respect to carbon treatment.”
That certainty did not materialize, of course, and there is a question as to how well utilities leveraged this found time. “[Utilities] thought there would be legislation for climate change related to carbon,” notes Tom Flaherty, a Booz &