Electricity and gas consumption in Italy will remain blocked at least until 2020. Demand will drop by 6 terawatt/hour (TWh) and 7 billion cubic meters respectively: a critical situation also reflected in European data and which strongly involves businesses. In the period 2011-2013, the companies devalued fossil assets by 18 billion euros and over the next three years they expect to cut costs by 10 billion and investments by 37 billion, as well as to close power plants for 29 gigawatts (GW).
These are the main results of the XIV Observatory on Alliances and Strategies in the Pan-European Utilities Market by Agici Finanza d'Impresa, in collaboration with Accenture. The customary report, presented today in Milan together with the most important exponents of national and international energy, waste and water companies, analyzes the strategies of the top Italian and European players.
The Agici Observatory has traced some key elements that help outline what the main evolutions of the sector will be in the next few years.
The changes in the Italian and European utility market
It is evident that the Italian and European utility market today is not only in crisis but is radically changing its face: the current trend in the development of energy efficiency will mean that consumption will decrease even when the GDP starts to grow again. As highlighted, in Italy the demand for electricity in 2020 will drop by 6 TWh, while for gas the reduction will be over 7 billion cubic meters; in Europe the forecasts are certainly not rosy.
Distributed generation and renewables will continue to grow significantly: production from Renewable Energy Sources (RES) in Europe will increase by over 300 TWh over the next 6 years, i.e. the equivalent of consumption in Italy as a whole.
All these elements combine to undermine many European utilities that still think with the old energy model as a reference.
What impacts for sector operators?
In Europe between 2011 and 2013 companies made writedowns of their fossil fuel power plants for over 18 billion. A trend that shows no sign of diminishing: in the next three years, in fact, the top five European operators have decided to cut their costs by over 10 billion, reduce investments by 37 billion and close 29 GW of fossil fuel-powered plants.
The aggregate turnover and profit of the top 42 European players is expected to remain stable; Many Italian utilities seem to be destined for a similar situation. In this context, however, various operators have increased their market share and their profitability.
Solutions and strategies to deal with change
One of the solutions that utilities are implementing is to abandon or lighten their presence in Europe or in the most critical countries.
For those who choose to stay in the Old Continent, however, there are some winning strategic choices that can be implemented:
1) Increase management efficiency through the exploitation of synergies and the disposal of obsolete assets.
2) Investing in renewables and distributed generation by seeking competitive production-consumption models even without incentives.
3) Bet everything on marketing and the end customer: increase company-customer interaction; find new sales channels; develop co-marketing with non-utility companies (banks, large retailers, telephone companies, etc.).
4) Extend the commercial offer to energy efficiency, post-meter services, energy saving goods, electric mobility. If managed optimally, the profitability of additional services can be much higher than the mere sale of energy.
“In short – says Andrea Gilardoni, President of Agici and professor of Economics and Utilities Management at the Bocconi University of Milan – a revolution is very likely for the utilities that remain in Europe: certainly efficiency in management but also new business models. Electricity and gas will be produced with decreasing weight within the ambit of a much wider and more articulated offer but above all different from the business that characterized utilities in the last century”.
Pierfederico Pelotti, Accenture's Head of Utilities, underlines that “the new energy market requires companies to be able to move with greater flexibility, especially in the rapid implementation of commercial strategies that are able to anticipate emerging trends and customer expectations. From this point of view, Utilities companies must undertake a radical rethinking of their business models which, enabled by innovative technologies, have the objective of differentiating and personalizing the offer to the end customer”.
