European utilities under pressure after mergers and economic downturn
capGemini’s latest annual European Energy Markets Observatory (EEMO) charts the deteriorating financial condition of European utilities.
Key findings:
The crisis has put the Utilities sector under pressure and challenged the resilient character attributed to the Utilities sector:
- Decrease in electricity and gas demand in Europe
- Drop in electricity and gas wholesale prices
- The credit crunch combined with decreasing demand and lower prices has pushed down the investments
- Having gone through expensive M&As, many Utilities’ financial situation has deteriorated
Security of supply has improved in electricity, little progress was observed in gas
- Europe’s declining reserves and high dependency on Russian gas supplies are an issue
Progress towards a single electricity and gas market
- The EC Third Package including the ownership unbundling was adopted in April 2009
- Electricity exchanges have increased and wholesale markets have continued to consolidate
- On the retail side, churn continued to increase, but remains small. Retail electricity and gas markets remain highly concentrated
- Electricity and gas prices have increased significantly in H2 2008, raising protests from end-users
Even if the European Union is the only region with a clear policy on climate change, more efforts need to be implemented
- On April 6, 2009 the European Commission adopted the Climate-Energy package
- Consumption and CO2 emission drops are more cyclical than structural
- Investments in renewable energies are hit by the crisis
- Carbon Capture and Storage is needed on the long term
- The crisis has revealed the need for deeper Utilities business models changes
Utilities need to lower their “cost to serve” and distribution costs, adapt to new customer relationship, streamline and simplify their organizations, processes and IT to increase efficiency, manage their strategic resources and take advantage of new technologies.
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