Transcript Global Climate

GF
ENERGY
Electricity Outlook 2006 and 2007:
Taking the Pulse of the Industry
Roger W. Gale
CEO, GF Energy
Presentation for APPA CEO Meeting
March 20, 2007
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GF
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Look at 2006 Outlook results
Test them against APPA CEO thinking
Look at 2007 questions and issues
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Are these the Broad Trends?
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•Wave of business model
stability
•Revitalization of incumbents
•Increased drive for
environmental change
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2007 Dynamics
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Business risk…Customer risk
New entrants…Revived Incumbents
…Federal control…State control
…Ideological…Pragmatic
…Just in time...Longer-term
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Drivers
Locked-In Core
Drivers
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Emerging Drivers
 Efficiency
 Global Climate
 Massive
Infrastructure
Investment
 Growth Through
Capex
 Customer-Driven
Demand
 Real-time
Management
 Anti-Utility
Backlash
 Balanced
Generation
Portfolio
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2006 GF Energy Outlook
Download at
www.gfenergy.com
2007 GF Energy
Outlook
will be
published in June
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GF
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Strategic Consensus
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• More conservative regulated integrated business with
less competition.
• The obligation to serve and provide resource adequacy
is resurging.
• More intense customer relations as real-time internet
technology takes hold.
• Investor-owned companies believe they can forge deals
with regulators that provide companies with sufficient
organic growth and margin.
• Increasing pressure to control greenhouse gas
emissions and that utilities have to increase their capex
considerably in the future.
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Strategic Consensus...2
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• Natural gas prices will not favor building more gas-fired
generation.
• The regulatory environment will allow locking in longterm financials on large new generating plants
• There will be more mergers but small and mid-size
companies will continue to dominate.
• More transmission will be built but there will still be
uncertainties about regulating the grid and about
pricing of competitive wholesale power.
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Global Climate Pressures
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Climate change pressure is increasing
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Importance of climate change, although still 10th on a list of 14 issues,
has increased in importance since last year and most executives expect
mounting pressure
Average Importance Rank
2006
Expected Change in Pressure To
Act On Climate Change
Increase
88%
6.4
Remain
Same
2%
2005
5.2
Decrease
10%
Q13: On a scale of 1 to 10, how important will each of the following issue be to your company (1-3 years)?
Q22: In the coming year, will the pressure to act on global climate change...
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Financial commitments to Greenhouse Gas reduction will
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expand
Expect Financial Commitment to
Greenhouse Gas Reductions
Current Investments or Costs to Address
Greenhouse Gas Emissions
Haven’t been
accounting for
expense
Yes
Modest until
regulatory
landscape clear
15%
36%
66%
84%
Don’t
Know
34%
16%
5 Years
10 Years
No
Modest, but
projected to be
significant
26%
2%
Significant and
growing
21%
Q23. In each of the following time frames, do you expect that your organization will need to take financially significant actions as the result of
mandated reductions of greenhouse gases?
Q24. How would you characterize your organization’s investments, or incurred costs, to address greenhouse gas emissions?
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Generation Growth
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Generation growth will come from renewables and
nuclear
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ENERGY
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Capacity will be built to meet rising demand, with most executives expecting
an increase in cleaner technologies
Generation Developments
(Very Likely)
Major
Increase in
Renewables
73%
New Nuclear
Plant Order
54%
IGCC Will Move
Forward
44%
Coal Will Move
Forward
LNG Terminals
Built
42%
29%
Q30: How would you describe the likelihood of each of the following generation developments in the next 1-3 years? Would you describe each
of the following as very likely, somewhat likely, or not likely?
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Generation will also see the greatest increase in capital
spending
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Despite the growing commitment to renewables, Capital spending is now
expected to increase significantly
Area of Greatest Expected
Increase in Capital Spending
Generation
59%
Transmission
16%
Environment
Distribution
Renewables
Efficiency &
Demand-Side
Control
12%
6%
5%
3%
Q12: In which of the following industry segments will the biggest increase in capital spending occur?
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Small renewables and wind investments are likely in the
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mid-term, even if a small portion of spending
More Likely Mid-Term
Generation Developments
Small
Renewables
Less Likely Mid-Term
Generation Developments
78%
Wind
76%
Hydro
Natural Gas
16%
70%
Nuclear
Coal
Distributed
Generation
30%
IGCC
14%
69%
53%
Cooperatives are more likely to expect an increase in coal
capacity in the mid-term (88%) and to think that current
coal projects will very probably move forward successfully
(56%)
Q35: In the next 3-5 years, which of the following types of new investments in electricity supply are most likely to be made n order to increase
capacity in your region(s)?
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Nuclear Outlook
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Compared to 2005, industry executives have far greater
expectations that nuclear will be built soon
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ENERGY
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Almost half expect orders in the next 1-3 years, and over 75% expect
orders in 1-7 years
Expected Timing of New
Nuclear Capacity
Expect Nuclear
Construction in 10 Years
1-3 Years
3%
20%
South*
45%
73%
4-7 Years
49%
35%
27%
18%
3%
2005
Beyond 7
Years
All Other
Regions
25%
Never
2006
Not surprisingly, the South – where all of the announced nuclear projects
are located – expects the most construction.
Q36: When do you expect a new nuclear plant order in your region?
Q40: In the next 10 years, do you agree that...
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*Caution: Small base (n=19)
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Transmission
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Transmission and grid reliability will increase
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There is much greater confidence that we will actually build transmission
matching the number of new strategic transmission project
announcements
Near-Term Transmission
Developments Expected
Significant Increase in Actual
Transmission Construction
(Extremely/Somewhat Likely)
Significant
Increase in
Investment
66%
Yes
74%
Much More
Investment in
Grid Reliability
No
26%
58%
Q25: How likely is each of the following transmission scenarios in the next 1-3 years? On a scale of 1 to 5, with 5 being extremely likely and 1
being not at all likely?
Q29: Do you think we are going to see significant increases in actual transmission construction?
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Efficiency and Demand-Response Involvement
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Most utilities expect to increase involvement in efficiency
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and end-user demands and controls in the near future
However, compared to other pressing near-term issues, ‘improved
efficiency and customer demand-response’ was not ranked as high
(6.2), placing 11th on a list of 14 issues
Anticipated Involvement in
Efficiency and End-User
Demand and Controls
Much more involved
31%
58%
11%
Somewhat more
involved
No more or less
involved
Q13: On a scale of 1 to 10, how important will each of the following issue be to your company (1-3 years)?
Q31: In the next 1-3 years, which of the following best describes how involved utilities will become in efficiency and end-use demand controls
and management? Will they become
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Long term, technology will enable users to manage
consumption real-time
GF
ENERGY
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Long-Term Technological
Innovations Expected
Internet-Based
Billing & Demand
Measurement
96%
Demand-Response
Systems for End
User
84%
Plug-In Hybrid
Vehicles
83%
Real-Time Pricing
81%
Sensors on Most
Consuming Devices
Micro-grids
Storage
The electricity industry will
become real-time in a decade
Combined with cheap sensors
and “instant” pricing, microgrids will emerge
There is also wide-spread
optimism about plug-in hybrids
Storage is not expected to be
robust
62%
32%
21%
Q41: In the next 10 years, which of the following trends do you think will have begun to be implemented?
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Long-term customer technology will change
dramatically
Control Bills
Real-Time
Use Wireless Home
Automation to Manage
Demand
Networked Energy
Mgmt Systems
Buy
Electricity
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Real-Time Electricity
Management Widespread at
Residential Level
Long-Term Customer Behavior
(Degree of Change)
Control Electricity
Use in Premises
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5.9
5.2
41%
Yes
5.1
No
59%
4.9
4.5
Q39: Now, thinking about how electricity consumption might or might not change for customers, please rate each of the
following on a scale of 1 to 10, with 1 meaning little change and 10 meaning very substantial change.
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Most Important Issues
Global Climate
Efficiency
Generation
2007 ISSUES AND
QUESTIONS
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What are the 10 most important issues?
MOST IMPORTANT ISSUES
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ENERGY
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?
ARE THERE ANY EVENTS OR
DEVELOPMENTS LIKELY TO EMERGE THAT
WILL CAUSE YOU TO RECONSIDER YOUR
CURRENT BUSINESS STRATEGY?
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ENERGY
a)
Distribution
a)
Generation
a)
Transmission
a)
Energy efficiency and demand-side control
a)
Renewables
a)
Environment
Significant Negative
Change
Significant Positive Change
-1
-2
-3
-4
-5
0
+1
+2
+3
+4
+
5
-1
-2
-3
-4
-5
0
+1
+2
+3
+4
+
5
-1
-2
-3
-4
-5
0
+1
+2
+3
+4
+
5
-1
-2
-3
-4
-5
0
+1
+2
+3
+4
+
5
-1
-2
-3
-4
-5
0
+1
+2
+3
+4
+
5
-1
-2
-3
-4
-5
0
+1
+2
+3
+4
+
5
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CAPITAL COMMITMENTS
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a)
a)
a)
Efficiency
DemandResponse
Smart
Metering
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My organization’s spending in this
area will...
Remain Decre
Increase
the Same
ase
1
2
3
2
3
1
1
2
3
EFFICIENCY, D-R AND
SMART METERS
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Global Climate
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Questions:
Not at all
Likely
a)
a)
a)
a)
a)
a)
a)
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Federal Renewable Portfolio
Standard (RPS) legislation will be
passed by the current Congress
The will act independently to address
climate change
The will join a post-Kyoto
international agreement
The current Congress will pass
significant climate change legislation
in this Congress
Climate change legislation passed by
the current Congress will allow coalfired plants already under
development to proceed
Climate change legislation passed by
the current Congress will hit utilities
harder than it does the transportation
industry
In the coming year, pressure to act
on climate change will increase
APPA CEO Meeting
Extremely
Likely
1
2
3
4
5
1
2
3
4
5
1
2
3
4
5
1
2
3
4
5
1
2
3
4
5
1
2
3
4
5
1
2
3
4
5
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Cap and trade
Cap and Trade with “safety
valve”
Carbon tax
New market mechanisms
Voluntary programs
No action
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○
○
○
○
○
○
PREFFERED CLIMATE
STRATEGY
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2007 to 2009
2010 to 2014
2015 to 2019
2020 or later
Not at
all
Likely
1
1
1
1
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Extremely
Likely
2
2
2
2
3
3
3
3
4
4
4
4
5
5
5
5
TIMEFRAME FOR CLIMATE
ACTION
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Your utility
•
Compared to most utilities,
do you think a mandatory global climate law
will affect your organization...
More
About the Same
Less
Not sure
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○
○
○
○
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ENERGY
Most
Some
Only a few
Not sure
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○
○
○
○
PLANNED COAL PLANTS
BUILT
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ENERGY
Very
Likely
Somewhat
Likely
Neither
Likely
Nor
Unlikely
Somewhat
Unlikely
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Very
Unlikely
LNG terminal projects will move forward successfully.
A new nuclear plant will be ordered.
There will be a major increase in renewable (wind,
solar, biomass, etc.) projects.
Natural gas prices will come down enough to favor an
increase in gas turbine orders.
There will be an increase in distributed generation.
New environmental standards and/or uncertainties
will make it much more difficult to build fossil plants
Global climate issues will have a significant impact on
technology choices.
Rail transport bottlenecks for coal delivery will be
fixed.
Coal imports will increase significantly.
Captive coal shipper problems will continue
GENERATION ACTIONS
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ENERGY
a)
a)
a)
a)
a)
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Buy their electricity
Control electricity use on their premises
Seek to control their bills real-time
Invest in networked energy management systems
Apply wireless home automation to managing electricity demand
CUSTOMER ACTIONS
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Disagree
Completely
[ROTATE]
a)
a)
a)
a)
a)
a)
a)
a)
a)
a)
a)
There will be many new nuclear plants under
construction.
There will be a few large utilities that dominate the
national electricity markets.
Competition will become more common at the
retail level.
Telecommunications and electric power
companies will have tended to converge.
There will be required CO2 capture
Foreign companies will have expanded their
presence significantly.
Most companies will have sold or spun off their
transmission to independent owners.
New entrants will control a substantial share of the
retail markets for electricity.
Renewables will have captured a significant
market share.
Real-time electricity management at the
residential level will be commonplace.
Mandatory global climate action will have been
implemented
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Agree Completely
1
2
3
4
5
6
7
8
9
10
1
2
3
4
5
6
7
8
9
10
1
2
3
4
5
6
7
8
9
10
1
2
3
4
5
6
7
8
9
10
1
2
3
4
5
6
7
8
9
10
1
2
3
4
5
6
7
8
9
10
1
2
3
4
5
6
7
8
9
10
1
2
3
4
5
6
7
8
9
10
1
2
3
4
5
6
7
8
9
10
1
2
3
4
5
6
7
8
9
10
1
2
3
4
5
6
7
8
9
10
IN 10 YEARS…
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e.g., aging workforce
capital investment
customer relationships
growth
WHAT ARE THE MOST
IMPORTANT ISSUES ON
YOUR DESK?
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GF
ENERGY
GF Energy, LLC
GF Energy and its predecessor
firms have built a solid reputation
since 1988 as aggressive, creative
and insightful strategy
consultants—capturing emerging
trends and new solutions.
Business Marketing
GF Energy develops, launches and
implements marketing and
advocacy campaigns, identifies USbased investment opportunities
and carries out high-level due
diligence for investors.
Management Strategy
Every project gets a customized
response, be it a strategic fit
approach to optimize and fine-tune
existing programs or a blank sheet
approach for organizations
undergoing major change and
executive leadership transitions.
Policy Management
Based in Washington, D.C., GF
Energy works at the intersection of
policy, politics and business
producing white papers, analytic
statements and other policy tools.
GF Energy works closely with chief
executives, boards and
stakeholders to restructure
corporations around new goals
that maximize performance and
profitability, often serving as an
independent credibility agent.
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GF Energy Electricity Outlook
For more than a decade, the
Electricity Outlook has provided
indispensable survey-based
analyses of trends and issues.
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GF
ENERGY
GF Energy, LLC
Electricity Industry Management Counsel and Strategy
1100 Connecticut Ave, NW, Suite 1250
Washington, DC 20036 USA
www.gfenergy.com
Roger W. Gale
1.202.236.8198
[email protected]
LLC