Power bosses name political intervention as greatest business risk

Political intervention is seen as the greatest threat to business in the next couple of years according to a new poll of power and utility bosses.

Compliance and regulations and commodity price volatility are the other two biggest risk factors highlighted i n the study by Ernst & Young, which asked senior executives from 110 power and utility companies from 20 countries to rank the most significant risks and opportunities facing their sector.

At the moment, the bosses ranked compliance and regulations as the number one risk, followed by price volatility and political intervention, but by 2015 they expect government energy policies to become the prime threat to their future business.

Richard Postance, Ernst & Young’s power and utilities advisory leader, said: “Given its potential impact on everything from half-century capital planning to customer operations, political intervention is seen as a significant risk for the P&U industry, even in markets like the UK that have been considered stable and transparent. In a world of rising energy prices we are seeing a real fear amongst utilities of ending up on the wrong end of expedient, but short sighted political action.”

EY has been carrying out the survey from 2008, and since the last report in 2011, the risk surrounding the cost and accessibility of capital has eased, while regulation and compliance obligations are now considered the sector’s biggest concern.

EY notes that as the global financial downturn continues, “the perceived risk from economic volatility, while significant, is now more accepted among utilities”.

The top three business opportunities highlighted by the power and utility bosses – for both this year and continuing into 2015 – were the rapid growth in energy demand; acquisitions or alliances to gain new capabilities; and growth in energy and ancillary services markets.

Postance stressed that as the utilities sector transforms, so too must its traditional business model of generating, supplying, metering and billing; towards one that is capable of adapting to changing requirements.

“While the nature of this transformation varies between markets, the survey’s top three opportunities are accessing growth geographies, gaining new capabilities and growth in ancillary services. For me, the scale of change is significant and only the agile will succeed.”

Below is a full rundown of the top 10 risks and opportunities highlighted in the report.

Rank

Risk 2013 (2015)

Rank

Opportunity 2013(2015)

1(3)

Compliance and regulations

1(1)

Rising rapid growth markets’ energy demand

2(2)

Commodity price volatility and access
to competitively priced long-term fuel supplies

2(2)

Acquisitions or alliances to gain new
capabilities

3(1)

Political intervention in power and utilities
(P&U) markets

3(3)

Growth in energy and ancillary services
markets

4(4)

Uncertainty in climate policy and carbon
pricing

4(4)

Enhancing relationships with external
regulatory and compliance bodies

5(5)

Significant shifts in the cost and
accessibility of capital

5(9)

Improving public perceptions

6(6)

Capital project execution

6(5)

Increased focus on investor relations programs and communications

7(7)

Economic shocks and resulting short-term
energy demand shocks

7(8)

Integration of distributed energy resources

8(8)

War for talent

8(7)

Increased investment in generation
capacity and delivery infrastructure in
rapid growth markets

9
(10)

Aging generation and network
infrastructure

9(6)

Rising energy innovation in rapid growth markets

10
(9)

Managing planning and public acceptance

10
(10)

Improving onshore and offshore wind
supply chain efficiency

 

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