Download pdf - European Energy Challenges

| Energy, Utilities & Chemicals Global Sector

Barcelona Conference

March 28th, 2012

European Energy Challenges

Colette Lewiner, Capgemini


An overview of the European energy markets

Recent events are impacting the energy markets

Electricity and gas security of supply remain issues

Mid-term changes to be expected in:

• Energy mix

• Sustainability objectives

European Utilities companies are under pressure:

• More energy-related investments are needed

• While electricity and gas prices are low and demand growth is limited

• Regulation changes are needed

How to be a winner?

• Increase competitiveness

• Develop synergies

• Manage the assets portfolio

• Become more innovative

Conclusion

2


Others

12%

7%Other EU

5%6%

14%

13%

10%7%

4%

22%

Total Iranian oil exports

2.3 m bl/d

The rising political tensions in Iran are particularly worrying

for global oil supply

3

Iran’s oil exports (Jan to June 2011) After China, the EU is the largest importer of Iranian

oil (about 20%)

In response to the Iran’s nuclear program negotiations

failure, the US and Europe decided sanctions against

Iran, who, in return, threatened to close the Strait of

Hormuz:

• Strengthening of the US military presence in the Gulf

• Oil embargo from the EU (due to start in July) which should

hit 450,000 to 550,000 barrels a day of Iranian oil exports

But Iran banned crude oil supply to France, the UK and

the EU right away

In addition, Japan, South Korea, Taiwan and India could

reduce their purchases (up to 250,000 bl/d). In total,

between 25% and 35% of Iran’s oil exports could be

impacted

Sourc

e: F

inancia

l T

imes

Sourc

e: F

inancia

l T

imes

35%

of all seaborne traded oil

20%

of oil traded worldwide

14 crude oil tankers

Almost 17 million barrels

Average daily oil flow

through the Strait of

Hormuz (2011)

% of each country’s total oil imports Jan to June 2011

China

11%

South Africa

25%

Turkey

51%

South Korea

10%

India

11%

Japan

10%

13%

Italy

13%

Primary factors driving demand are economic growth and increased

requirements in the developing world Iran political situations may place global

production and transportation at risk

Spain

http://www.shutterstock.com/subscribe.mhtml









































Oil prices in European currencies are at their highest

Oil prices forecasts uncertainty is increased by

speculation: each barrel traded on the physical

market is traded 35 times on the financial markets

There is some consumption/price elasticity

High present oil prices are linked to tensions in

Middle East and Iran

In Euros, the crude oil spot price is at its highest

There is currently a $20 spread between WTI and

Brent, a the consequence of a localized logistic

phenomenon at Cushing, Oklahoma, where WTI is

priced

4

High oil prices impact economic growth (EU’s oil import costs up 44% in 2011 compared to 2010) and trade exchanges balance

Oil prices

Source: Focus Gaz, February 17, 2012

130

120

110

100

90

80

70

March 2011 Feb 2012 July 2011 Nov 2011

Brent

WTI

Crude oil spot – Brent vs. WTI

Source: Ycharts Source: France inflation

Crude oil spot – Brent in US dollars and in Euros


Long-term contracts price Spot price

Gas is not a global market. Very different regional pricing systems

US spot prices could go up on the mid-term triggered by the new EPA

(Environment Protection Agency) regulation on air pollution (Cross State Air

Pollution Rule) that could lead to 20% of US coal-fired plants phase-out and their

replacement by gas

Beginning of 2012, Gazprom has agreed to reduce by 10% the price of its

long-term contracts to Europe

5

US spot gas prices are only one third of long-term European gas prices. For how long?

Source: Focus Gaz January 2012

Source: Gas Exchanges web sites, SG Commodities Research, BMWI – Capgemini analysis, EEMO13

Gas spot prices Gas prices evolution

In €/MWh ($4.4/MBtu=€10.6 /MWh)

Europe versus US gas prices 0

20

40

60

80

100

0

10

20

30

40

50

Bre

nt p

rice

[€/b

l]

Ga

s p

rice

s [€

/MW

h]

DE - Import price NL - TTF

BE - Zeebrugge UK - NBP

DE - NCG FR - PEG Nord

Brent month ahead


0 50,000 100,000 150,000 200,000 250,000

Switzerland

Brazil

Czech Republic

Finland

Spain

Sweden

Turkey

Vietnam

South Africa

Germany

Saudi Arabia

UAE

Canada

Ukraine

United Kingdom

South Korea

France

Japan

India

Russia

USA

China MWe

Operable

Under construction

Planned

Proposed

Post-Fukushima nuclear reactors’ market: new builds mainly

in Asia, Russia and Middle East

Worldwide, 434 reactors are in operation, 61 under construction and 495 planned or proposed (February 2012, World Nuclear Association)

6

Source: World Nuclear Association

The vast majority of new constructions and existing plants in operation should continue with some delays

and more safety focus. The IEA* forecasts that nuclear output will rise by

more than 70% over the period to 2035

Overview of existing nuclear plants and project capacities (as of February 2012) The final number of planned or proposed

reactors is difficult to assess. However, two

points are clear:

• Provided reactors are run safely, the

consequences of the Fukushima accident

should be less important than viewed just after

the accident

• The proportion of new, safer “Generation 3

reactor” builds will increase

It is worthwhile mentioning that:

• TVA in the US has decided to complete

Bellefonte 1 reactor, that the Nuclear Regulatory

Commission has certified the design of

Westinghouse Electric Co.'s AP1000 reactor

and that Southern Company is building 2 new

nuclear plants in Vogtle, Georgia

• Finland announced a new build, the first

announcement of a new site anywhere in the

world since the Fukushima accident

• Russian Rosenergoatom has received a license

for building the Kaliningrad plant

• No.1 nuclear unit in Zhejiang Sanmen (China)

has restarted the infrastructure construction

project

*IEA: International Energy Agency, World Energy Outlook 2011






• Energy mix



• More energy-related investments are needed



How to be a winner?





Conclusion

7


Electrical peak loads are increasing year-on-year threatening

security of supply

Sourc

e: E

NT

SO

-E –

Capgem

ini analy

sis

, E

EM

O13

&

&

&

&

&

(&

&

&

&&

& (& & &

& &&

& & &

( & & &

9.1%

3.6%

2.1%

3.9%

1.5%

-0.1%2.2%

0.1%

0.1%

1.6%5.8% 0.3% -1.4%

9.3% 6.8% 6.6%

0.2% 10.3%0.1%

2.1% 10.2% 9.3%

-23.6% 7.9% 3.0% 1.9% 1.5%

&

&

&

&

&

&

& &

&

(

&

&

&

& & &&

&&

& & &

( & ( & &

9.5%

4.7%

8.8%

0.1%

2.6%

6.2%3.2% 9.3%

1.0%

-0.6%1.7%

4.8%

3.6%

1.1% 2.0% 2.6%1.0%

0.3%1.1% 1.1% 4.1% 5.1%

-0.4% 1.8% -1.3% 4.9% 6.8%

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

DE FR IT ES UK SE PL NO NL AT BE CH FI CZ PT RO DK GR BG HU IE SK LT SI LV EE LU

Tota

l genera

tion c

apacity

and p

eak lo

ad [

MW

]

CO2 emitting generation capacityNon-CO2 emitting generation capacityPeak load 2010Total generation capacity evolution 2010 vs. 2009 (notified if below or above +/-3%: +3.4%)Peak load evolution 2010 vs. 2009 (notified if below or above +/-3%: +3.4%)

Total installed capacity for Europe in 2010: 882,712 MW(+3.7% compared to 2009)

Peak load, generation capacity and electricity mix (2010)

Nine countries registered an all-time high peak loads in 2010 due to cold temperatures. During the cold wave early 2012, France and Poland recorded all time record electricity

demands and Germany has activated its reserve coal power plants

8

Peak load 2012: 101,700 MW

Peak load 2012: 25,844 MW


France recorded a new peak load on February 8, 2012 due to

the cold spell

9

A holistic approach to manage the peak load needs to be implemented. It should encompass: • Generation capacities

• Demand response: tariffs or other types of demand response programs • Incentives to build peak generation capacities

• Grids reinforcement • Incentives for energy savings

Oil-fired + peak

capacities5%

Coal5%

Gas3%

Nuclear58%

Wind2%

Hydro13%

Others6%

Imports8%

Source: RTE

Generation mix on February 8, 2012 at 19:00 The French peak load reached 101,700 MW at 19:00

• Nuclear plants’ availability largely contributed: 59,165 MW (55 reactors

out of the 58 were in operation)

• France imported 7,845 MW from all its neighboring countries (max 9,000

MW)

• On EPEX Spot, day-ahead electricity prices jumped to €1,938/MWh

• RTE activated it EcoWatt demand response program in Brittany and PACA

regions which resulted in a consumption reduction of respectively 2% and 3%

• EnergyPool curtailed 20 MW of industrial consumption which have been

used for Brittany region

In 2011, net new generation capacities have been added:

• 850 MW of CCGT

• 1,250 MW of renewable energies

• 450 MW of fossil-fired plant have been decommissioned

But tariff-related demand response capacities have decreased

from 6,000 MW in 2004 to 3,000 MW in 2011


FRES UKPLCZ

CZ 9.3 bcm

Several countries recorded also gas consumption peaks in

February 2012

10

Even if gas consumption peak is mitigated by gas storage, the whole system has to adapt to this tense situation. Pipeline and storage need to increase operational intra-day and inter-days

During the first week of

February, temperatures

dropped in average to

-20°C, both in Europe and

in Russia. Gas demand

jumped by 20% in

Europe

PL

SK

RO SI

GR

HU

DE

AT

BG

CZ

IT

Upgrading of the Baumgarten gas hub to allow transport of gas from Germany to countries adjacent to Austria

Upgrading of the Überackern Export Facility to allow for reverse flow from Germany

Increase of the transmission capacity through the Czech Republic from the CZ-DE border towards CZ-SK border

Increase in delivery and construction of two pipelines to interconnect the stations of the existing gas storage facilities with the Central Station Gajary-Baden

Reverse flows projects to be implemented as defined in 2009 after the Russia/Ukraine gas dispute Projects completed as of mid 2011

Source: GIE, various sources – Capgemini analysis

Construction of PL-CZ interconnection (Cieszyn) with 0.5 bcm reverse flow

Map of gas reverse flows

Domestic production

Russia

Norway

Algeria

LNG

Other

Gas consumption peaked in several EU countries:

• UK: 4,428 GWh, NBP gas spot price skyrocketed at 69.175 p/th, a level not

reached since November 2008

• FR: 3,662 GWh on February 8

• IT: 4,711 GWh on February 7

Due to very cold weather in Russia, Gazprom reduced its exportations

to EU (82 mcm instead of the 108.9 mcm requested). PL, SK, AT, HU,

BG, RO, GR and IT were the most impacted countries:

• IT (via the AT border): -10%

• Yamal-Europe pipeline supplying DE and PL: -10%

• AT and SK: -30%

Gas and electricity consumption peaks are simultaneous,

exacerbating the gas peak

Gas supply for selected European countries (2010)

PL 14.3 bcm

UK 94 bcm

ES 34.5 bcm

FR 46.8 bcm

Source: BP statistical report 2011 – Capgemini analysis


When will European electricity and gas markets be perfectly

fluid?

11

Trading is becoming a

European business offering synergies

opportunities

European power market coupling (current and future situation)

Despite remaining physical

bottlenecks in electricity,

TSOs and Power

Exchanges common

actions have improved

electricity prices

convergence:

• Trilateral market coupling

(TLC) from November 2006

between France, Belgium,

and the Netherlands

• Coreso (Regional

Coordination Service Centre

operational since February

2009 on the CWE* area)

• CWE* market coupling and

ITVC** since November 2010

Gas market integration is

slower but should progress

CWE* Price coupling

AT Price coupled to

DE (no congestion)

UK Price coupled to

NL via BritNed

Nordics

+ EE

Price coupling

ITVC Volume coupling

CWE – Nordics

IT-SI Price coupling

Mibel Price coupling

CZ-SK Price coupling

CWE

+MIBEL

+DE bordering countries (end 2013)

+UK

+NordPool (end 2012)

End 2014

Source: ENTSO-E, EUROPEX, Energies 2050

*CWE: Central Western Europe; **ITVC: Interim Tight Volume Coupling


0

10

20

30

40

50

60

70

80

Price [€/M

Wh]

BE - BELPEX

DE - EPEX

FR - EPEX

NL - APX

Electricity price convergence has progressed significantly.

Gas price convergence is already a reality

12

On the CWE* area, before market coupling, day-ahead

hourly prices in 2010 were identical between France

and Germany 0.2% of the time

After market coupling, a 66% price convergence was

observed over all CWE* countries in 2011

Gas spot price differentials between UK NBP (the

major gas hub in Europe, representing over 80% of all

EU gas traded) and the other European gas hubs

ranged from €1.1 to €1.4/MWh in 2011 while long-term

prices are very different

In Italy, the gas spot price is about 27% higher than

the NBP price, due to a low demand and a well-

supplied market in the UK and a tighter Italian market

Electricity spot prices (2011)

Sourc

e: P

ow

er

Exchanges w

eb s

ites, S

G C

om

moditie

s R

esearc

h –

Capgem

ini analy

sis

, E

EM

O13

0

10

20

30

40

50

Ga

s p

rice

s [€

/MW

h]

NL - TTF

BE - Zeebrugge

UK - NBP

DE - NCG

FR - PEG Nord

Gas spot prices (Jan 2010 to Sept 2011)

In addition to electricity day-ahead market coupling, intra-day market

coupling should decrease real time imbalances and lead to better

intermittent generation management

As for gas, there is still room for improvements in market connections

and cross-border trading

*CWE: Central Western Europe






• Energy mix



• More energy-related investment are needed



How to be a winner?





Conclusion

13


The Fukushima accident has triggered a debate on the

present and future energy mix

Energy mix should evolve towards

more gas, renewables and coal (in

certain countries)

The main cause for gas progression

is power plants’ consumption

In the new IEA GAS* scenario, gas

share of primary energy consumption

reaches 25% in 2035 at a global

level (more than coal, slightly less than

oil) but leads to a +3.5°C global

temperature increase (compared to

the +2°C objective)

The IEA** has examined a Low

Nuclear Scenario (no new nuclear

plant is built in OECD countries, non-

OECD countries build only half of the

projected nuclear plants and the

operating lifespan of existing nuclear

plants is limited to 45 years) which

consequences would be to:

14

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

BE BG CH CZ DE ES FI FR UK HU IT LT NL PL RO SE SI SK

Solar + Biomass

Wind

Hydro

Other fossil

Gas

Lignite + Coal

Nuclear

2010 mix: lef t-hand side bar

2025 mix: right-hand side bar

2010 and 2025 electricity mix (as of June 2011)

The energy mix evolution could result in: • Higher costs (renewables development)

• Higher temperature increase (more fossil fuels) • Lower energy independency

Source: ENTSO-E – Capgemini analysis and estimations, EEMO13

• Put additional upward pressure on energy prices

• Raise additional concerns about energy security

• Make it harder and more expensive to combat climate change

*GAS: Golden Age of Gas, International Energy Agency **World Energy Outlook 2011, IEA


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

110%

0 10 20 30 40 50 60 70 80 90 100 110 120 130 140 150

Gro

wth

(%

)

Electricity production (TWh)

Solar PV

Growth (abs.)Capacity Growth (%)

DE

IT

CZ

SK

FR

SI

DE

CZ

FR

2005

2010

2009

2008

2007

2006

Top 3 countries ranked by:

Capacity installed* Growth** (absolute)

2. ES

1. DE

3. IT

2. FR

1. SK

3. SI

* Volume for wind, small hydro, geothermal and solar PV in MW and for biogas and biomass in TWh

** Relative growth additionally displayed for solar PV and wind

Wind

Growth (abs.)Capacity Growth (%)

DE

ES

IT

ES

DE

FR

RO

BG

PL

Biomass

DE

FI

SE

PL

SE

NL

+

2005 2006

2007 2008 2009

2010

2009

Renewable energies have continued their development

15

A stable governmental policy is key for renewables development as they still need governmental subsidies. The eurozone sovereign debt issues should lead to a decrease of

those subsidies and impact renewables development

Sourc

e: E

ur’O

bserv

er

baro

mete

rs –

Capgem

ini analy

sis

, E

EM

O13

Growth rate of renewable energy sources As of May 2011, 10% of the European

generation plants under construction

are from renewable energy sources

(vs. 7% in 2009)

In 2010, wind power provided the

largest output (147 TWh) but had a

declining growth due to onshore

favorable sites saturation and local

negative reactions

Many governments have or are launching

large offshore wind programs

• September 2010: 300 MW offshore wind

farm inaugurated in the UK

• In July 2011, France launched a tender

for 3,000 MW

• North Sea: 400 MW (Germany) and 325

MW (Belgium) under construction

• Nuclear phase out in Germany should

boost wind power but creates issues

on the grid

Despite the solar PV growth in 2010

(+80%), several solar companies went

bust because of China competition

In 2011, renewable energy investment

rose 5% to US$260 billion* globally

(solar energy: +36%)

*Bloomberg New Energy Finance


39 4249.5 49.5 54.45 56.95 57.5

35

554.95

2.5 0.5

43

75

0

10

20

30

40

50

60

70

80€/MWh

Champsaur ARENH

French Court of Auditors

2010

Lifetime extension 2011-25

Decommissioning Radioactive waste management

Full cost

Energies 2050

Historical nuclear 2030

New nuclear 2030

Extensive analysis have been carried out on the nuclear

generation costs and energy mix scenarios in France

16

Nuclear generation costs in France

Source: Les coûts de la filière nucléaire, January 2012 and Energies 2050, February 2012 – Capgemini analysis

A working group, Energies 2050, set up by the

French Minister of Industry, Energy and the Digital

Economy examined four energy scenarios:

1. Lifespan extension of existing reactors

2. Quicker adoption of 3rd generation nuclear reactors

3. Progressive reduction of nuclear energy in the mix

4. a. Nuclear phase out (more fossil fuel energy)

4. b. Nuclear phase out (more RES)

The final price to end-customers is a combination of:

• Energy generation: 40%

• Transportation and distribution: 33%

• Taxes: 27%

50 60 70 80 90 100 110

Nuclear phase out (more RES)

Nuclear phase out (more fossil fuel energy)

Progressive reduction of nuclear energy in the mix

Quicker adoption of 3rd generation nuclear reactors

Lifespan extension of existing nuclear reactors

Source: Energies 2050, February 2012 – Capgemini analysis

Assumptions on electricity generation costs by 2030 (€/MWh w/o taxes)

Energies 2050 commission recommends extending nuclear

reactors lifespan

1

2

3

4a

4b


1,450

1,500

1,550

1,600

1,650

1,700

1,750

1,800

1,850

1990 1995 2000 2005 2010 2015 2020

EU

-27

Pri

ma

ry e

ne

rgy c

on

su

mp

tio

n [M

toe

]

Historical evolution of primary energy consumptionPath to reach 2020 target2020 target for EU-27

Projection with current measures in place(as per the March 2011 EU Energy Ef f iciency Plan)

-20%

-9%

80

85

90

95

100

105

110

1990 1995 2000 2005 2010 2015 2020

EU

-27

GH

G e

mis

sio

ns [b

ase

ye

ar=

10

0] Historical evolution of GHG emissions

Path to reach 2020 target2020 target for EU-27

-20%

Status on the 2020 EU objectives

After the 2009 drop (-7.1%), GHG emissions

increased by 2.4% due to the 2010 economic

recovery. For 2011, a slight ETS sector CO2

emissions increase (+2.6%*) is projected

An economic slowdown would push CO2

emissions down

In its March 2011 Energy Efficiency plan, the

EU estimated that with current measures only

half of the objective would be attained and

developed a new draft Directive focusing on:

• Triggering better energy efficiency of public

buildings

• Demand response programs through smart

meters roll out

• White Certificates mechanisms extension

• Better usage of cogeneration

• In 2013, the EU will re-assess the situation

17

Sourc

e: B

P s

tatistical r

eport

2011,

Euro

pean E

nvironm

ent

Agency,

Eur’O

bserv

er

– C

apgem

ini analy

sis

, E

EM

O13

Utilities need to develop end-to-end energy services helping curbing energy

demand

EU-27 GHG emissions

EU-27 primary energy consumption

*Deutsche Bank Forecast






• Energy mix






How to be a winner?





Conclusion

18


Infrastructure investments needs are very large

Investment needs increases result

from:

• Generation plants’ construction to replace

old plants, nuclear reactors phase-out and to

accommodate the electricity consumption

increase

• Electricity and gas grids reinforcement to

improve security of supply, accommodate

decentralized and renewable generation and

transform present grids to smarter ones

19

Source: European Commission

This estimation does not include • €250 billion** German investments linked to nuclear phase-out

+ €16.4 billion*** (linked to the immediate nuclear phase out) • Other investment needs linked to Fukushima accident

consequences

Total investment needs in the electricity and gas sector between 2010-20: over 1 trillion €*

Power generation: ~ 500 bn Transmission and distribution: ~ 600 bn

RES: ~ 310 – 370 bn Distribution: ~ 400 bn

Transmission: ~ 200 bn

Electricity: ~ 140 bn (interconnectors: 70, offshore

grid: 30; smart grid installations in transmission: 40)

Gas: ~ 70 bn (import pipes, interconnectors, reverse flows, storages, LNG)

Out of which ~100 bn gap (not covered by market

under existing regulatory conditions)

On October 19, 2011, the EU has adopted a plan to boost European networks (to be effective by 2014). €9.1 billion to be invested in trans-

European energy infrastructure

* EU estimation before Fukushima accident **Estimation by KfW, the German state-owned investment bank

*** Estimation from EWI, GWS and Prognos

0%

5%

10%

15%

20%

25%

1990 1995 2000 2005 2010

Utilities CAPEX to revenues ratio is decreasing

Source: SG Global Research, company data – Capgemini analysis, EEMO13


Many negative impacts on Utilities performances

Rising commodities prices

• Brent crude forecasted at $117/bl in 2012 and $123/bl in 2014*

• Gas price at TTF** forecasted at €24.5/MWh in 2012 and €36.4/MWh in 2014*

Electricity and gas prices control in many geographies

Utilities’ cost cutting programs have delivered some results:

• E.ON reduced its debts by €2 billion in 2011

• EDF reduced its debts by €1.1 billion in 2011

• Enel reduced its debts by €295 million in 2011

Rising taxes:

• Concerns on rising taxes due to the Eurozone’s difficulties

• Nuclear taxes in Germany (despite the phase out) and in Belgium (€550 million

in 2012 which government plans to extend in 2013)

• Increasing taxes to support the development of renewables

Economic recession impacting Utilities' client’s consumption

Concerns over smaller Utilities’ ability to get financing during the

crisis

20

2011 Utilities performance was good with most companies having met or exceeded estimates.

2012 outlook is blurred due to demand and pricing expected to remain weak, together with significant

CAPEX requirements

0

50

100

150

200

250

300

350

400

2004 2005 2006 2007 2008 2009 2010 2011e

Deb

ts (

in b

illi

on

eu

ros)

3,294

5,336

3,136

5,010

3,265

5,363

3,177

4,880

Electricity Gas

2008 2009 2010 2011

-4.7%+4.1%

-6.1% +7.0%

-2.7%

-8-9%

EU electricity and gas consumption

(non-weather-adjusted)

Utilities debts’ evolution

Source: SG Global Research, company data – Capgemini analysis, EEMO13

Source: ENTSO-E, BP – Capgemini analysis, EEMO13 * Estimation Deutsche Bank, January 2012; **TTF: Title Transfer Facility, the Dutch gas hub


Regulations changes are needed UK solution to face future investments

21

Source: National Grid Other Member States, governments and regulators should think of launching

similar bold actions

Main Challenges:

• Over the next 10 years, a quarter of the UK’s generating capacity is shutting

down and

• More than £110 billion in investment is needed to :

Build the equivalent of 20 large power stations

Upgrade the grid.

• By 2050, electricity demand is set to double, as more transport and heating is

shifted onto the electricity grid.

White Paper “Planning our electricity future” sets out measures to:

• Attract investment,

• Reduce the impact on consumer bills,

• Create a secure mix of electricity sources including gas, new nuclear,

renewables, and Carbon Capture and Storage.

Key elements of the reform package include:

• A Carbon Price Floor (announced in Budget 2011)

• New long-term contracts to provide stable financial incentives to invest in all

forms of low-carbon electricity generation

• An Emissions Performance Standard (EPS) set at 450g CO2/kWh so that no

new coal-fired power stations are built without CCS

• A Capacity Mechanism, including demand response as well as generation

rewarding mechanism




Electricity and gas security of supply is an issue


• Energy mix






How to be a winner?



• Manage asset portfolio


Conclusion

22


0

10

20

30

40

50

60

70

Co

st to

Ser

ve p

er c

on

trac

t, P

PP

an

d la

bo

r co

sts

corr

ecte

d(€

per

co

ntr

act)

To increase profitability, Utilities companies have to improve

their retail business competitiveness

23

European energy retailers are often facing

negative margins on the B2C segment (1/3

of the participants*)

Retailers operating in a competitive

environment for a few years have a higher

Cost to Serve (CtS) due to:

• The necessary adaptation of their loyalty,

marketing and sales strategies, impacting their

processes and channels management

• Higher bad debts (three times higher compared

to other participants) due to insolvent customers

taking advantage of the market opening to switch

supplier and avoid disconnection

Quality of service impacts costs, customer

satisfaction and channels used by customers

Channels are operated at different costs.

The cheapest channels are web and call

centers. And a proper multi-channel

strategy should be implemented

* Multi-client retail benchmarking study 2011, 38 participants in 17 countries

Cost toServe (CtS) per contract (2010)

Source: Capgemini Multi-client retail B2C benchmark 2011

A complete performance improvement is possible when taking a broad view embracing: • Customer satisfaction improvement leading to a higher customer lifetime value

• End-to-end process efficiency: marketing, acquisition digital meter-to-cash and energy services

Average: €27/contract

Non-competitive market Competitive market since < 10 years Competitive market since > 10 years Large size companies (>800,000 clients)


More synergies have to be implemented

Electricity/Gas synergies to be

developed

• Securing electricity grid

management despite renewables

generation volatility

• Improving electricity peaks

management

• Gas/electricity combined

commercial offerings for

wholesale and retail markets

Large European clients

commercial management

Gas and other goods purchases

synergies

Operational and management

best practices sharing

24

In the absence of competitive electricity storage solutions, gas storage and CCGT rapid ramp up

helps managing the renewable output volatility on the grid

August 27, 2009 November 8, 2009


3.9

2010

Utilities need to manage their assets portfolio

Geographical refocus

• Development outside Europe

EDF aiming to increase its generation capacity outside of France by 50%

E.ON targeting 25% of its EBITDA from foreign operations by 2015

• Scaling-down to a limited number of countries

Vattenfall sold two Polish subsidiaries to refocus on Sweden, Germany and

the Netherlands

Targeted renewable generation capacities increase

• Acquisitions favored by a cheap valuation environment

The purchase of EDF Energies Nouvelles and Iberdrola Renovables by

respectively EDF and Iberdrola

• Targeted expansion in renewables

In its “Cleaner and Better energy” strategy, E.ON plans to further develop

renewables ($7 billion investments in the next five years, of which just over €2

billion in new offshore wind farms in Germany, the UK and Sweden)

Enel aims at strengthening its growth in renewables in Latin America, Russia

and Eastern Europe

Securitization of gas supplies through backward integration

• Acquisition of gas production/transmission capacities

GDF SUEZ purchasing 9% share in the Nord Stream pipeline

EDF purchasing 15% share in South Stream

• Development of new gas fields

RWE Dea investing in 2 offshore gas fields in Egypt

25

International Utilities assets portfolio needs to be well balanced between developed and developing countries

France

UK Other international

Other activities

3.4

2011

~5.8

Perspective for 2015

EDF’s investments in new capacities (in € billion)

Source: EDF

E.ON’s transformation strategy

Source: E.ON


Mass roll-out finalized

Mass roll-out by 2020 well-engaged

Mass roll-out probably not completed by 2020

IE

NL

CH

SE

DK

NO

FI

EE

LT

LV

PL

SK

RO SI

UK

PT

ES IT

GR

FR

BE

HU

DE

AT

BG

CZ LU

In addition to smart meters and

boxes, time of use tariffs,

electricity curtailment incentives

and public education are key

elements to implement a demand

management policy

80% of electricity customers in EU

Member States should have smart

meters by 2020. All countries

required to perform cost benefit

analysis by September 2012

In September 2011, France has

decided the mass roll out of 35

million meters from 2013 to 2020

4 technologies experimented for

gas smart meters (18,500 meters)

in France. Decision for mass roll-out

should be taken in 2013

Together with smart meters and

boxes, Utilities have the

opportunity to develop services

26

Energy savings are necessary for a long-term sustained development

Source: ESMA, GEODE – Capgemini analysis, EEMO12, updated March 2012

Smart meters are the first steps for smart grids

Norway E Draft regulation issued in Feb. 2011

80% roll-out by 2016, 100% by 2018

Finland E Legislation into effect. At least

80% roll-out by end 2013

Estonia E Mandatory nationwide

roll-out under discussion

Sweden E 100% smart meters

implemented in 2009

Denmark E Deployment by several

DNOs. No national plan

Germany E 50 trials from 10 to 115,000 meters

Nationwide roll out under discussion

Customers can opt in or out

G Similar to electricity

Poland E Legislation should be ready in 2012

Pilots run by all Utilities


Czech Republic E National roll-out under discussion

Several pilots under way Austria E Legislation adopted in 2010.

Pilots from 10,000 to

240,000 meters

G Legislation under discussion

Belgium E No legislation yet

Several business case

studies under way


France E Decision for roll-out of 35

million smart meters by 2020

taken in 2011.

G GreenLys pilot, decision for

mass roll-out by 2013

Greece E Roll-out under way

G Plans for extending the

electricity system to

water and gas meters

Italy E 100% smart meters

implemented in 2009

G 80% smart meters to be

installed by 2016

Hungary E Legislation adopted in 2011

G Legislation under discussion

UK E 27 million smart meters should

be implemented by 2020


Netherlands E Legal framework for voluntary

installation adopted

Several pilots under way

Portugal E Smart meter substitution plan

presented by the regulator

Several pilots (30,000 to

50,000 meters) run

Spain E 100% smart meters should be

implemented by end 2018

Ireland E National roll-out

planned for 2014-17

G Studies under way

for gas

Electricity and gas smart metering projects in Europe


Unconventional gas is changing the picture

Unconventional gas accounts for 4% of the world total of proven gas reserves and for 12% of global production in

2010 (to increase to 30% by 2040*).

The US account for 3/4 of global unconventional output, increasing production 4 fold since 1990 (420 bcm in 2010).

The latest US Energy Information Administration report shows significantly larger unconventional gas resources in Europe

• France: resources estimated at 5,000 bcm (around 100 years of consumption). They are equally situated in two basins (North and South-East)

• Germany: resources amount to 20 times less and British resources to 9 times less

• Only Poland would have equivalent resources to France

It would be regrettable if the present French decision to cancel exploration permits prevents shale gas exploration

27

Shale gas changes the gas perspective: • It increases the total gas resources to 250 years of consumption

• It is widely distributed • It is cheap ($3/Mbtu in the US)

• It allows to repatriate gas consuming industries as chemicals and to fight against deindustrialization

Source: EIA

Global unconventional natural gas resources (tcm)

27

* ExxonMobil Energy Outlook, December 2011

NO: 2,324

FR: 5,040

PL: 5,236

SE: 1,148

FR: 5,040 Largest technically recoverable shale gas resources (bcm)


Biogas is a great opportunity to “greenwash” retailers

offerings

28

In 2010, primary energy production from biogas grew strongly in

Europe (+31.3%), benefiting mostly electricity production (+21%)

Thanks to favorable feed-in tariffs (from c€6 to c€14.3/kWh since

January 1, 2012), Germany is the leading biogas country (the

country accounted for 61% of the EU biogas-sourced primary energy

production and 53% of the biogas-sourced electricity production) with

7,470 biogas plants (i.e. 2,900 MWe or about 2% of the country’s

consumption) at the end of 2011

Germany has also started feeding biomethane into the gas grid

since 2008 and intend to install 1,333 units by 2020 (vs. 53 units

connected in 2011) aiming to cover 6% of the natural gas demand

Italy’s biogas-sourced electricity production increased by 23% in 2010

thanks to a favorable legislation in agricultural biogas (highest FiT for

biogas electricity generated from agricultural feedstock in Europe)

France’s biogas production is 16 times lower than German’s one.

New FITs were introduced in May 2011 (the basic electricity FiT will

increase from 5 to 12%). Injection tariffs for biomethane injected into

the gas grid published in November 2011 ranging from c€4.5-12.5/kWh

Primary production of biogas in selected

European countries in 2010 (ktoe)

Comparison of the current biogas electricity

output trend against the NREAPs* roadmap (GWh)

Sourc

e: E

ur’O

bserv

er

So

urc

e: E

ur’O

bse

rve

r

France is struggling to develop its biogas potential. The injection tariffs could give France a new

momentum * NREAP: National Renewable Energy Action Plans




Electricity and gas security of supply is an issue


• Energy mix






How to be a winner?



• Manage asset portfolio


Conclusion

29


Utilities need to change their business model

Oil and gas procurement tensions and post-

Fukushima accident are leading to changes in the

energy landscape

European Utilities are negatively impacted by the

economic slowdown, governments pressure on prices,

potential extra-taxes and frozen regulation

They need to adapt their business model, increase

competitiveness and launch profitable innovative

projects

Developed countries have to limit their energy

demand and Utilities have a key role to play

Public deserves a proper information on all energy-

related questions

30

« Energy Orb » (PG&E) gives visual

indications to clients involved in energy

demand management programs


With around 120,000 people in 40 countries, Capgemini is one of the world's foremost providers of

consulting, technology and outsourcing services. The Group reported 2011 global revenues of EUR 9.7

billion. Together with its clients, Capgemini creates and delivers business and technology solutions that fit

their needs and drive the results they want.

A deeply multicultural organization, Capgemini has developed its own way of working, the Collaborative

Business ExperienceTM, and draws on Rightshore ®, its worldwide delivery model.

With EUR 670 million revenue in 2011 and 8,400 dedicated consultants engaged in Utilities projects

across Europe, North & South America and Asia Pacific, Capgemini's Global Utilities Sector serves the

business consulting and information technology needs of many of the world’s largest players of this

industry.

More information is available at www.capgemini.com/energy.

Rightshore® is a trademark belonging to Capgemini

Rightshore® is a trademark belonging to Capgemini

About Capgemini

31

http://www.capgemini.com/energy


32