|Printable version||E-mail this to a friend|
2011 is the year of infrastructure risk management
Deloitte, the business advisory firm, has launched its second power and utilities report, Empowering Ideas 2011, looking at the challenging conditions the sector will face across the world during the remainder of 2011 and into 2012.
The debate surrounding the future of nuclear energy will be difficult as each nation’s government and population debate the pros and cons. The response to Fukushima has been dramatically different across the globe, from the immediate closure of existing plants to the continuing development of existing new build programmes. One common theme has been that the vast majority of countries have given nuclear energy a more extensive and thorough review, with an eye towards the safety and strength of their nuclear infrastructure. They recognise the potential of damage to their local populations and water and food supplies. In the longer term, pro nuclear nations are expected to unveil additional government reviews and oversight based on the events in Japan.
Daniel Grosvenor, Deloitte nuclear partner, says: “The earthquake and resulting tsunami in Japan has had and will continue to have repercussions across the entire spectrum of power, utilities and resources companies during 2011 and beyond. If there is one important conclusion from this year’s report, it is infrastructure risk management. Whether power and utilities companies use natural gas, coal, nuclear or renewable energy, they will place new emphasis on infrastructure safety with a greater focus on very low probability, but high impact events.
“The nuclear industry has taken a large hit, however the full financial impact for operators is still emerging as the longer term cost implications are not yet known. While the stock prices of many nuclear operators have taken large hits, the ratings have not been changed because of the safety requirements already in place. Analysts have argued the markets have not yet ‘priced in’ a larger safety risk than before the events. Funding might also become a little more difficult due to increased public resistance and tighter permitting procedures.”
Other key findings include:
1) Risk management: The new challenge
A significant challenge for utility companies’ capital projects is managing and synchronising the flow of large data sets that must be funnelled in to a unified and collaborative data warehouse. Regardless of the project – greenfield or refurbishment, partners in geographically dispersed regions around the world generate thousands if not millions of working documents of crucial project information. Making the right information available to the right people is likely to be one of the major challenges power plant owners and operators have to face going forward.
2) M&A: Is it time to buy or sell?
Over the short term, the power sector will continue to witness increased industry consolidation as many markets remain fragmented. Regulations on coal-fired generation are expected to increase, steering buyers toward cleaner baseload generation. Chinese power companies are only now getting started in mergers and acquisitions; China's giant utility State Grid Corporation spent nearly US$1 billion to buy seven Brazilian power transmission companies, the latest in a series of big bets by Chinese corporations in Latin America. Outbound Chinese M&A will definitely continue to display rapid growth.
3) Driving performance in ‘smart’ utilities: Data analytics to the rescue.
Slicing, dicing, and manipulating data in new ways to create scenarios and answer complex questions, analytics can move informed decisions into the future, giving utility companies the ability to move from asking basic questions such as: “How many meters do we have installed?”, to more effective questions such as: “What is the best outcome?”. In this way, data analytics identifies events that may have the most effect on the business as a whole so that appropriate action can be taken as early as possible.
4) An energy resource dilemma: Is natural gas the clear winner?
Gas could be the winner as a fuel source, based on its availability and its low price in some markets. The outlook for natural gas and its many variants – including unconventional and LNG – looks bright. Much of this outlook is based on new discoveries and enhanced drilling techniques which will lead to new supply.
5) Trends in carbon: What utilities can do now
Until carbon pricing certainty begins to emerge or there are government policy decisions on what the rules will be regarding carbon reductions, power and utilities companies need to be proactive in managing their carbon exposure. Energy efficiency combined with conservation is one way, while modelling carbon pricing under a number of scenarios is another. Given the increased regulatory presence in utilities markets around the world, companies should be prepared to provide additional disclosure on their carbon impact.
Notes to editors
The methodology for developing this set of issues and trends comes from interviews with Deloitte’s most senior partners that serve clients in the power and utilities marketplace.