ANNUAL REVIEW

Energy & Utilities 2017

February 2017  |  SECTOR ANALYSIS

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Transformative change is enveloping the energy & utilities sector. Price fluctuations, the rise of renewable energy, key accords such as the Paris Agreement and other notable legislative developments have all contributed to the winds of change permeating the energy & utility space. As many governments promote and facilitate the growth of efficient, secure and reliable renewable energy, the industry must respond accordingly.

 

UNITED STATES

Mona Dajani

Baker & McKenzie LLP

“The majority of US utilities have launched major digital transformation initiatives over the last 18 months. These changes come as customer expectations rise in connection with access to energy information, services and control. Seizing on digital transformation will separate those utilities that thrive by converting historical customer intimacy into business advantage and those that struggle just to keep what they have. Utilities that learn how mobile and digital strategies can go beyond operational cost savings to create customer value will make the leap. Renewable energy is gaining market share. While the trend for gas generation depends on the price of its fuel, the outlook for renewable energy is simpler – it will continue to grow because prices continue to fall.”

 

CANADA

Seán O’Neill

McCarthy Tétrault LLP

“In Canada, the last decade has been characterised by power generation assets developed under centralised provincial procurement programmes. The last 12-18 months has seen this development significantly slowing down in certain provinces and picking up in others. In Ontario, where the most significant procurements have occurred, the 930 MW large renewable procurement II was announced in April 2016 but was suspended by the Ministry of Energy in September 2016, noting that it would allow the Ontario government to procure renewable energy at a lower cost in the future.”

                                                                                                                                    

BELGIUM

David Haverbeke

Fieldfisher

“Most of the trends in the energy and utilities sector in our region are, considering its location and high degree of interconnectors, closely linked with European integrated energy and climate policy. This follows two current trends. Firstly, the EU policy framework has facilitated increased investment in decentralised production, and more market players are reviewing their business models to deal with the impacts of this, in particular at the distribution level. For example, we have seen increased investment in services, as well as storage capacity.”

 

PORTUGAL

Ricardo Andrade Amaro

Morais Leitão, Galvão Teles, Soares da Silva & Associados

“The energy and utilities sector in Portugal is undergoing profound changes, notably in the electricity sector. On the supply side, the generation profile is changing. Renewables, notably wind, small hydro and solar, are occupying an ever growing share of the electricity produced in the country. The apparent commercial viability of large scale solar projects, with no feed-in tariff and the recent clearance by the European Commission of the new support scheme for renewables means that this trend is unlikely to change in the near future.”

 

ITALY

Cristina Martorana

Orrick

“Over the last 12-18 months there have been a number of major developments affecting the energy & utilities sector. First, there was the implementation of a new support regime for renewable energy sources (RES) other than photovoltaic power, pursuant to the FER Decree. There has also been an increase in the number of deals announced, due to the large amount of liquidity and gradual increase in the size of target companies, also for PE funds focused on SMEs. There has also been increased access to the Italian market, with deals directed at medium sized Italian companies, from foreign private equity funds.”

 

JAPAN

Naoki Ishikawa

Mori Hamada & Matsumoto

“The Japanese electricity market was fully liberalised in April 2016 by the liberalisation of the retail market for low voltage customers. This created the momentum for establishing a competitive energy market that businesses from various sectors, other than the conventional energy sector, can enter. Such momentum was demonstrated by the fact that not only related industries such as oil & gas, but also new business operators in sectors such as telecommunications, distribution and the railways, entered the retail electricity market. As of the end of August 2016, 5.1 percent of all retail customers have changed their electricity providers.”

 

SINGAPORE

Marc Rathbone

Nabarro

“Some of the key trends we have seen in South-East Asia (SEA) have included, firstly, peaking power. There has been a focus on the development of renewable energy, particularly following the Paris climate summit (COP21). In particular, solar energy has been largely driven by a decrease in technology costs, relatively shorter construction time and the availability of feed-in tariffs. However, the downturn in oil prices could adversely affect the growth of renewable energy alternatives. In terms of base load power, there is still a heavy dependence on fossil fuel in order to meet rapidly increasing power and energy demands.”

 

AUSTRALIA

Cassandra Hogan

KPMG Australia

“In Australia, market forces are changing the energy and utilities sector with a shift in customers moving toward the centre of the energy market. The competitive landscape is dynamic, with all competitors attempting to ‘own the customer’ with an ever increasing convergence in products and services. New retailers have entered in the market, second tier retailers have increased their market share and market concentrations have declined for the large national energy providers. In response to the changes in the market, retailers and distributors are establishing new energy business units to defend against potential disruption and disintermediation.”

 

SOUTH AFRICA

De Buys Scott

KPMG South Africa

“South Africa has recently published the long awaited draft integrated energy plan (IEP) and the integrated resource plan (IRP) for industry commentary. These two strategies set out South Africa’s long term resource plans and the country’s proposed evolution from a primarily coal based electricity base, to a significantly more balanced electricity mix in the future. The nuclear initiative has received an early green light for further development from South African electricity public utility Eskom, notwithstanding the significant cost challenges South Africa faces with this expansion. The country’s gas base load programme has also commenced recently with an EOI for the LNG to power process.”


CONTRIBUTORS

Baker & McKenzie LLP

Fieldfisher

KPMG Australia

KPMG South Africa

McCarthy Tétrault LLP

Morais Leitão, Galvão Teles, Soares da Silva & Associados

Mori Hamada & Matsumoto

Nabarro

Orrick

 


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