Apresentação do PowerPoint - Brazil Energy Frontiers information is confidential and was prepared...
Transcript of Apresentação do PowerPoint - Brazil Energy Frontiers information is confidential and was prepared...
“The future of electricity” Julian Critchlow
SÃO PAULO | 19 DE AGOSTO DE 2015
This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent
“The future of electricity” Julian Critchlow
August 2015
This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent 3 LON 150819-AT69-Brazil WEF Future ...
Objectives for today
•Share our perspective on the lessons learnt from the energy transition in developed markets
•Discuss potential implications for Brazil
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Introduction: The Future of Electricity
•To evaluate how to make the electricity sector more sustainable for society by increasing “investability”
• Initial focus is on developed markets but understanding the lessons for developing markets
AIM AND SCOPE STEERING COMMITTEE
Steve Bolze (co-chair) CEO GE Power & Water
Ignacio S. Galán (co-chair) Chairman and CEO Iberdrola
Anders Runevad CEO Vestas
Joe Kaeser CEO Siemens
Alex Molinaroli CEO JCI
Eric Rondolat CEO Philips Lighting
Sam Laidlaw CEO Centrica
Gérard Méstrallet Chairman & CEO GDF
Peter Terium CEO RWE
Magnus Hall President & CEO Vattenfall
Christian Rynning-Tønnesen CEO Statkraft
José Manuel Entrecanales Chairman Acciona
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Key questions that we are exploring
• How (un)investable is the electricity sector in developed markets?
• What are the key barriers to investability?
• What case studies illustrate enablers of “investability”?
Point of departure Choices
• What characteristics of a balanced energy policy framework and transition pathway are required to ensure investability of the electricity sector?
• What design of the market is required?
• What business and investor models could evolve to support this?
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EU set aggressive targets for 2020 and beyond, known as ’20-20-20’
GOAL 1: REDUCE GREEN-HOUSE GAS LEVELS BY 20%
GOAL 2: INCREASE SHARE OF RENEWABLES TO 20%
GOAL 3: REDUCE ENERGY CONSUMPTION BY 20%
Aided by recession If investment continues Not currently on track
Source: European Commission “The 2020 climate and energy package”; Eurostat; European Commission “2030 framework for climate and energy policies”
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Europe has been a “first mover” in the roll-out of non-hydro renewables
Japan
United States
OECD
European Union
Today
Brazil
Projected rollout based on current and planned policies
Source: IEA World Energy Outlook 2014
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7_84
Since the peak some €½ trillion of value has been wiped off the European utilities industry
LARGE EUROPEAN INCUMBENTS …
… LOST SUBSTANTIAL VALUE
FROM 2008 TO TODAY
603 209
Source: Bloomberg; Datastream
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…but EU markets have been impacted differently by the energy transition
Indexed to Jan 2007
2009: 20-20-20 targets adopted
Note: Indexed to 4 Jan 2007, 3 months moving average Source: Utility Indices from FTSE
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Significant investment is still required in the electricity sector to complete the transition… how will it be funded?
Indicates the investment required to meet policy objectives
~$3TN ~$7.6T
Source: IEA World Energy Outlook 2014
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But 100GW of new thermal capacity will also be required to maintain system adequacy through to 2035
Note: Reproduced from figure 3.17 in IEA World Energy Investment Outlook (2014) Source: IEA World Energy Investment Outlook (2014) – New Policies Outlook
150GW expected to come to end of its lifetime
between 2016 and 2025
Today’s excess capacity provides some ‘breathing space’ but then
reinvestment will be required
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Declining returns for players across mature markets and asset classes cast doubt on investor appetite
EU Utilities
Indicative EU Utilities WACC (~7-8%)
Indicative US Utilities WACC (~4-8%)
U.S. Utilities
EU Renewables
Source: Bloomberg; Datastream
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Decline in returns and load factors are driven by capacity growth outstripping demand in many countries
CAPACITY GROWTH POORLY MATCHED TO DEMAND CAPACITY GROWTH BETTER MATCHED
Italy
United Kingdom
USA
Denmark
Spain
Germany
Note: De-rated capacity calculated by multiplying nameplate capacity by common availability factors for all generation types except wind and solar PV. For wind and solar PV, capacity derated at the country specific 2012 average load factor for each country. Demand is total consumption. Both statistics indexed to 2006=100 Source: IEA, EIA, OFGEM
De-rated capacity Demand
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In generation, thermal load factors declined by up to 30% since 2006 in Europe, US factors declined by 7%
Note: Combustible doesn’t include nuclear. Load factors calculated by dividing generation in a given year by the average of that year and the preceding year’s capacity Source: IEA Data Browser
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In transmission and distribution, roll-out of solar is undermining economic models of incumbent operators
3. Customers switch to DG
Self-reinforcing
cycle
HOUSEHOLDS WITH D.E. DRAW LOWER ENERGY FROM GRID…
…WITH POTENTIAL TO REINFORCE GREATER D.E. UPTAKE
Curtailed output Distributed energy (solar)
Solar Wind
Natural gas Coal Geo / Bio Nuclear
Peak solar output (~3:00 pm)
Peak demand (~9:00 pm)
Utility “Death Spiral”
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-50%
-59%
PRICES FOR INDUSTRIALS IN EUROPE SIGNIFICANTLY HIGHER THAN IN US
RESIDENTIAL CUSTOMERS FACING INCREASING ENERGY COSTS
Industrial and residential electricity prices in Europe ~50% more than in the US and rising faster
*2012 Prices Source: Global Trends in Renewable Energy Investment, 2014, Bloomberg New Energy Finance; Reuters
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High industrial electricity prices in Europe and Japan will impact competitiveness of energy intensive industries
% Export market share for energy intensive goods
Source: IEA – World Energy Outlook (2013); IEA Amsterdam (2014)
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Key questions the study is exploring
• How (un)investable is the electricity sector in developed markets?
• What are the key barriers to investability?
• What case studies illustrate enablers of “investability”?
Point of departure Choices
• What characteristics of a balanced energy policy framework and transition pathway are required to ensure investability of the electricity sector?
• What design of the market is required?
• What business and investor models could evolve to support this?
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10%
US Forecast real rise in residential price by 2035
25%
Lack of public to willingness pay for decarbonisation could lead to policy instability, further reducing investability
Source: Swiss Re survey of 22,000 people in 19 countries (2013), IEA – World Energy Outlook 2013
Policy framework
EU Forecast real rise in residential price by 2035
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The path taken is high cost: in the EU solar irradiation is mainly in the south and wind mainly in the north
Policy framework
WIND SPEED SOLAR IRRADIATION
Source: Bain analysis; Bloomberg New Energy Finance; EWEA: Energy production costs; EC - EU Energy in Figures: Statistical Pocketbook 2013; BP Statistical Review of World Energy – 2013; UK Energy Roadmap Update 2013-point 131
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The path taken is high cost: EU invested ~$550B in solar and wind capacity between 2000 and 2014
WIND SPEED
GW de-rated capacity for major renewable states in EU XX Policy framework
SOLAR IRRADIATION
$550B
Source: Bain analysis; Bloomberg New Energy Finance; EWEA: Energy production costs; EC - EU Energy in Figures: Statistical Pocketbook 2013; BP Statistical Review of World Energy – 2013; UK Energy Roadmap Update 2013-point 131
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The path taken is high cost: If investments had been made optimally and shared, the EU would have saved ~$100B
SOLAR IRRADIATION
GW de-rated capacity for major renewable states in EU XX Policy framework
WIND SPEED
$450B
Source: Bain analysis; Bloomberg New Energy Finance; EWEA: Energy production costs; EC - EU Energy in Figures: Statistical Pocketbook 2013; BP Statistical Review of World Energy – 2013; UK Energy Roadmap Update 2013-point 131
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EU Emissions Trading System (ETS) failed to deliver a cost of carbon sufficient to drive adoption of renewables
• Recession led to surplus of carbon emission permits causing record low permit prices
• Carbon permit prices remain low, even after European Parliament restricted carbon auctions to support carbon prices in October 2013
• Even with coal plants requiring twice as many carbon permits as gas plants, low prices make it more economical to burn coal
Market design
Source: EIA, Reuters “Europe's coal power plants gain from rising Euro”; The Economist “The unwelcome renaissance”; Bloomberg “Europe gas carnage”
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EU RENEWABLE INCENTIVE OPTIONS (2013)
Quota obligations
Tariff-based mechanism (Feed-in tariff and Feed-in premium)
EU CARBON PRICING MECHANISMS (2014)
ETS
Carbon tax
EU governments were forced to intervene directly to drive renewables growth
Market design
Note: The patterned colours represent a combination of instruments; Investments grants, tax exemptions, and fiscal incentives are not included Source: Fraunhofer ISI, Ecofys, EEG, World Bank, Environmental and Energy Study Institute
Both of the above Both of the above
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The “guaranteed” returns on renewables attracted new investors – Germany example
Share of renewables installed capacity in Germany
Market design
*Largest four utility companies active in Germany Source: trend:research; unendlich-viel-energie.de; Company annual reports
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Renewables installation volumes in the EU were much greater than targets and forecasts
INSTALLATIONS IN GERMANY WERE MUCH HIGHER THAN FORECASTED
Regulator Study, 2009*
EU OVER-BUILT VS. SELF-IMPOSED TARGETS
Market design
Actual
Note: * “Leitszenario 2009”, BMU (Aug 2009) Source: BMU, BEE, Lit search : IEA World Energy Investment Outlook, 2003 -2014; EIA “Tackling Investment”; European Commission
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These policies added costs to the economy
Solar PV
Bioenergy
Wind onshore
Concentrating solar power
Other
Wind offshore
Market design
Note: Other includes geothermal, marine and small hydro Source: Recreated from IEA World Energy Outlook 2013
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Policy support for renewables has waivered in some geographies due to these rising costs
RETROACTIVE CHANGE EXAMPLES Market design
Source: Literature search
United Kingdom
Date 2011
Proposal Reduction of solar
feed in tariffs with
proposal
overturned court
Outcome Change reversed
Spain
Date 2013
Proposal Subsidies for wind
installed pre-2005
removed. 2005-08
subsidies reduced
Outcome Change enacted
Portugal
Date 2012
Proposal Subsidies
reduced by €1.8
billion and end RE
guaranteed
purchase
Outcome Change enacted
Greece
Date 2014
Proposal Reduction of feed
in tariffs to PV by
30% with owners
funding deficit
reduction
Outcome Change enacted
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Businesses and investor models
There is potential for a major change in the electricity sector toward customer-centricity
Current Model
Generation
and fuels Distribution Retailing Customer
Generation
and fuels Transmission Distribution
Future Model…?
Transmission
Meter
Meter
Retailing
Source: CSIRO (2013); E-lab – New Business Models for the Distribution Edge (2013); Bain Analysis
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Example 1: Solar City provides a full end-to-end service for distributed solar generation
Source: Company webpage
• Provide upfront project financing
• Assess energy use and installation site
• Project energy savings over 20 years
• Design customised solar power system based on site audit and energy requirements
• Install system including permit applications, inspections and grid connection
• Monitor and manage system, including energy storage and demand response
Financing Consultation System design Installation Monitoring and
management
Businesses and investor models
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Example 2: Players have begun to enter the “connected home” partnering with utilities
1 HARDWARE &
PLATFORM
INFORMATION
PROVIDER
PARTNER WITH
UTILITIES
2 3
• Nest developed their
‘learning’ thermostat
hardware and platform
• Nest acquired
MyEnergy to provide
more detailed insights
into customer’s usage
• Partner with US
utilities for demand
response – Nest Rush
Hour
1 INFORMATION
PROVIDER
PARTNER WITH
HARDWARE
PARTNER WITH
UTILITIES
2 3
• Opower begun as an
information aggregator
and analysis company
for the energy sector
• Partner with
Honeywell to provide
analytics for wifi-
enabled thermostats
• Formed partnerships
with 75+ utilities
globally, helping to
provide demand
response and ToU
tariffs
Businesses and investor models
Source: Company websites
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Owned by EDF/Veolia GDF Suez
Services
• Energy infrastructure operation
• High-efficiency system design and management
- Heating and cooling systems
- Thermal services
- Industrial services
- Building management
• Energy consumption management
• Energy services
- Energy efficiency for homes and businesses
• Technical services
- Advisory services to ensure sustainability targets
- Assistance with CSR
• Facilities management
- Provide services like reception, catering, and housekeeping
• Business processes
Revenues €8.9B (2012) €14.7B (2013)
Source: Literature search
Example 3: Major utilities have developed strong energy services businesses via partly / fully owned sub-brands
Businesses and investor models
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Key investor profile shifts across value chain are in renewable generation and “beyond the meter”
Investment dynamics
Historically long-term, low-risk returns Nascent opportunities with higher risk profiles
due to uncertainty
Historical investors
• Generation – Utilities
• T&D – Utilities, Infrastructure, Pension and Sovereign Wealth Funds
• Retailing – Utilities
• Energy efficiency – Consumers (and government)
Emerging during transition
• Renewable generation - Utilities and developers with Infrastructure., Pension and Hedge Funds (direct exposure to assets)
• Flexibility (demand response) – Utilities, private equity (e.g. H.I.G. / CPower), others (e.g. Google / Nest)
• Distributed generation – Households (e.g. Germany), private equity and hedge funds (e.g. G.I.M / SolarCity)
• Energy Efficiency – Utilities (e.g. GDF / Cofely)
Generation
& fuels
Transmission &
Distribution (T&D)
“BEFORE THE METER” “BEYOND THE METER”
Retailing
Businesses and investor models
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Power sector is critical for economic development – as wealth rises so does electricity consumption per capita
R-Squared = 83% Slope = 91%
1% growth in GDP per capita translates in ~0.9% of electricity consumption
per capita growth
Source: EIA US, Economist Intelligence Unit, Bain analysis
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Non-OECD markets will drive GDP and thus electricity demand in next decades
NON-OECD MARKETS WILL DRIVE GLOBAL GDP GROWTH
RESULTING IN SIGNIFICANT ELECTRICITY CONSUMPTION GROWTH
Source: Economist Intelligence Unit; IEA; Euromonitor; Bain analysis
3.4%
1.5% 0.4%
3.1%
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To close demand gap in sustainable way non-OECD markets have to almost double their investments in coming years
~$3T ~$8T Source: IEA; Bain analysis
~$10T
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Investment in the power sector of non-OECD countries has mainly come from government/public sector, reflecting the ownership structure of power companies
Heavy reliance on debt funding from state banks
OECD Non-OECD
Source: IEA
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• Actively invest in education
and R&D to close knowledge
and human capital gap
Themes emerging from analysis of fast growing economies challenges and best practices
• Create effective public-private
partnerships to execute on
most efficient pathways - Be clear and consistent on the rules
and boundaries for public and
private participation (e.g. legal and
regulatory framework) to ensure
efficiency of Public-Private
Partnership
• Nurture favorable investment
environment - Align / commit on expectations
for profitability (investor returns) for power sector players
- Implement measures to reduce risk and decrease cost of capital
- Allocate residual risks to the most
appropriate market participants
- Develop innovative financing
schemes
• Provide level playing field for
technologies with adequate
recognition of their value - Ensure power markets are
technology agnostic, but adequately
reflect the full value of each
technology (e.g. carbon abatement,
flexibility, fast response).
- By exception, provide support to
nascent technologies that could
scale to be cost-competitive - but
with clear plan to phase out
subsidies once that is achieved
• Ensure seamless flow of
funds through value chain: - Reduce losses from non-metered
supply (e.g. China program on
smart metering)
- Commit to phasing out tariff subsidies and adopting cost-based approach (e.g. Brazil reform in 90s)
- Build societal support for investment in electricity system
• Set efficient, executable and
thus credible pathways to
policy objectives - Develop long-term roadmap to
ensure balance between renewable and conventional, centralized and distributed generation
- Policy maker should make ‘No
regret’ investments in infrastructure,
technologies, efficiency etc. (e.g.
Brazil Electricity for all program)
Policy framework Market structure Business and financing
• Create integrated policy framework to ensure balanced development of power value chain - Policies should be integrated across
power value chain that will secure
balanced development of
Upstream, Generation and T&D
(e.g. China’s focus on securing fuel
supply whilst simultaneously
developing power infrastructure to
generate and distribute electricity)
1
2
3
4
5
6
7
FOR DISCUSSION
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Choices: Key questions for discussion
Policy framework Market design Businesses and investor models
How can we address the policy stability gap between
decarbonisation cost and public willingness to pay?
What design of the market is required to manage the
transition?
What are the options / potential outcomes for businesses and investors?
• How might the current roles of investors and market participants evolve along the value chain (e.g. innovative business / investment models)
• What choices can be made now that are most robust to uncertainty?
• What is the right balance of market mechanisms, direct interventions and regulation to manage the transition?
• Why has regional / global integration not occurred and how could the barriers be overcome?
• Is there a need for capacity remuneration in the US where intermittent renewable generation is increasing?
• Can we lower the cost?
• Can we gain societal alignment on incremental investments?
• Can we otherwise increase stability, e.g. using legal frameworks or autonomous institutions?
Policy framework Market design Businesses and investor models
How can we address the policy stability gap between
decarbonisation cost and public willingness to pay?
What design of the market is required to manage the
transition?
What are the options / potential outcomes for businesses and investors?
• How might the current roles of investors and market participants evolve along the value chain (e.g. innovative business / investment models)?
• What choices can be made now that are most robust to uncertainty?
• What is the right balance of market mechanisms, direct interventions and regulation to manage the transition?
• Why has regional / global integration not occurred and how could the barriers be overcome?
• Is there a need for flexability remuneration where intermittent renewable generation is increasing?
• Can we lower the cost?
• Can we gain societal alignment on incremental investments?
• Can we otherwise increase stability, e.g. using legal frameworks or autonomous institutions?
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