The Future of Competition in European Utilities

Publication Date	March 2006
Publisher	Datamonitor
Product Type	Report
Pages	73
ISBN Number	not applicable
Product Code	DAT00472

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Summary

Introduction

The development of the European utility market faces a cross-road: Either a common European approach in meeting today's energy challenges, or a refocus on national energy policy solution. This brief, based on survey responses from 56 utility executives across Europe, develops six alternative views on the future development of the European utilities market.

Scope

Six alternative views on the development of the European utilities market from 2005 - 2010, based on a survey of utility executives across Europe.
Analysis of how a cross-section of industry participants see the European energy market developing between 2005-2010.
A starting point for more involved exploration of key drivers of market development in succeeding years.
Raw data from the survey, which can be used to build scenario's of the readers choosing.

Highlights

The Consensus scenario shows how gradual realisation of utilities market competition and volatile wholesale prices lead to a focus on a wholesale-retail balance. A development leading to a few major players dominating across the value chain.

The Watch Scenario shows how national dissatisfaction over the European energy policy, caused by merger and acquisition activity, leads to a refocus on nationally managed competition.

Regionally Led views vary in value chain focus, with a Northern focus on retail and a Southern focus on corporate development and wholesale impacts. Company Led views vary, with Large and International companies focusing on value chain issues and Small and National companies focusing on national governments having a strong impact on competition.

Reasons to Purchase

Understand how industry experts and peers expect the European energy market to develop.
Aid strategic planning by using the views as starting points for exploration and challenges that will emerge.
Use the survey raw data to construct alternative views to incorporate into your strategic planning.

Content

Catalyst

Summary

Methodology

Analysis

This brief draws on a survey of executives to create two future market scenarios and a series of alternative views
This Brief is based on a survey of 56 utility executives from across Europe
How the report is constructed
How readers may use the report
Methodology
Based on the average likelihood and impact rating, the aggregated survey responses were placed into a matrix and apportioned into one of 5 groups
The total set of respondents put 18 of the questions into Groups A or B, 3 into Group C and 19 into Groups D and E
There are 14 Group A responses, "must pay attention", which drive a Consensus Scenario
There are 4 Group B responses, "watch out, it could happen", which drive a Watch Scenario
There are 3 Group C responses, "there are more important things to worry about"
There are 18 Group D responses, "unlikely and irrelevant"
There is 1 Group E response, "too unlikely to matter"
The Consensus Scenario sees the gradual realisation of utilities market competition, but with a few major players dominating across the value chain
The Consensus Scenario shows how gradual competition and volatile wholesale prices lead to a focus on wholesale-retail balance
Fundamental triggers of the Consensus Scenario
Utility reaction
Outcomes
The Watch Scenario leads to a refocus on nationally managed competition
The Watch Scenario illustrates national dissatisfaction over the European energy policy, caused by merger and acquisition activity
Fundamental triggers of the Watch Scenario
Utility reaction
Outcomes
A series of divergent views emerges when analysing by company location and type
The Regionally Led views are derived from events with the largest difference in respondent perspectives North v South
Northern view:
Southern view:
Northern view envisages retail led development, Southern view weighs wholesale aspects more heavily
The Northern view
The Southern view
Conclusion
The Company Led views are derived through the biggest varieties in likelihood on selected events
Large and International companies:
Small and National companies:
By company scale the views vary in terms of supply concerns and national impact
The Large and International company view
The Small and National company view
Conclusion

Appendix

An extensive appendix of data is included to enable readers to build their own scenarios and analysis
Survey respondents were asked to rate 40 events for their likelihood and their impact on the future of the European energy market
Key Players
Retail Agenda
Corporate Agenda
Market Fundamentals
Regulatory Agenda
All respondents
Company Scale: Large
Company Scale: Small
Company Type: International
Company Type: National
Respondent Type: Director
Respondent Type: Senior Manager
Respondent Type: Operations
Respondent Type: Strategy
Market Type: Fully Liberalised
Market Type: Partly Liberalised
Region: North-Western Europe and the Nordic Countries*
Region: Western Mediterranean*
Region: Central and Eastern Europe*
Question 1: Continued consolidation pushes the leading eight European utilities to have a combined market share of more than 50% across 32 European markets.
Question 2: Losing patience with poor profitability in the retail sector, one of the eight large European vertically integrated utilities exits the retail market.
Question 3: Two of the leading pack of the eight largest European players merge.
Question 4: The vertically integrated utilities drive profit by stabilising their customer bases and controlling prices through their control across the value chain.
Question 5: Profit targets necessitate business expansion through aggressive sales campaigns and/or product development.
Question 6: Product development becomes more aggressive and creative but retaining a focus on energy products.
Question 7: Product development becomes more aggressive and creative, but the focus shifts increasingly to multi-utility service packages.
Question 8: National residential retail brands become further aligned with European parents.
Question 9: Regional brands disappear.
Question 10: Energy suppliers significantly increase their number of affinity partnerships.
Question 11: Current pricing model breaks down, with prices tailored to different niches (becoming more complex than current pricing model).
Question 12: Energy suppliers remove current pricing model and introduce a one-size fits all model.
Question 13: An increasing number of energy suppliers begin to introduce a flat rate tariff.
Question 14: The re-emergence of long 10-15 year take or pay contracts over short term index linked contracts.
Question 15: Energy services become as necessary to take as the energy commodity itself.
Question 16: The vertically integrated utilities begin to sell their network assets to specialist owners (perhaps consortia including financial institutions) and focus on the higher margin generation and supply sectors.
Question 17: To survive and manage the commodity cycle, all electricity suppliers are forced to maintain an approximate structural balance between generation and retail.
Question 18: To survive and manage the commodity cycle, all gas suppliers are forced to maintain an approximate structural balance between production and retail.
Question 19: An oil major moves into energy retail through a big acquisition.
Question 20: A serious competitor emerges without assets, outsourcing all functions in retail to build a 1 million plus customer base.
Question 21: The loss of experienced staff from consolidation and efficiencies means the net effect on the bottom line is negative.
Question 22: Profitability margins for the utilities sector double i.e. from 10% to 20%.
Question 23: Upstream gas assets become the most profitable part of the vertically integrated utility.
Question 24: The integrated utility model becomes redundant.
Question 25: The next phase for the eight leading European utilities is significant global expansion.
Question 26: Energy prices rise steadily as a result of international commodity market forces, with constraints on supply.
Question 27: Energy prices fall steadily as a result of international commodity market forces such as an excess of gas supply.
Question 28: Wholesale gas prices remain volatile, with knock-on effects in the wholesale power market.
Question 29: A combination of an ageing population and failing pensions, force significantly more vulnerable people into fuel poverty.
Question 30: Improvements to the housing stock allow more people to live on their own, creating significant new accounts activity.
Question 31: Concerns over gas supply and prices from potentially unstable markets, increases the need to introduce or further support nuclear build.
Question 32: Higher prices, security of supply concerns, and increased subsidies or tax breaks force governments to renationalise utility companies.
Question 33: The EU tightens up its emissions targets for an aggressive second stage (2008 - 2012).
Question 34: Emissions Trading Scheme collapses.
Question 35: The implementation of the LCPD will be delayed.
Question 36: Renewable energy certification is adopted to support the construction of renewable capacity.
Question 37: Utilities' profits become genuinely ample and governments decide to impose windfall taxes.
Question 38: The government significantly increases the role of utilities in improving energy efficiency.
Question 39: EU regulation becomes more pervasive, with national regulatory powers increasingly being transferred to Brussels.
Question 40: The EU acts to facilitate the switching process, either by encouraging industry initiatives or by threatening penalties.