european energy markets: how utilities companies can improve performance

| Energy, Utilities & Chemicals Global Sector

Paris – April 5th, 2012

European Energy Challenges Colette Lewiner and Philippe David


An overview of the European energy markets

Recent events are impacting the energy markets

• Middle-East political tensions

• Fukushima accident consequences

• Economic downturn

They are changing the electricity security of supply

Present and future energy mix is evolving

How to reach the sustainability objectives?

How to improve Utilities companies performance?

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

However, Saudi Arabia is increasing significantly its

production to curb price

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

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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

President Obama is supporting a new pipeline

(Keystone XL)

4

High oil prices impact economic growth (EU’s oil import costs up 44% in 2011 compared to 2010 and net oil import bill estimated to account for 2.8% EU’s GDP in

2012 compared to 1.7% from 2000 to 2010) and trade exchanges balance

Oil prices

Source: Focus Gaz, February 17, 2012

130

120

110

100

90

80

70

Apr 2011 Mar 2012 Aug 2011 Dec 2011

Brent

WTI

Crude oil spot – Brent vs. WTI

Source: Ycharts Source: France inflation

Crude oil spot – Brent in US dollars and in Euros

124.38

105.68


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


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%

-2% -3%-1%

-3%-2%

0% -4%0%

1%

-2%

-5%

-10%-8%

-10%

-7%

-16%

-12%

-4%-6%

-2%-4%

-12%-14%

-22%

Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11

Electricity

Gas

There is some elasticity between the economic situation and

the energy consumption

In 2009, electricity and gas consumption dropped in Europe (-4.7% and -6.1% respectively) due to the crisis, in 2010,

they increased again (+4.1% and +7.0%) thanks to the economic recovery and colder than average winter

temperatures. Wholesale electricity and gas prices followed the same trend.

In 2011, European electricity and gas consumption decreased respectively by 2.7%* and 8-9%**, mainly due to a

mild weather. In France, electricity consumption decreased by 6.8% (weather-adjusted: +0.8%) and gas

consumption by 13.4% (weather-adjusted: -1.9%).

7

Source: ENTSO-E, BP – Capgemini analysis, EEMO13

Evolution of electricity and gas consumption (M/M-12) non-weather-adjusted

Source: SG Energy Pulse – Capgemini analysis, EEMO13

A second economic slowdown would impact negatively the energy consumption and prices

EU electricity and gas consumption

(non-weather-adjusted)

* Société Générale Energy Pulse (Focus group representing 63% of European electricity consumption) **Cedigaz provisional figure











Conclusion

8


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

9

Peak load 2012: 102,100 MW

Peak load 2012: 25,844 MW


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

the cold spell

10

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 electricity peak load reached 102,100 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

New housing heating gas is regaining market share: close to 60% compared

to less than 40% for electricity in 2011 (2008 electrical heating market share was

70%). This has decreased the potential electricity demand at peak hours by

450 MW

But tariff-related demand response capacities have decreased from 6,000

MW in 2004 to 3,000 MW in 2011


Infrastructure investments needs are very large

Investment needs increases result from:

• Generation plants’ construction to replace

old plants, nuclear reactors potential phase-out

and safety improvement

• Electricity and gas grids reinforcement to

improve security of supply, accommodate

decentralized and renewable generation,

transform present grids to smarter ones and to

accommodate the electricity consumption

increase

11

Source: European Commission

In order to incentivize the Utilities, regulation changes are needed

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. This estimation does not include: • €250 billion German investments linked to nuclear phase-out (estimation by KfW, the German

state-owned investment bank) • €16.4 billion linked to the immediate nuclear phase-out (estimation from EWI, GWS and Prognos)

• Other investments needs linked to Fukushima accident consequences

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











Conclusion

12


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:

13

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


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

Current electricity generation costs vary significantly from

one source to another

14

Source: Energies 2050

30-40 33-50

Hydro electricity

Current nuclear

Coal-fired plant

Gas-fired plant

On-shore wind

Off-shore wind

Biomass plant

Solar photovotaic

Around 70 with

1t of CO2 at €20

Around 100 with 1t of CO2

at €50

50-60 depending on

coal price

Around 80 with

1t of CO2 at €20

Around 90 with

1t of CO2 at €50

70 80

150-200

Very variable

100-150

240-400

Net electricity generation

in 2010

Compared costs of

generating electricity in

France in 2010 (€/MWh)

Electricity generation costs depend on:

• Discount rate, especially for high CAPEX technologies such

as nuclear, wind or solar energy

• Commodity and CO2 certificates prices (gas or coal prices

for fossil-fueled plants)

• Load factor

• Technology improvements and breakthroughs

• Externalities

Despite potential increase of safety CAPEX and OPEX and back-end costs

(decommissioning, final disposal) existing nuclear plants remain

competitive

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

Nuclear generation costs estimation* in France

* Estimation methodologies are different Source: Les coûts de la filière nucléaire, January 2012 and Energies 2050, February 2012 – Capgemini analysis

Recent studies have focused on nuclear energy

costs


Extensive analysis have been carried out on the nuclear

generation costs and energy mix scenarios in France

15

The Energies 2050 commission examined four existing energy scenarios:

1. Lifespan extension of existing reactors: all existing nuclear reactors lifetime is extended to 60

years providing the nuclear safety authority (ASN) allows it

2. Quicker adoption of 3rd generation nuclear reactors: replacement of all existing nuclear reactors

by 3rd generation reactors (EPR) as soon as they reach their 40 years lifetime, which implies to build

at least 2 EPR reactors per year during 10 years (from 2020 to 2030)

3. Progressive reduction of nuclear energy in the mix: all existing nuclear reactors are

decommissioned when reaching their 40 years lifetime and 1 on 2 reactors is replaced by a 3rd

generation reactor (EPR), which leads to a 40-60% nuclear energy share by 2030

4. a. Nuclear phase out (more fossil fuel energy): all existing nuclear reactors are decommissioned

when reaching their 40 years lifetime and are replaced by fossil fueled plants

4. b. Nuclear phase out (more RES): all existing nuclear reactors are decommissioned when reaching

their 40 years lifetime and are replaced by renewable energy plants

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 in the different scenarios by 2030

Energies 2050 commission recommends

extending nuclear reactors

lifespan

1

2

3

4a

4b

~25 MtCO2/y

~25 MtCO2/y

30-50 MtCO2/y

~120 MtCO2/y

~45 MtCO2/y

Stable

Not able to measure

- 100,000 to 150,000 jobs

- 200,000 jobs

Stable

Stable

Energy sources diversification but increase of fossil fuel imports

Increase of fossil fuel imports

Potential issues on grid security

Electricity generation costs (€/MWh w/o taxes) CO2 emissions Employment Energy security

Scenarios methodology

could be improved on:

• Energy consumption

• Renewable energies grid

impact

• Ability to finance large

investments


Union Française de l’Electricité has modeled 3 energy mix

scenarios by 2030, similar to the Energies 2050 commission

scenarios

16

Installed capacity in the different scenario (GW)

Source: UFE

Three scenarios developed by UFE:

• Nuclear production at 70%: nuclear plants lifetime extension and

commissioning of 2 EPR, 2020 renewables objectives met

• Nuclear production at 50%: nuclear energy share is reduced to 50%, the

development of renewables is higher than in the first scenario, the

additional energy need is provided by thermal plants production

• Nuclear production at 20%: all nuclear plants are shut down after 40

years of operation, renewable energies development is pushed at its

maximum level, the additional energy need is provided by thermal plants

production

There are some similarities with Energies 2050 scenarios:

• Nuclear production at 70% scenario (UFE) corresponds to the Lifespan

extension of existing reactors scenario (Energies 2050)

• Nuclear production at 50% scenario (UFE) corresponds to the

Progressive reduction of nuclear energy in the mix scenario (Energies

2050)

• Nuclear production at 20% (UFE) corresponds to the Nuclear phase out

(more RES) scenario (Energies 2050)

The “50% nuclear” and “20% nuclear” scenarios are the most unfavorable from an economic,

environmental and social perspective, consistent with the Energies 2050 conclusions


In all scenarios, end-users electricity prices and investments

are bound to increase

17

Evolution of residential electricity prices

in the different scenario (€/MWh)

Source: UFE

Investments in the different scenario (billion €)

Source: UFE

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

• Energy generation: 40%

• Transmission and distribution: 33%

• Taxes: 27%

Final price to consumers is higher in nuclear phase-

out scenarios

The CSPE should increase three-fold in the UFE “20% nuclear” scenario

Investments required over the period 2010-2030 are

evaluated on the basis of:

• The extension and development of generating capacities

• The transmission and distribution networks

• Interconnectors

• And investments in Demand Side Management (DSM)











Conclusion

18


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

19

A stable governmental policy is key for renewables development. The eurozone sovereign debt issues should lead to a subsidies decrease and threaten 2020 objective

achievement

Source: Eur’Observer barometers – Capgemini analysis, EEMO13

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


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%

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%

Status on the 2020 EU objectives

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

by 2.2% due to the 2010 economic recovery. For 2011,

88% ETS sector CO2 emissions released data show a

2.4%* decrease, mainly due to the combustion/power

sector (-3.1%)

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

20

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 analysis, April 2012


Pilot programs results on peak shaving

21

% peak shaving observed in various pilots worldwide

Peak shaving: the use of displays helps but the customers’ behavior is key

Several means exist for

peak shaving and energy

savings, that can be

combined or not:

• Dynamic tariffs (that

should be further

developed with the mass

roll-out of smart meters)

• Automation such as smart

thermostat, smart

appliances, in-home

displays or web-based

consumer portal

• Demand management

programs such as

customers alerts, social

networks communication or

feedbacks through bills,

web, SMS, smart phones

% peak shaving Range of peak shaving

Source: Capgemini Consulting


Pilot programs results on energy savings

22

% energy savings observed in various pilots worldwide

Prices increase and Time-of-Use tariffs

should trigger sustained results

Large-scale pilots run

for more than one year

reach energy savings

in the 2-6% range

while more focused

programs based on

customer

segmentation can

reach 18%* energy

savings

% energy saving Range of energy saving

*Literature review for the Energy Demand Research Project, Sarah Darby, Oxford University, 2010



Demand response potential for EU-27 by 2020

23

Demand Response study

2012 results snapshot

In a dynamic scenario, the demand response potential can be translated into the equivalent capacity of 108 gas plants saved and the consumption of 13 major cities avoided

In our Demand Response (DR) study*, the

potential of peak shaving and energy savings is

modeled on the basis of a baseline scenario:

• GDP growth 2010-20: 1.8% in average

• CAGR electricity consumption 2010-20: 0.7%

• Some existing energy efficiency programs such

as Grenelle de l’Environnement or White

Certificates

Assumptions are made on:

• Regulation (norms and standards, energy

efficiency objectives, tariffs and incentive policies)

• Market design (possibility to monetize DR on

wholesale markets, contracts optimization, capacity

markets)

• Smart meters penetration and functionalities (for

the households segment)

And typical DR offerings are modeled with

hypothesis on their adoption by customers

*Demand Response study 2012 - Capgemini Consulting, VaasaETT and Enerdata

1 Normative hypothesis: 1 kWh saves 700g CO2 (average European value considering avoided peak capacity is mainly gas-fired plants) 2 Expressed in equivalent of avoided consumption of large size cities (2 mio inhabitants and 150,000 commercials, average consumption of 8.2 TWh/year) 3 Expressed in equivalent of avoided construction of power plants (500 MW)

5.2

24

0.9 4.3

22

0.8

3.7

15

0.62.5

14

0.42.8

12

0.5

1.4

7

0.2

1.1

6

0.21.0

5

0.20.7

4

0.1

0.6

4

0.1

13%

2%

15%

1%

13%

2%

13%

1%

13%

2%

13%

1%

13%

1%

13%

2%

14%

1%

15%

1%

Dynamic scenario:

Savings in CO2 emissions (in Mt of CO21)

Savings in electricity consumption (in equivalent number of major cities2 and in % energy savings)

Savings in peak generating capacities (in number of power plants3 and in % peak shaving)

Moderate scenario:Probable savings based on our observation of current trends in regulatory, technical and market conditions (in number of power plants)

3.1

1.0

4

3%

2%












Conclusion

24


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

25

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 to Serve (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)


The performance of distribution network operators (DNO) can

also be improved

26

Structural factors such as consumers’

density, network structure and level of

consumption have an impact on full costs

level of DNOs

Taking these structural factors into

consideration, our benchmark* shows a 40%

performance gap between the most efficient

and the least efficient DNO on full costs

On average, full costs can be decreased by

nearly 7% to reach top performers’ full costs

level through improvement of controllable

costs**. Two third of this decrease arises

from Network Operations and one third from

Customers’ Services

However, most DNOs having a lower cost

of network operations than average have a

poorer quality of supply

* 2011 European power distribution network operators benchmark, 39 participating DNOs from 14 countries ** Controllable costs: network operations and customers services, non-controllable costs: transmission fees, taxes, losses, financial costs, depreciation *** RIIO: Revenue=Incentives+Innovation+Outputs

Performance of each DNO on the same reference network

(basis 100)

With the smart grids and smart metering deployment, investments will increase significantly and lead to lower operational costs. As a consequence, regulation has to evolve to better

incentivize investments such as for example the new RIIO*** in the UK

Source: Capgemini 2011 European power distribution network operators benchmark











Conclusion

27


Utilities need to change their business model

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

28

GDF SUEZ plans to spend more than 30% of growth CAPEX in

fast growing countries over 2012-2017

(1) H1 2011: as of June30 ; 2017: estimated as of year end Source: GDF SUEZ investors presentation, December 2011


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

29

http://www.capgemini.com/energy


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