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Utilities Industry Braced For Change

Tuesday 12 April 2006

Utilities Industry Braced For Change New Zealand No Exception

The utilities industry is facing its biggest challenge in modern times according to the eighth annual PricewaterhouseCoopers report, The Big Leap: Utilities Global Survey 2006. According to the report, two-thirds of the world’s leading utility company leaders hold this view, with the majority rating the changes that the industry will have to undergo as little short of revolutionary.

The leader of the PricewaterhouseCoopers energy team in New Zealand, Craig Rice, said the survey’s reinforced key messages for the local energy sector. “Yet again it highlights the need for the industry to work with government and investors to make the infrastructure, technological, environmental and investment leaps that need to happen to arrive at a long term sustainable solution,” he said.

The report presents the views of 116 senior executives from leading utilities companies in 43 countries, including New Zealand.

The industry is ready to make a big leap forward with nearly two thirds believing the industry needs to adopt a 10-year focus on reducing environmental damage, developing new technologies, improving customer service relationships and finding new fuel sources.

Many also feel that policy-makers also have to make a leap. 80% of respondents believe political and regulatory factors are inhibiting the ability of the sector to respond to these challenges, and shock factors such as supply or environmental crises may need to occur to force change.

The Big Leap reveals security of supply remains the primary concern of those in the industry, as it has over the last two years. Many believe the pace of change needs to be stepped up to face the challenges that lie ahead. For example, 42% said the sector is lagging behind in the development of renewable energy sources.

Regulatory uncertainty continues to affect investment in the sector and was cited as one of the top three concerns amongst the utilities companies polled. Meeting projected supply needs will require an investment of NZ$21 trillion (US$13 trillion) by 2030* in power generation, transmission and distribution, and gas-supply infrastructure - yet 42% of respondents felt that government or regulatory policy restricted their ability to develop long-term plans.

The PricewaterhouseCoopers’ The Big Leap report also highlights other key developments in the utilities sector:

- M&A activity at record levels: Both the value of total deals and the size of deals are at record levels. Total deal value soared to NZ$323 billion (US$196bn) in 2005 from NZ$202 billion (US$123bn) in 2004.

- Coal tops favoured fuel supplies: Coal ranks alongside gas as the fuel expected to make the biggest contribution to meeting demand growth in the next five years.

- Nuclear ready to step up: 44% of all respondents said they expect nuclear capacity to increase in their region as a result of concerns about climate change.

- Technological advances: Companies are increasingly looking to technological innovation to deliver efficiencies and respond to the pincer of future demand challenges and environmental concerns.

*According to the International Energy Agency/OECD World Energy Outlook 2005.


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