Driven by the rise of new energy technologies, climate change and fluctuating energy demands, utility markets in developed economies are undergoing rapid and radical changes in direction.
Oliver Wyman conducted a recent study on global utility markets and discerned three primary patterns in terms of structural market shifts. Diverse countries are characterized by either:
- Decentralized generation under government-set targets
- Monopoly regulation at the local level or
- Balancing market competition with strong regulatory oversight.
The energy markets of Germany, the United States and the United Kingdom each represent one of these patterns.
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Electric Utility Value Creation and DestructionStructural market shifts are having a big impact on electric companies' earnings and value
Decentralized Generation
Germany, 2008-2014
- Declining profits in the generation business
- Drop in wholesale prices due to increased renewables, which make up more than three-quarters of the total generation profit pool and are mostly in the hands of new market players
LOCAL MONOPOLY REGULATION
United States, 2008-2014
- Differentiated picture depending on degree of regulation and reflecting business strategy
- Pipes & wires and vertically integrated utilities have achieved the best gains in earnings (+25%) and enterprise value (+73%)
- Hybrid utilities with both regulated and non-regulated business show the worst performance (earnings -6% and enterprise value +12%)
Balanced Market
United Kingdom, 2009-2014
- Large differences along the value chain
- Decline in conventional generation erased nearly 50% of the original profit pool
- Renewables as well as domestic gas and power supply have had positive effects on value
