European Energy Markets: How Utilities Companies Can Improve Performance

European Energy Challenges
Colette Lewiner and Philippe David

Paris – April 5th, 2012

| Energy, Utilities & Chemicals Global Sector

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

The rising political tensions in Iran are particularly worrying
for global oil supply
Italy
 After China, the EU is the largest importer of Iranian oil Iran’s oil exports (Jan to June 2011)
(about 20%) % of each 13%
 In response to the Iran’s nuclear program negotiations country’s total 7%
oil imports Others Other EU
failure, the US and Europe decided sanctions against Iran, Jan to June 2011 Spain
who, in return, threatened to close the Strait of Hormuz: 12% 5%
China 6% 13%
• Strengthening of the US military presence in the Gulf
• Oil embargo from the EU (due to start in July) which should 11%
hit 450,000 to 550,000 barrels a day of Iranian oil exports Total Japan
Iranian oil
 But Iran banned crude oil supply to France, the UK and South Africa 22% exports 14%
10%
the EU right away 2.3 m
 In addition, Japan, South Korea, Taiwan and India could 25% bl/d
reduce their purchases (up to 250,000 bl/d). In total,

Source: Financial Times
between 25% and 35% of Iran’s oil exports could be India
Turkey 13%
impacted 4% 11%
 However, Saudi Arabia is increasing significantly its 51% 7%
production to curb price 10%
South Korea
Average daily oil flow
10%
through the Strait of
Hormuz (2011) 14 crude oil tankers

Primary factors driving demand are
Almost 17 million barrels Source: Financial Times economic growth and increased
35% 20%
requirements in the developing world
Iran political situations may place global
of all seaborne of oil traded
production and transportation at risk
traded oil worldwide


3

Oil prices in European currencies are at their highest

 Oil prices forecasts uncertainty is increased by  In Euros, the crude oil spot price is at its highest
speculation: each barrel traded on the physical  There is currently a $20 spread between WTI and Brent,
market is traded 35 times on the financial markets a the consequence of a localized logistic phenomenon
 There is some consumption/price elasticity at Cushing, Oklahoma, where WTI is priced
 High present oil prices are linked to tensions in  President Obama is supporting a new pipeline
Middle East and Iran (Keystone XL)
Oil prices Crude oil spot – Brent in US dollars and in Euros Crude oil spot – Brent vs. WTI
130
124.38
Brent
120

110
105.68

100

WTI
90

80

70
Apr 2011 Aug 2011 Dec 2011 Mar 2012
Source: Focus Gaz, February 17, 2012 Source: Ycharts
Source: France inflation

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

4

Gas is not a global market.
Very different regional pricing systems
Gas spot prices Gas prices evolution
50 100
In €/MWh ($4.4/MBtu=€10.6 /MWh)
DE - Import price NL - TTF
BE - Zeebrugge UK - NBP
40 DE - NCG FR - PEG Nord 80 Long-term contracts price
Brent month ahead Spot price
Gas prices [€/MWh]

30 60

Brent price [€/bl]
20 40

10 20

0 0
Europe versus US gas prices

Source: Gas Exchanges web sites, SG Commodities Research, BMWI – Capgemini analysis, EEMO13

 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

US spot gas prices are only one third of long-term
European gas prices. For how long?
Source: Focus Gaz January 2012


5

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) Overview of existing nuclear plants and project capacities (as of February 2012)
 The final number of planned or proposed 0 50,000 100,000 150,000 200,000 250,000
reactors is difficult to assess. However, two China MWe
points are clear: USA
Russia
• Provided reactors are run safely, the India
consequences of the Fukushima accident Japan
France
should be less important than viewed just after South Korea
the accident United Kingdom
Ukraine
• The proportion of new, safer “Generation 3 Canada
reactor” builds will increase UAE Operable
Saudi Arabia
 It is worthwhile mentioning that: Germany
Under construction
Planned
• TVA in the US has decided to complete South Africa
Vietnam Proposed
Bellefonte 1 reactor, that the Nuclear Regulatory Turkey
Commission has certified the design of Sweden
Westinghouse Electric Co.'s AP1000 reactor Spain
Finland
and that Southern Company is building 2 new Czech Republic
nuclear plants in Vogtle, Georgia Brazil
Switzerland
• Finland announced a new build, the first
Source: World Nuclear Association
announcement of a new site anywhere in the
world since the Fukushima accident The vast majority of new constructions and existing
• Russian Rosenergoatom has received a license plants in operation should continue with some delays
for building the Kaliningrad plant and more safety focus.
• No.1 nuclear unit in Zhejiang Sanmen (China) The IEA* forecasts that nuclear output will rise by
has restarted the infrastructure construction more than 70% over the period to 2035
project *IEA: International Energy Agency, World Energy Outlook 2011


6

There is some elasticity between the economic situation and
the energy consumption
EU electricity and gas consumption
Evolution of electricity and gas consumption (M/M-12) non-weather-adjusted
(non-weather-adjusted)
Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11
-6.1% +7.0% -8-9%

5,336 5,010 5,363 1%
4,880 0%
+4.1% -2.7%
-4.7% 0% -4%
3,265 -2% -1% -2%
-3% -3% -2% -2%
3,294 3,136 3,177 -4% -4%
-6% -5%
-8% -7%
-10% -10%
-12% -12%
Electricity -14%
-16%
Gas
Electricity Gas
-22%
2008 2009 2010 2011
Source: SG Energy Pulse – Capgemini analysis, EEMO13
Source: ENTSO-E, BP – Capgemini analysis, EEMO13

 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%).
A second economic slowdown would impact negatively the energy consumption and prices
* Société Générale Energy Pulse (Focus group representing 63% of European electricity consumption)
**Cedigaz provisional figure


7


 Conclusion


8

Electrical peak loads are increasing year-on-year threatening
security of supply
160,000 9.1% Peak load, generation capacity and electricity mix (2010)
&

140,000 Peak load 2012: Total installed capacity for Europe in 2010: 882,712 MW
102,100 MW (+3.7% compared to 2009)
3.6%
&
120,000
Total generation capacity and peak load [MW]

2.1% CO2 emitting generation capacity
4.7% & 3.9% Non-CO2 emitting generation capacity
100,000 & & Peak load 2010
Total 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%)
9.5%

Source: ENTSO-E – Capgemini analysis, EEMO13
& 1.5%
80,000 &

2.6%
8.8% &
60,000 &
0.1% Peak load 2012:
& 25,844 MW
-0.1%
40,000 2.2%
( 0.1%
&
6.2% & 0.1%
3.2% 9.3%
& & 1.6%
& & 1.0% 5.8% 0.3% 9.3% 6.8%
& -1.4%
3.6% &
6.6%
20,000 & &1.7%
& ( & & 0.2% 10.3%
-0.6% 4.8% 0.1%
& & 1.1% 2.0% 2.6% & &0.3%
&1.1% 2.1% 10.2% 9.3%
( & & &
1.0%
& 1.1% 4.1%
& & & & &5.1%-23.6% 7.9%
1.8% 3.0%
& & & -0.4% -1.3% 1.9%
4.9% 1.5%
6.8%
& ( & & & (
( & & &
0
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

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

France recorded a new peak load on February 8, 2012 due to
the cold spell
 The French electricity peak load reached 102,100 MW at 19:00
Generation mix on February 8, 2012 at 19:00
• Nuclear plants’ availability largely contributed: 59,165 MW (55 reactors out of
the 58 were in operation) Gas
• France imported 7,845 MW from all its neighboring countries (max 9,000 MW)
Oil-fired + Coal
3%
• On EPEX Spot, day-ahead electricity prices jumped to €1,938/MWh peak 5%
• RTE activated it EcoWatt demand response program in Brittany and PACA regions capacities
which resulted in a consumption reduction of respectively 2% and 3%
5%
• EnergyPool curtailed 20 MW of industrial consumption which have been used for
Brittany region Imports Nuclear
 In 2011, net new generation capacities have been added: 8% 58%
• 850 MW of CCGT
• 1,250 MW of renewable energies
• 450 MW of fossil-fired plant have been decommissioned
Others Hydro
 New housing heating gas is regaining market share: close to 60% compared 6% 13%
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 Wind
450 MW Source: RTE
2%
 But tariff-related demand response capacities have decreased from 6,000
MW in 2004 to 3,000 MW in 2011

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

10

Infrastructure investments needs are very large

 Investment needs increases result from: Total investment needs in the electricity and gas sector
between 2010-20: over 1 trillion €*
• Generation plants’ construction to replace
old plants, nuclear reactors potential phase-out
and safety improvement Power generation: ~ 500 bn Transmission and distribution: ~ 600 bn
• Electricity and gas grids reinforcement to
improve security of supply, accommodate RES: ~ 310 – 370 bn Distribution: ~ 400 bn
decentralized and renewable generation,
transform present grids to smarter ones and to Transmission: ~ 200 bn
accommodate the electricity consumption Out of which ~100 bn gap
increase (not covered by market Electricity: ~ 140 bn
under existing regulatory (interconnectors: 70, offshore
conditions) grid: 30; smart grid installations
in transmission: 40)
25% Utilities CAPEX to revenues ratio
is decreasing On October 19, 2011, the EU has
adopted a plan to boost European Gas: ~ 70 bn
20%
networks (to be effective by 2014). (import pipes, interconnectors,
€9.1 billion to be invested in trans- reverse flows, storages, LNG)
European energy infrastructure
Source: European Commission
15%
* 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)
10% • €16.4 billion linked to the immediate nuclear phase-out (estimation from EWI, GWS and Prognos)
• Other investments needs linked to Fukushima accident consequences

5%

In order to incentivize the Utilities,
0% regulation changes are needed
1990 1995 2000 2005 2010
Source: SG Global Research, company data – Capgemini analysis, EEMO13


11


 Conclusion


12

The Fukushima accident has triggered a debate on the
present and future energy mix
2010 and 2025 electricity mix (as of June 2011)
 Energy mix should evolve towards
100%
more gas, renewables and coal (in
certain countries) 90%

 The main cause for gas progression 80%

is power plants’ consumption
 In the new IEA GAS* scenario, gas 70%
Solar + Biomass
share of primary energy consumption Wind
60%
reaches 25% in 2035 at a global Hydro
Other f ossil
level (more than coal, slightly less than Gas
50%
oil) but leads to a +3.5°C global Lignite + Coal

temperature increase (compared to Nuclear
40%
the +2°C objective) 2010 mix: lef t-
hand side bar
30%
 The IEA** has examined a Low
2025 mix: right-
hand side bar

Nuclear Scenario (no new nuclear 20%
plant is built in OECD countries, non-
OECD countries build only half of the 10%
projected nuclear plants and the
operating lifespan of existing nuclear 0%
BE BG CH CZ DE ES FI FR UK HU IT LT NL PL RO SE SI SK
plants is limited to 45 years) which
Source: ENTSO-E – Capgemini analysis and estimations, EEMO13
consequences would be to:
• Put additional upward pressure on energy prices The energy mix evolution could result in:
• Raise additional concerns about energy security • Higher costs (renewables development)
• Make it harder and more expensive to combat climate change • Higher temperature increase (more fossil fuels)
*GAS: Golden Age of Gas, International Energy Agency • Lower energy independency
**World Energy Outlook 2011, IEA


13

Current electricity generation costs vary significantly from
one source to another
 Electricity generation costs depend on:  Recent studies have focused on nuclear energy
• Discount rate, especially for high CAPEX technologies such costs
as nuclear, wind or solar energy Nuclear generation costs estimation* in France
€/MWh
• Commodity and CO2 certificates prices (gas or coal prices 80
for fossil-fueled plants) Decommissioning Radioactive waste 75
management
240-400 70
• Load factor Lifetime extension
2011-25
• Technology improvements and breakthroughs 60 2.5 0.5
4.95
• Externalities 50 55
43
150-200
40
Compared costs of 35
30 57.5
generating electricity in Around 49.5 49.5 54.45 56.95
France in 2010 (€/MWh) Around
70 with
80 with
1t of CO2 20 39 42
1t of CO2 at €20 Very variable
at €20 Around 100-150 10
50-60 Around 90 with
depending on 100 with 1t of CO2
coal price 1t of CO2 at €50 0 Champsaur 2010 Full cost Historical New
at €50 nuclear nuclear
ARENH
70 80 French Court of Auditors 2030 2030

33-50 Energies 2050
30-40 * Estimation methodologies are different
Source: Les coûts de la filière nucléaire, January 2012 and Energies 2050, February 2012 –
Capgemini analysis

On- Off- Despite potential increase of safety
Hydro Current Coal-fired Gas-fired Biomass Solar
electricity nuclear plant plant
shore shore
wind wind plant photovotaic CAPEX and OPEX and back-end costs
Net (decommissioning, final disposal)
electricity existing nuclear plants remain
generation
in 2010 competitive
Source: Energies 2050


14

Extensive analysis have been carried out on the nuclear
generation costs and energy mix scenarios in France
 The Energies 2050 commission examined four existing energy scenarios:  Scenarios methodology
1. Lifespan extension of existing reactors: all existing nuclear reactors lifetime is extended to 60 could be improved on:
years providing the nuclear safety authority (ASN) allows it • Energy consumption
2. Quicker adoption of 3rd generation nuclear reactors: replacement of all existing nuclear reactors • Renewable energies grid
by 3rd generation reactors (EPR) as soon as they reach their 40 years lifetime, which implies to build impact
at least 2 EPR reactors per year during 10 years (from 2020 to 2030) • Ability to finance large
3. Progressive reduction of nuclear energy in the mix: all existing nuclear reactors are investments
decommissioned when reaching their 40 years lifetime and 1 on 2 reactors is replaced by a 3 rd
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

Assumptions in the different scenarios by 2030
Electricity generation costs (€/MWh w/o taxes) CO2 emissions Employment Energy security

actors
1 ~25 MtCO2/y Stable Stable Energies 2050
actors
2 ~25 MtCO2/y
Not able to
measure
Stable commission
3 - 100,000 to Energy sources diversification recommends
he mix 30-50 MtCO2/y
150,000 jobs but increase of fossil fuel imports extending
4a
nergy) ~120 MtCO2/y
- 200,000 jobs
Increase of fossil fuel imports nuclear reactors
4b
e RES) ~45 MtCO2/y Potential issues on grid security lifespan
50 60 70 80 90 100 110
Source: Energies 2050, February 2012 – Capgemini analysis


15

Union Française de l’Electricité has modeled 3 energy mix
scenarios by 2030, similar to the Energies 2050 commission
scenarios
 Three scenarios developed by UFE: Installed capacity in the different scenario (GW)
• 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 Source: UFE


16

In all scenarios, end-users electricity prices and investments
are bound to increase
Evolution of residential electricity prices Investments in the different scenario (billion €)
in the different scenario (€/MWh)

Source: UFE Source: UFE

 The final price to end-customers is a combination of:  Investments required over the period 2010-2030 are
• Energy generation: 40% evaluated on the basis of:
• Transmission and distribution: 33% • The extension and development of generating capacities
• Taxes: 27% • The transmission and distribution networks
 Final price to consumers is higher in nuclear phase- • Interconnectors
out scenarios • And investments in Demand Side Management (DSM)

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

17


 Conclusion


18

Renewable energies have continued their development

 As of May 2011, 10% of the European Growth rate of renewable energy sources
generation plants under construction 110% 2008

Solar PV Top 3 countries ranked by:
are from renewable energy sources
100% Capacity Growth (abs.) Growth (%) Capacity installed* Growth** (absolute)
(vs. 7% in 2009) DE DE SK
1. DE 1. SK
 In 2010, wind power provided the 90%
2005
IT CZ FR
2. ES 2. FR
CZ FR SI
largest output (147 TWh) but had a 3. IT 3. SI
declining growth due to onshore 80% 2010
* Volume for wind, small hydro, geothermal and solar PV
in MW and for biogas and biomass in TWh
favorable sites saturation and local ** Relative growth additionally displayed for solar PV and
70% wind
negative reactions
 Many governments have or are launching

Growth (%)
60%
2007 2009
large offshore wind programs
• September 2010: 300 MW offshore wind 50%
2006
farm inaugurated in the UK
40% Wind
• In July 2011, France launched a tender Capacity Growth (abs.) Growth (%)
for 3,000 MW DE ES RO
30%
• North Sea: 400 MW (Germany) and 325 ES DE BG
IT FR PL
MW (Belgium) under construction 20% 2005 2006
2008 2009
• Nuclear phase out in Germany should
2007
2010

boost wind power but creates issues 10% 2009
+ Biomass
DE PL
on the grid FI SE
0%
 Despite the solar PV growth in 2010 0 10 20 30 40 50 60 70 SE 80 NL 90 100 110 120 130 140 150
(+80%), several solar companies went Electricity production (TWh)
bust because of China competition Source: Eur’Observer barometers – Capgemini analysis, EEMO13

 In 2011, renewable energy investment A stable governmental policy is key for renewables
rose 5% to US$260 billion* globally development. The eurozone sovereign debt issues should
(solar energy: +36%)
lead to a subsidies decrease and threaten 2020 objective
*Bloomberg New Energy Finance
achievement

19

Status on the 2020 EU objectives

110 EU-27 GHG emissions

Source: BP statistical report 2011, European Environment Agency, Eur’Observer – Capgemini analysis, EEMO13
 After the 2009 drop (-7.1%), GHG emissions increased Historical evolution of GHG emissions

EU-27 GHG emissions [base year=100]
105 Path to reach 2020 target
by 2.2% due to the 2010 economic recovery. For 2011, 2020 target f or EU-27

88% ETS sector CO2 emissions released data show a 100
2.4%* decrease, mainly due to the combustion/power
sector (-3.1%) 95

 An economic slowdown would push CO2 emissions
down 90

 In its March 2011 Energy Efficiency plan, the EU 85
estimated that with current measures only half of the
objective would be attained and developed a new draft 80
-20%

Directive focusing on: 1990 1995 2000 2005 2010 2015 2020

• Triggering better energy efficiency of public buildings 1,850 EU-27 primary energy consumption
• Demand response programs through smart meters roll out

EU-27 Primary energy consumption [Mtoe]
1,800
• White Certificates mechanisms extension
1,750
• Better usage of cogeneration
• In 2013, the EU will re-assess the situation 1,700

-9%
1,650

1,600

Utilities need to develop end-to-end 1,550
Historical evolution of primary energy consumption
Path to reach 2020 target
2020 target f or EU-27
energy services helping curbing energy Projection with current measures in place
(as per the March 2011 EU Energy Ef f iciency Plan)
1,500
demand
-20%
1,450
*Deutsche Bank analysis, April 2012 1990 1995 2000 2005 2010 2015 2020


20

Pilot programs results on peak shaving

% peak shaving observed in various pilots worldwide
 Several means exist for
peak shaving and energy % peak shaving
Range of peak shaving
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
Source: Capgemini Consulting

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


21

Pilot programs results on energy savings

% energy savings observed in various pilots worldwide
 Large-scale pilots run
for more than one year % energy saving
Range of energy saving
reach energy savings
in the 2-6% range
while more focused
programs based on
customer
segmentation can
reach 18%* energy
savings

Prices increase and
Time-of-Use tariffs
should trigger
sustained results
Source: Capgemini Consulting
*Literature review for the Energy Demand Research Project, Sarah Darby, Oxford University, 2010


22

Demand response potential for EU-27 by 2020

Dynamic scenario:
 In our Demand Response (DR) study*, the Demand Response study 3.1 Savings in CO2 emissions (in Mt of CO2 1 )

potential of peak shaving and energy savings is 2012 results snapshot 1.0 3% Savings in electricity consumption (in equivalent
number of major cities2 and in % energy savings)
modeled on the basis of a baseline scenario:
5.2 4 2% Savings in peak generating capacities (in number
• GDP growth 2010-20: 1.8% in average 0.9 2% 4.3
of power plants3 and in % peak shaving)

• CAGR electricity consumption 2010-20: 0.7% 0.8 1%
Moderate scenario:
Probable savings based on our observation of
• Some existing energy efficiency programs such
24 13%
current trends in regulatory, technical and
3.7
22 15% market conditions (in number of power plants)
as Grenelle de l’Environnement or White 0.6 2%
2.5
2.8 1.4
0.4 1% 1.1
Certificates 0.5 2% 0.2 1% 1.0
15 13% 0.2 1%
 Assumptions are made on:
0.7 0.6
14 13% 0.2 2%

12 13% 7 13% 0.1 1% 0.1 1%
• Regulation (norms and standards, energy 6 13%
5 13%

efficiency objectives, tariffs and incentive policies) 4 14% 4 15%

• Market design (possibility to monetize DR on
wholesale markets, contracts optimization, capacity
markets)
• Smart meters penetration and functionalities (for
the households segment) 1 Normative hypothesis: 1 kWh saves 700g CO2 (average European value considering avoided peak
capacity is mainly gas-fired plants)
 And typical DR offerings are modeled with 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)
hypothesis on their adoption by customers Source: Capgemini Consulting

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


23


 Conclusion


24

To increase profitability, Utilities companies have to improve
their retail business competitiveness
 European energy retailers are often facing
negative margins on the B2C segment (1/3 Cost to Serve (CtS) per contract (2010)
of the participants*) 70

Cost to Serve per contract, PPP and labor costs corrected
 Retailers operating in a competitive
environment for a few years have a higher 60
Cost to Serve (CtS) due to:
50
• The necessary adaptation of their loyalty,
marketing and sales strategies, impacting their

(€ per contract)
processes and channels management 40

• Higher bad debts (three times higher compared Average: €27/contract
30
to other participants) due to insolvent customers
taking advantage of the market opening to switch
supplier and avoid disconnection 20

 Quality of service impacts costs, customer 10
satisfaction and channels used by customers
 Channels are operated at different costs. 0
The cheapest channels are web and call Non-competitive market Competitive market since < 10 years Competitive market since > 10 years

centers. And a proper multi-channel Large size companies (>800,000 clients)

strategy should be implemented 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
* Multi-client retail benchmarking study 2011, 38 participants in 17 countries


25

The performance of distribution network operators (DNO) can
also be improved
 Structural factors such as consumers’ Performance of each DNO on the same reference network
(basis 100)
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 Source: Capgemini 2011 European power distribution network operators benchmark

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
* 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


26


 Conclusion


27

Utilities need to change their business model

 European Utilities companies are GDF SUEZ plans to spend more than 30% of growth CAPEX in
under pressure: fast growing countries over 2012-2017

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


28

About Capgemini

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
29

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European Energy Markets: How Utilities Companies Can Improve Performance

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