Regulatory uncertainty, system reliability and aging physical infrastructure are the three most critical issues facing the electric power industry, but they will be difficult to fix unless they are solved simultaneously, according to a new survey of utility company executives.
Results of the Navigant Consulting Inc./Electric Perspectives survey, “The Outlook for the North America Power Industry,” were taken from responses from industry executives who represented electric utility companies (63%), natural gas and combination utilities (20%) and a mix of technology developers, municipal operators, state/federal agencies, attorneys and financial executives. The results were published in the May/June issue of Electric Perspectives, the Edison Electric Institute’s magazine for management in shareholder-owned electric companies.
About 72% cited regulatory uncertainty as the “most critical” issue to resolve, followed by 67% who cited “system reliability” and 56% who cited “aging physical infrastructure.” In all, 70% of the executives cited 14 different industry issues as “highly critical” or “critical” to solve in the next three years, supporting the underlying message that it is difficult to separate one issue from another.
“In an industry with wide variance in regional market structures and where questions remain on the role of utilities in future power supply and transmission system additions, we are not surprised that power executives identified regulatory uncertainty as the biggest issue to solve — but that takes a big toll on the industry,” said Ron Nichols, senior managing director of Navigant. “In fact, that uncertainty has been undermining strategic growth plans, driving up the cost of capital, and arguably affecting the industry’s ability to provide more reliable service.”
According to 86% of the executives, the strategic option that will contribute most to utility company growth over the next five years is a “back to basics” approach. “Cost/performance improvement” also figured high (77%) as an important strategic option.
“Throughout the power industry, many utility companies have already proven how a back-to-basics approach can improve performance and reduce concerns about balance-sheet risk,” said Nichols. “But now, leading utilities are actually beginning to move beyond back-to-basics to implement more ambitious objectives to accelerate growth — and other utilities will follow.”
Technology advancements identified as most important to the industry’s future include clean coal technologies, which was cited by 46% as “most important” and 45% as “important.” Equipment life extension technologies received 47% of the responses as “most important,” followed by 42% as “important.” Smart meters and distributed generation technologies were close behind. Moreover, 75% of the respondents believe that technology advancements in 12 of the 15 technologies posed are important to the industry’s future.
“As the industry deals with challenges from many directions — including aging infrastructure, rising gas prices, new environmental regulations and customer demands for higher reliability — utilities are looking for proven and new technologies to solve specific problems,” said Navigant’s David Kleinschmidt, senior managing director. “Clean coal technologies, equipment life extension, renewable energy, information technology and smart meters and distributed energy, as examples, have very specific roles to play in tackling the range of problems that industry faces.”
Sixty-four percent of the executives surveyed believe that the power industry understands the value of new technologies and, even in today’s financially difficult environment, more than half of the executives believe that the industry will make investments in technology and innovation in the near future.
“Across the power industry, we are seeing increasing opportunities for utility companies and government agencies to work together to drive technology development and implementation,” said Kleinschmidt. “This type of collaborative approach is critical to leverage financing, resources, technologies and R&D (research and development) to solve the industry’s toughest problems.”
For additional information about the study, go to www.navigantconsulting.com, or contact Patricia Mahon at (781) 564-9744.
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