By far the biggest event in the utilities sector in the 2007 calendar is the EU-wide electricity and gas market deregulation, which takes place on 1 July. This is predicted to drive supplier consolidation as the ‘race for scale’ hots up.
Market analyst Datamonitor says: “Upon full market opening, the European Commission will insist upon unbundling, which will obviously affect the scale of EU utilities with generation and distribution network assets.”
According to Ben Van Gils, Ernst & Young Global Utilities Leader, liberalisation will foster competition and harmonise electricity prices across the EU. How this is achieved, by unbundling generation, transmission, distribution, metering and sales within the energy market will have a major impact on IT.
Opportunity for change
Van Gils says that this unbundling process will mean a separation of IT systems infrastructure and data.
When this occurs will depend on whether utilities embrace the opportunity for change or comply with minimum legal requirements. Those who take the opportunity route will optimise their internal IT systems early on with a view to enhancing outward facing billing and CRM systems when possible.
Datamonitor predicts that not all countries will hit the July deadline. “According to the terms of the EU’s Second Gas and Electricity Directives, by 1 July 2007, all retail customers in Europe are supposed to be able to freely choose their gas and power supplier, as they can in the UK. Many EU member states will have either failed to properly transpose the Directives into national laws, or will simply be implementing these laws ineffectually.”
Whether this is the case or not, analysts foresee market liberalisation as a precursor to major utility privatisation events across Europe and European utility merger and acquisition activity to match that of the UK market.
Already Gaz de France SA, and water utility Suez SA are close to completing a 43 billion merger as they seek to see off competition from beyond the French border once the markets open up.
Also this year, market speculation forced Npower owner, major German utility RWE, to rule out a bid for Scottish and Southern energy.
Germany’s E.on agreed to withdraw a bid for Spanish utility Endesa SA in exchange for the chance to bid for a portfolio of European assets. The move opens the way for Acciona, a Spanish construction group and Italian energy giant Enel, which together own already own 46 per cent of Endesa, to complete their bid for a majority stake.
No ransom plans
The formation of an OPEC style cartel by the Gas Exporting Countries Forum (GECF) to control world gas trade began to worry gas importing countries, but the forum went to great pains to reassure us that it had no such plans to hold anyone to ransom by controlling supply or manipulating the market.
While the British Energy Group has adopted a service oriented architecture to help it adapt to market deregulation, all this major market driven activity and potential puts events at UK electricity generators such as npower, Powergen, SSE, ScottishPower and the French EDF Energy into perspective. In a relatively quiet time power suppliers are piloting smart meter projects, enhancing web interaction and providing online fault mapping for customers and implementing GIS systems for their engineers.
Last year gas and electricity companies garnered all the wrong headlines for hiking prices by as much as 26 per cent. February 2007 saw the opposite happen when British Gas surprised everyone with the announcement of 17 per cent and 11 per cent gas and electricity price cuts. While other suppliers responded with cuts of their own, some saw this as the opening shots in a major price war though this has yet to be unleashed. Industry regulator Ofgem welcomed the price cuts and noted that in 2006 over four million consumers changed supplier.