G F ENERGY LLC
Electricity Outlook 2006 and 2007:Taking the Pulse of the Industry
Roger W. GaleCEO, GF EnergyPresentation for APPA CEO MeetingMarch 20, 2007
G F ENERGY LLC
TODAY’S SESSION
Look at 2006 Outlook resultsTest them against APPA CEO thinkingLook at 2007 questions and issues
04/19/23 APPA CEO Meeting 2
G F ENERGY LLC
04/19/23 APPA CEO Meeting 3
Are these the Broad Trends?
•Wave of business model stability
•Revitalization of incumbents
•Increased drive for environmental change
G F ENERGY LLC
04/19/23 APPA CEO Meeting 4
2007 Dynamics
Business risk…Customer risk
…Ideological…Pragmatic
New entrants…Revived Incumbents
…Just in time...Longer-term
…Federal control…State control
G F ENERGY LLC
04/19/23 APPA CEO Meeting 5
Drivers
Locked-In Core Drivers
Global Climate
Massive Infrastructure Investment
Growth Through Capex
Balanced Generation Portfolio
Emerging Drivers Efficiency
Customer-Driven Demand
Real-time Management
Anti-Utility Backlash
G F ENERGY LLC
2006 GF Energy Outlook
Download atwww.gfenergy.com
2007 GF EnergyOutlook will be
published in June
G F ENERGY LLC
04/19/23 APPA CEO Meeting 7
Strategic Consensus
• More conservative regulated integrated business with less competition.
• The obligation to serve and provide resource adequacy is resurging.
• More intense customer relations as real-time internet technology takes hold.
• Investor-owned companies believe they can forge deals with regulators that provide companies with sufficient organic growth and margin.
• Increasing pressure to control greenhouse gas emissions and that utilities have to increase their capex considerably in the future.
G F ENERGY LLC
04/19/23 APPA CEO Meeting 8
Strategic Consensus...2
• Natural gas prices will not favor building more gas-fired generation.
• The regulatory environment will allow locking in long-term financials on large new generating plants
• There will be more mergers but small and mid-size companies will continue to dominate.
• More transmission will be built but there will still be uncertainties about regulating the grid and about pricing of competitive wholesale power.
G F ENERGY LLC
04/19/23 APPA CEO Meeting 10
Climate change pressure is increasing
5.2
6.4
2005
200688%
10%
2%
Importance of climate change, although still 10th on a list of 14 issues, has increased in importance since last year and most executives expect mounting pressure
Average Importance Rank
Increase
Decrease
Remain Same
Expected Change in Pressure To Act On Climate Change
Q13: On a scale of 1 to 10, how important will each of the following issue be to your company (1-3 years)? Q22: In the coming year, will the pressure to act on global climate change...
G F ENERGY LLC
04/19/23 APPA CEO Meeting 11
2%
36%
26%21%
15%
Financial commitments to Greenhouse Gas reduction will expand
Q23. In each of the following time frames, do you expect that your organization will need to take financially significant actions as the result of mandated reductions of greenhouse gases? Q24. How would you characterize your organization’s investments, or incurred costs, to address greenhouse gas emissions?
34%
16%
66%
84%
5 Years 10 Years
Yes
No
Expect Financial Commitment to Greenhouse Gas Reductions
Current Investments or Costs to Address Greenhouse Gas Emissions
Modest, but projected to be
significant
Haven’t been accounting for
expense
Significant and growing
Modest until regulatory
landscape clear
Don’t Know
G F ENERGY LLC
04/19/23 APPA CEO Meeting 13
Generation growth will come from renewables and nuclear
29%
42%
44%
54%
73%
Capacity will be built to meet rising demand, with most executives expecting an increase in cleaner technologies
Generation Developments(Very Likely)
Q30: How would you describe the likelihood of each of the following generation developments in the next 1-3 years? Would you describe each of the following as very likely, somewhat likely, or not likely?
Major Increase in Renewables
New Nuclear Plant Order
IGCC Will Move Forward
Coal Will Move Forward
LNG Terminals Built
G F ENERGY LLC
04/19/23 APPA CEO Meeting 14
Generation will also see the greatest increase in capital spending
3%
5%
6%
12%
16%
59%
Q12: In which of the following industry segments will the biggest increase in capital spending occur?
Generation
Transmission
Environment
Distribution
Renewables
Efficiency & Demand-Side
Control
Area of Greatest Expected Increase in Capital Spending
Despite the growing commitment to renewables, Capital spending is now expected to increase significantly
G F ENERGY LLC
04/19/23 APPA CEO Meeting 15
14%
16%
30%
Small renewables and wind investments are likely in the mid-term, even if a small portion of spending
Q35: In the next 3-5 years, which of the following types of new investments in electricity supply are most likely to be made n order to increase capacity in your region(s)?
53%
69%
70%
76%
78%
More Likely Mid-Term Generation Developments
Small Renewables
Natural Gas
Coal
IGCC
Hydro
Distributed Generation
Less Likely Mid-Term Generation Developments
Wind
Nuclear
Cooperatives are more likely to expect an increase in coal capacity in the mid-term (88%) and to think that current coal projects will very probably move forward successfully (56%)
G F ENERGY LLC
04/19/23 APPA CEO Meeting 17
27%
49%
18%
20%
35%
45%
3%
3%
2005 2006
1-3 Years
4-7 Years
Beyond 7Years
Never
Compared to 2005, industry executives have far greater expectations that nuclear will be built soonAlmost half expect orders in the next 1-3 years, and over 75% expect
orders in 1-7 years
Q36: When do you expect a new nuclear plant order in your region?Q40: In the next 10 years, do you agree that... *Caution: Small base (n=19)
Expected Timing of New Nuclear Capacity
25%
73%
Expect Nuclear Construction in 10 Years
South*
All Other Regions
Not surprisingly, the South – where all of the announced nuclear projects are located – expects the most construction.
G F ENERGY LLC
04/19/23 APPA CEO Meeting 19
58%
66%
Transmission and grid reliability will increase
There is much greater confidence that we will actually build transmission matching the number of new strategic transmission project announcements
Q25: How likely is each of the following transmission scenarios in the next 1-3 years? On a scale of 1 to 5, with 5 being extremely likely and 1 being not at all likely?Q29: Do you think we are going to see significant increases in actual transmission construction?
74% 26%
Near-Term Transmission Developments Expected
(Extremely/Somewhat Likely)
Yes No
Significant Increase in Actual Transmission Construction
Significant Increase in Investment
Much More Investment in
Grid Reliability
G F ENERGY LLC
04/19/23 APPA CEO Meeting 21
Most utilities expect to increase involvement in efficiency and end-user demands and controls in the near futureHowever, compared to other pressing near-term issues, ‘improved efficiency and customer demand-response’ was not ranked as high (6.2), placing 11th on a list of 14 issues
Q31: In the next 1-3 years, which of the following best describes how involved utilities will become in efficiency and end-use demand controls and management? Will they become
11%
58%
31%Much more involved
Somewhat moreinvolved
No more or lessinvolved
Anticipated Involvement in Efficiency and End-User Demand and Controls
Q13: On a scale of 1 to 10, how important will each of the following issue be to your company (1-3 years)?
G F ENERGY LLC
04/19/23 APPA CEO Meeting 22
Long term, technology will enable users to manage consumption real-time
Q41: In the next 10 years, which of the following trends do you think will have begun to be implemented?
21%
32%
62%
81%
83%
84%
96%Internet-Based
Billing & Demand Measurement
Demand-Response Systems for End
User
Plug-In Hybrid Vehicles
Real-Time Pricing
Sensors on Most Consuming Devices
Micro-grids
Storage
The electricity industry will become real-time in a decadeCombined with cheap sensors and “instant” pricing, micro-grids will emergeThere is also wide-spread optimism about plug-in hybridsStorage is not expected to be robust
Long-Term Technological Innovations Expected
G F ENERGY LLC
04/19/23 APPA CEO Meeting 23
Long-term customer technology will change dramatically
4.5
4.9
5.1
5.2
5.9Control Electricity Use in Premises
Control Bills Real-Time
Use Wireless Home Automation to Manage
Demand
Networked Energy Mgmt Systems
Buy Electricity
Long-Term Customer Behavior (Degree of Change)
Q39: Now, thinking about how electricity consumption might or might not change for customers, please rate each of the following on a scale of 1 to 10, with 1 meaning little change and 10 meaning very substantial change.
41%
59%
Yes
No
Real-Time Electricity Management Widespread at Residential Level
G F ENERGY LLC
2007 ISSUES AND QUESTIONS
Most Important IssuesGlobal ClimateEfficiencyGeneration
04/19/23 APPA CEO Meeting 24
G F ENERGY LLC
MOST IMPORTANT ISSUESWhat are the 10 most important issues?
04/19/23 APPA CEO Meeting 25
G F ENERGY LLC
ARE THERE ANY EVENTS OR DEVELOPMENTS LIKELY TO EMERGE THAT WILL CAUSE YOU TO RECONSIDER YOUR CURRENT BUSINESS STRATEGY?
?
04/19/23 APPA CEO Meeting 26
G F ENERGY LLC
CAPITAL COMMITMENTS
04/19/23 APPA CEO Meeting 27
Significant Negative Change
Significant Positive Change
a) Distribution-1 -2 -3 -4 -5 0 +1 +2 +3 +4
+5
a) Generation-1 -2 -3 -4 -5 0 +1 +2 +3 +4
+5
a) Transmission-1 -2 -3 -4 -5 0 +1 +2 +3 +4
+5
a) Energy efficiency and demand-side control-1 -2 -3 -4 -5 0 +1 +2 +3 +4
+5
a) Renewables-1 -2 -3 -4 -5 0 +1 +2 +3 +4
+5
a) Environment-1 -2 -3 -4 -5 0 +1 +2 +3 +4
+5
G F ENERGY LLC
EFFICIENCY, D-R AND SMART METERS
04/19/23 APPA CEO Meeting 28
My organization’s spending in this area will...
IncreaseRemain
the SameDecrease
a) Efficiency 1 2 3a) Demand-
Response1
2 3
a) Smart Metering
12 3
G F ENERGY LLC
Global Climate
04/19/23 APPA CEO Meeting 29
Not at all Likely
Extremely Likely
a) Federal Renewable Portfolio Standard (RPS) legislation will be passed by the current Congress
1 2 3 4 5
a) The will act independently to address climate change
1 2 3 4 5
a) The will join a post-Kyoto international agreement
1 2 3 4 5
a) The current Congress will pass significant climate change legislation in this Congress
1 2 3 4 5
a) Climate change legislation passed by the current Congress will allow coal-fired plants already under development to proceed
1 2 3 4 5
a) Climate change legislation passed by the current Congress will hit utilities harder than it does the transportation industry
1 2 3 4 5
a) In the coming year, pressure to act on climate change will increase
1 2 3 4 5
Questions:
G F ENERGY LLC
PREFFERED CLIMATE STRATEGY
04/19/23 APPA CEO Meeting 30
Cap and trade ○Cap and Trade with “safety valve”
○
Carbon tax ○New market mechanisms ○Voluntary programs ○No action ○
G F ENERGY LLC
TIMEFRAME FOR CLIMATE ACTION
04/19/23 APPA CEO Meeting 31
Not at all
Likely
Extremely Likely
2007 to 2009 1 2 3 4 52010 to 2014 1 2 3 4 52015 to 2019 1 2 3 4 52020 or later 1 2 3 4 5
G F ENERGY LLC
Your utility
04/19/23 APPA CEO Meeting 32
More ○About the Same ○Less ○Not sure ○
•Compared to most utilities,
do you think a mandatory global climate law
will affect your organization...
G F ENERGY LLC
PLANNED COAL PLANTS BUILT
04/19/23 APPA CEO Meeting 33
Most ○Some ○Only a few ○Not sure ○
G F ENERGY LLC
GENERATION ACTIONS
04/19/23 APPA CEO Meeting 34
Very Likely
Somewhat Likely
Neither Likely Nor Unlikely
Somewhat Unlikely
Very Unlikely
LNG terminal projects will move forward successfully.A new nuclear plant will be ordered.There will be a major increase in renewable (wind, solar, biomass, etc.) projects.Natural gas prices will come down enough to favor an increase in gas turbine orders.There will be an increase in distributed generation.New environmental standards and/or uncertainties will make it much more difficult to build fossil plantsGlobal climate issues will have a significant impact on technology choices.Rail transport bottlenecks for coal delivery will be fixed.Coal imports will increase significantly.Captive coal shipper problems will continue
G F ENERGY LLC
CUSTOMER ACTIONS
04/19/23 APPA CEO Meeting 35
a) Buy their electricitya) Control electricity use on their premisesa) Seek to control their bills real-timea) Invest in networked energy management systemsa) Apply wireless home automation to managing electricity demand
G F ENERGY LLC
IN 10 YEARS…
04/19/23 APPA CEO Meeting 36
[ROTATE]Disagree Completely
Agree Completely
a) There will be many new nuclear plants under construction.
1 2 3 4 5 6 7 8 9 10
a) There will be a few large utilities that dominate the national electricity markets.
1 2 3 4 5 6 7 8 9 10
a) Competition will become more common at the retail level.
1 2 3 4 5 6 7 8 9 10
a) Telecommunications and electric power companies will have tended to converge.
1 2 3 4 5 6 7 8 9 10
a) There will be required CO2 capture 1 2 3 4 5 6 7 8 9 10a) Foreign companies will have expanded their
presence significantly.1 2 3 4 5 6 7 8 9 10
a) Most companies will have sold or spun off their transmission to independent owners.
1 2 3 4 5 6 7 8 9 10
a) New entrants will control a substantial share of the retail markets for electricity.
1 2 3 4 5 6 7 8 9 10
a) Renewables will have captured a significant market share.
1 2 3 4 5 6 7 8 9 10
a) Real-time electricity management at the residential level will be commonplace.
1 2 3 4 5 6 7 8 9 10
a) Mandatory global climate action will have been implemented
1 2 3 4 5 6 7 8 9 10
G F ENERGY LLC
WHAT ARE THE MOST IMPORTANT ISSUES ON YOUR DESK?
e.g., aging workforcecapital investment customer relationshipsgrowth
04/19/23 APPA CEO Meeting 37
G F ENERGY LLC
04/19/23 APPA CEO Meeting 38
GF Energy, LLC
GF Energy and its predecessor firms have built a solid reputation since 1988 as aggressive, creative and insightful strategy consultants—capturing emerging trends and new solutions.
Management StrategyEvery project gets a customized response, be it a strategic fit approach to optimize and fine-tune existing programs or a blank sheet approach for organizations undergoing major change and executive leadership transitions.
GF Energy works closely with chief executives, boards and stakeholders to restructure corporations around new goals that maximize performance and profitability, often serving as an independent credibility agent.
Business MarketingGF Energy develops, launches and implements marketing and advocacy campaigns, identifies US-based investment opportunities and carries out high-level due diligence for investors.
Policy ManagementBased in Washington, D.C., GF Energy works at the intersection of policy, politics and business producing white papers, analytic statements and other policy tools.
GF Energy Electricity Outlook For more than a decade, the Electricity Outlook has provided indispensable survey-based analyses of trends and issues.
GF Energy, LLC
Electricity Industry Management Counsel and Strategy 1100 Connecticut Ave, NW, Suite 1250
Washington, DC 20036 USAwww.gfenergy.com
G F ENERGY LLC
Roger W. Gale1.202.236.8198