Are Customers, Politicians and Industry on the Same … · Lakshmi Mittal, ArcelorMittal CEO “The shale gas agenda is an enormous game changer [for the US]. And Europe has no big

Are Customers, Politicians andIndustry on the Same Line?

View from the CustomerJune 3rd, 2014

Copyright © 2014 Accenture All rights reserved.Copyright © 2014 Accenture All rights reserved. 2

Agenda

The European model: progress and challenges

The New Energy Consumer

Recommendation to align agendas

Customer response?

Copyright © 2014 Accenture All rights reserved.Copyright © 2014 Accenture All rights reserved.

Consumers are increasingly motivated by non-monetary values,with simplification and personalization as key drivers of satisfaction

3

REINVENTING VALUES

“CHOICE”increases perception ofvalue

NEW PRODUCT& SERVICEbundling

but preferences areincreasingly fragmented

However, there are also somecommon values:- Simplification- Customization- Lifestyle-oriented offerings

is of interest to up to half ofconsumers

Signing up a customerfor additionalproducts/services improvesretention by up to 50%

Price is theDOMINANTmotivatorwhen making energy-relateddecisions

But other factors–such asdecrease in personalenvironmental impact–areincreasingly importantto consumers

Source: Accenture analysis


Consumers are becoming more sophisticated and active

4

MOVING BEYOND THE METER

The majority of consumersprefer solutions centered onsimplicity, and set-and-forgetpropositions

50% would pay a premiumrather than actively controlenergy consumption

Consumers are interested inreceiving a range of non-energy products and servicesfrom their electricity providers:52% - Home repairs49% - Telecom40% - Home security30% - Financial services

About 40% of consumers hadplanned in 2013 to spendmoney on energy-relatedproducts and services in thenext 12 months

87% of customers expectadditional products andservices along with smartmeters

“SET AND FORGET”as preferred approach

Beyond energyproducts and services

Consumptionmanagementis accelerating



Simple but effective self-service channels as preferred option forinteraction

5

SHIFTING TO DIGITAL CHANNELS

EASYTO USE

SOCIALgoes mainstream

DIGITALpreference

Digital is preferred but only ifit is simple, consistent, real-time processed and easy-to-use

Focus should be oninteractions in fewer than fivewell designed channels todrive lower cost and higherclient satisfaction

30% of consumers want tointeract via social media; it isnow a full two-way contactchannel, especially foroutages/emergencies

65% of consumers prefertailored Web self-services forsix out of nine primaryinteractions

Mobility is displacingtraditional “desktop” Webusage across all consumersegmentsSource: Accenture analysis


A stable and cost competitive energy model is needed to facilitategrowth of EU Industry

6

SECURING COMPETITIVE SUPPLY FOR INDUSTRY

STABILITYenvironment for operations

“CHOICE &FLEXIBILITY”

Competitive EnergyPRICES

Secure and stable quality ofsupply

Regulatory framework withadequate long-term visibilityand predictability

Competitive conditionsadapted to thedifferentiated consumerprofiles

Competitive in absoluteterms compared to keymarkets such as the UnitedStates, China and Japan

Stable without fluctuationsto minimize risks

Predictable with visibilityover the long term

Source: IFIEC, FEBELIEC, AEGE


THE CONSUMERSETTING THE STAGE

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of consumers feel satisfied withtheir energy provider< 2/3

C O N S U M E R E N G A G E M E N T ?

8


% of consumers would consideralternative providers forpurchasing electricity andbeyond-the-meter products andservicesTrust is just at 37%

T R U S T & L O Y A L T Y ?

73


Copyright © 2014 Accenture All rights reserved. 9



% of customer interactions arenegative. Customers onlyinteract an average of9 minutes per year. 54% don’tinteract at all

C U S T O M E R I N T E R A C T I O N ?

7010Copyright © 2014 Accenture All rights reserved.



Agenda




Customer response?

1111


Europe is progressing towards a decarbonized economy,and increased energy efficiency and customer choiceEmissions reduction in line with EU targets,with RES as key decarbonization driver

Increased customer choice, particularly themature markets mainly in North Europe

Source: World Energy Retail Market Rankings - 2012 Switching (VaasaETT 2013)

High Switching Markets (>15%)Medium Switching Markets (5-15%)Low Switching Markets (1-5%)Negligible Consumer Switching

Wind Cap. Net Annual Additions

2006 2007 2008 2009 2010 2011 20122005200420032002

20

10

30

0

5,098 GHG

4,4038 GHG

GW

Solar Cap. Net Annual AdditionsSources: Eurostat, Accenture Analysis

More than 60M smart meters deployed, butpotential for end customers is not fully exploited

Energy efficiency has improved in all EUcountries, but slowly

0

200

150

100

50

2006 2007 2008 2009 2010 2011 20122005200420032002

E. IntensityCAGR -1.6%

Koe/ GDP(m€)

Sources: Eurostat, Accenture Analysis

61 179

25%

68% (1.7M)

100% (34M)

100% (4.4M)

4% (1.3M)

64% (1.6M)

9% (1.7M)

S. Meter Deployed (2013) Target (2020)

Sources: “Berg Insight says Europe risks failing to meet 2020 smart metering targets”, M2Presswire, Sec 19, 2013, http://global.factiva.com; Accenture analysis


Households face growing difficulties to affordenergy bills, consuming 3.8% of their income

However, customers are facing rising prices thatchallenge affordability and industrial competitiveness

Industrials are paying more than twice as muchfor electricity as their counterparts in U.S.

4.0

1.0

3.0

2.0

1990 2000 2010 2020 2030

Today

Power PriceGrowth (08-12) 20% 42%43%

36% 33%

Household disposable income spent on energy (%)

3.5%

2%

3 %

2.5%

1996 2000 2004 2008 2012

4%

Customers look mainly at utilities regardingincreasing bills

Source: Eurostat

But, a key driver is taxes and levies growth thatcurrently represent 30% of power bills

Sources: Eurostat, Accenture analysis

US Industrial Electricity Prices vs. Key Geos. (ratio, US = 1)

Source: © OECD/IEA, World Energy Outlook 2013, used by permission

13

Only 21% of customers feelcomfortable with the reasonsprovided by their energy providersfor such increases


Taxes & LeviesCAGR (09-13): 11%

Network feesCAGR (09-13): 0.2%

Energy & supplyCAGR (09-13): 4%

31%

43%

26%


92% 91%

82%

79% 80%

77%

73%

72%

60%

81%

69% 70%68%

59% 60%

63%

74%

64%

Importance in building trust Energy providers performance (Good + excellent)

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Additionally, utilities underperform in key factors todrive trust

Consistentlygets my billcorrect

Provides clearand easy-to-understandpricinginformation

Is known tohave ethicalbusinesspractices

Is known towork to protecttheenvironment

Informs myfamily or meabout effortswe can take todecreaseenergy usage

Offers me thelatesttechnology

Partners withothercompanies ororganizationsto enhanceits offerings

Is known fortreating itsemployeeswell

Is activelyinvolved in mycity andneighborhood

Accurateinvoice

Easy tounderstand

Ethicalbrand

Environ-mentalbrand

Energyadvisor

Tech-savvy Partners tocreatevalue

Valuedemployer

Communitymember



Agenda




Customer response?

15


Manufacturing companies have started to move theiractivity to areas with more competitive energy costs

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"If we paid US energy prices at our EU facilities, our costs woulddrop by more than $1bn a year…Unless the EU takes action, costs willcontinue to rise. This could destroy the manufacturing industries that arethe backbone of Europe’s economy"

Lakshmi Mittal, ArcelorMittal CEO

“The shale gas agenda is an enormous gamechanger [for the US]. And Europe has no biggame changer at this point in time. We havehigher energy costs and we have higher labourcosts as a bloc” P. Löscher, Siemens CEO

“The main reason for wanting to be based there [US] was tosecure an adequate supply of energy from renewable sources.But another decisive factor was the low energy price”

J. Pohlman, Managing Director BMW

P. Darmayan, CEO of Aperam on a manifesto signed by137 EU Manufacturing Industry CEOs

“Restoring energy cost competitiveness is a priority…Theever increasing surcharges create an unprecedentedburden for manufacturing industries, which cannotpass through these costs to their customers”

“High energy prices in the EU are forcing BASF tomove more of its production to the US. […] With sucha huge difference in energy prices, the decision isclear that the money is now going there. It is indeed ashift in investment decisions because in the pastwe were mostly investing in Asia and Europe”C. Beckman, BASF Lead Manager for Energy and Gov. Relations

“The exodus has started in thechemical, automotive and steelindustries. If Europe doesn’t changecourse, that process will accelerateand at some point not be reversible”

W. Eder, Voestalpine CEOEU climate targets could burden minerals industry”, Industrial Minerals (IM), Mar 25, 2014, http://global.factiva.com

"BASF shifting investments to US due to high energy prices in EU“, Europolitics, Feb 26, 2014http://global.factiva.com

This abstract from the Financial Times was produced by Lasse Kari


"EU manufacturers resume fight for carbon market shake-up“, Reuters News, Feb 27, 2014http://global.factiva.com



35%28%

72%

45%

48%

27%41%

45%

27%48%

Growth of distributed generation alreadyrepresents > 50% of new solar capacity

17

Consumers are also taking steps toward self-supply andincreased energy efficiency (with or without utilities)

A majority of residential customers have begunto take actions to improve their energy usage

Source: European Photovoltaic Industry Association – EPIA. Global MarketOutlook for Photovoltaic

2006 2007 2008 2009 2010 2011 20122005200420032002

25

50

0

Distributed PV CumulativeInstalled Capacity (GW)

Industrial & Commercial Residential

19%

10%

13%

15%

58%

59%Made improvements to your home todecrease energy usage

Purchased higher efficiency appliances

Purchased products to monitor orcontrol energy usage

Switched from electric to gas appliances

Installed home energy generation

None of the above

Have you already taken any of the following actions?

About 40% is planning to spend money onenergy-related products and services in thenext 12 months

However, most customers are consideringnon-utility providers for these P&S

Source: Accenture Analysis

47%

50%

59%

73%Yes, I consider a provider other than

an utility provider

General Retailer/ Home Improvement(e.g. Carrefour, Leroy Merlin)

Telecom Provider

Online Site(e.g. Amazon, Google)

Would you consider purchasing electricity, and/ or relatedP&S from the following providers?


Double-digit growth will be maintained fordistributed gen. in a conservative scenario

18

According to forecasts, this trend will acceleratereshaping the traditional power business

HEM market has struggled to gain traction, butforecasts look promising

Source: European Photovoltaic Industry Association – EPIA. GlobalMarket Outlook for Photovoltaic. Business as Usual Scenario

Source: Navigant Research (2012): EV in Europe: executive summary,www.navigantresearch.com

Source: Energy Darwinism - The Evolution of the Energy Industry (Citi, Oct 2013)

EV sales will rise to ~800k in 2020 increasingthe uptake of distributed storage devices

Revenue growth will highly depend on newproducts and services due to the contractionof the traditional business

Source: Navigant Research (2013): Home Energy Management:executive summary

Hybrid EV Plug in Hybrid EV Battery EV

2017 2018 20192016201520142013

750

500

1,000

0

Annual Sales (k units)

2020

250

CAGR >25%

2012e 2014e 2016e 2018e 2020e 2022e

~€680b

~€550b~3,400TWh

~2,500TWh

New Markets/ Services Trans. & Distribution

Renewables Generation & Supply

Addressable Demand

2013 2014 2015 2016 2017 2018 2019 2020

CAGR >30%

1

2Annual Revenues (€bn)

0

Cumulative Distributed SolarCap. (GW)

2013 2014 2015 2016 2017

CAGR >12%

1

2

0


Residential consumers are joining consumer groups toswitch energy providers, primarily for savings on the bill

19

If an energy provider offered incentives to peopleto switch together as a group, what would makeconsumers most likely to join?

Savings on my energybill

Reward/loyalty pointsor coupons

If my friends andneighbors were joining

If it benefitted a group orcharity of my choosing

None of the abovewould motivate me


17%

70%

6%

4%

3%

Relevant Collective SwitchingInitiatives

Test-Aankoop 356,000 Subscribers1

Multiple Regional &GovernmentalInstitutions

450,000 Subscribers1

Vereniging Eigen Huis 600,000 Members2

United Consumers 400,000 Members2

Energiecollectief 100,000 Members2

Consumentbod 60,000 Subscribers1

Which? The BigSwitch 285,000 Subscribers1

Cheaper EnergyTogether Fund 190,000 Subscribers1

Quieropagarmenosluz 485,000 Subscribers1

DECO 600,000 Subscribers1

(1) Total customers enrolled in the different campaigns of the initiative (not finalswitches). Average conversion of registrations to switches usually rages between5-25% to get discounts of ~€200/ year

(2) Active members in collective purchase groups usually oriented to get discountsin a broader set of products additional to energy (e.g. Solar panels, insurances,etc.)



Agenda




Customer response?

20


Typical interventions do not contribute to align theenergy players

(+)(-)

(-)

(+)Customer(Energy Affordability)

Utilities Industry(Market Cap.)

Moving awayfrom MarketPrinciples

Nationalization??

Price Caps

Restrictions onClosure ofUnprofitable Plants

Reg. Returns Cuts

Retroactive FiT Cuts

Taxation & Levies

NuclearPhase Out Over-deployment

Immature RES

ReinforcedSafety Rules

CapacityMarkets

ETS Reform/Carbon Tax

21


And there is room for win-win opportunities

(+)

(+)

Customer(Energy Affordability)

Utilities Industry(Market Cap.)

InvestmentsUnderwriting/Derisking

Tax Reductions

Balance RES/CO2 Targets

Facilitate ClientEnablement

Optimize TargetGeneration Mix

Capacity Life Extensions(e.g. Nuclear)

EU GasProcurement Strat.

Coal Generation

Shale GasExploitation

1

RESDeployment& SubsidiesOptimization

EU MarketIntegration/Interconnection

EU Governance& Coordination

Less GovernmentBurdens3 European Integration &

Coordination2Client Enablement &Electrification4

Smart MeterExploitation

DistributedGeneration

Load Shifting/Flexibility

EnergyEfficiency

22


Thank You

23

Documents

Are Customers, Politicians and Industry on the Same … · Lakshmi Mittal, ArcelorMittal CEO “The shale gas agenda is an enormous game changer [for the US]. And Europe has no big