Trajectory of electricity price paths and the
commercial impact on your business
A 15 year horizon
Approach document
2
Project Introduction and Background
The electricity price path will play a significant role in the decision
making process of any business
A successful investment relies on the knowledge and understanding of the future
factors that could impact the stability of the investment. The evolution of electricity
pricing is one of the fundamental elements in the calculation of an investment’s fixed
and variable costs.
Project Aim:
To provide investment decision makers with reliable information regarding the electricity price
path in various countries in the medium-to-long term.
3
Strategic Imperative and Project Objectives
The local energy pricing environment is a key investment criteria
particularly in long term decisions
Insight Insight into the future electricity pricing scenarios is a cornerstone of effective strategic planning,
particularly in Africa where the environment is rapidly changing
Risk principles Without this information: risk associated with investments increase, financing deals become
expensive, capacity planning for OEMs and EPC companies are based on intuition and/ or
immediate opportunity.
Increased
Complexity in
understanding
Electricity
prices
Increased
Complexity in
understanding
Electricity prices
Risk can be
mitigated at the
project
feasibility phase
Increased
weight attached
to electricity
prices as an
input factor
Contextualisation
of the electricity
price is vital in
strategic decision
making
Complex electricity price path structures Electricity prices globally are becoming increasingly complex, based on several market
influencers such as the institutional make-up of the specific country, asset composition, market
structure, levels of privatisation, levels of regulation, government influence etc.
Price as input cost driver Electricity price as an input factor to a company’s potential and existing business case is
often one of the most important drivers of decision making when destinations are
compared.
4
Approach
The development of an electricity pricing model follows a reliable and
valid method of analysing various input factors
Construction time
Payment terms and interest rate
Cost of build and inflationary costs
Plant lifespan
Future build of power generation plants
Drivers of electricity supply cost
Elasticity of demand to GDP
Frost & Sullivan has developed a model utilising various supply and demand input factors for the analysis. This
model is holistic and includes hydroelectric, wind, solar, nuclear and other renewable energy into the supply mix.
The pricing model inputs various
supply and demand factors
impacting electricity prices to obtain
a reliable 15 year forecast.
Analysis and
calculation
15 Year Electricity
Pricing Path Outlook
Through primary and secondary research
the following input factors will be
determined for analysis:
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Potential Project Stakeholders
The initiative will appeal to a wide range of direct and indirect
stakeholders to the energy industry
• Identify potential and anticipate investment risks
• Guideline to current and potential investors
• Provide an overview of the 15 year forecasted electricity prices
• Validate business cases & provide input into risk mitigation
• Evaluate possible cross-border development risks
• Improve ability to build meaningful strategic partnerships
• Optimise private sector participation in energy sector
• Formulate policy based on realistic scenarii (tariffs / incentives)
• Be better equipped for complex power pool negotiation
• Enhance ability to validate the energy mix
• Validate long-term investment plans & unlock opportunities
• Improved negotiation leverage for long-term electricity contracts
Financial Services
Independent Power
Producers (IPPs)
Utilities
Policy Makers
Government
Energy Intensive
Users
The electricity pricing forecast will allow for the identification of risks to job
creation, operational efficiency and rising operating costs, and ultimately the growth
of the economy.
This model will provide all stakeholders with the ability to compare across markets to assess potential investment destinations.
6
Why Frost & Sullivan?
The model developed by Frost & Sullivan incorporates complex data
sets requiring very unique skills and experience
We understand
global electricity markets
We have helped
companies remain
competitive for over 50
years
We have the capacity to undertake a
complex modelling
project
We have the insight into the building
blocks of such a model
We are outsourced
for modelling, validation for global
companies
Understanding the electricity markets on a global scale is vital for companies keen to invest, operationalise or that want to continue to be profitable in different regions.
Remaining competitive in modern markets is key to commercial success. This translates into making decisions based on longer term modelling.
Gaining an adequate level of understanding of macro and micro energy landscapes is often a very onerous task to perform internally (especially by smaller and/ or non-energy focused companies). Detailed knowledge and tracking systems are needed to understand global energy markets and subsequent pricing trends.
Various factors need to be taken into account, such as: levelised cost of electricity, levels of deregulation, level of privatisation, energy mix composition, operational and maintenance costs of each technology type, policy influences, and externalities such as carbon taxes and environmental levies.
The function of understanding energy pricing is best outsourced to specialists.
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Predicted project deliverables and benefits
The result is a detailed insight into forecasted electricity prices that
can be used for strategic planning and risk mitigation
Report detailing:
• Country context
• Pricing factors
• Trends
• Predictions
• Country- relevant expert opinion
• Pricing Models
• Customised mini-report, with
strategic conclusions relevant to
each client
Project Deliverables Project Benefits
• Insight into global electricity price paths: written with
non-technical readers/senior management/policy and
strategic staff in mind
o Snapshot of global electricity trends and context
o Tracking of government trends
o Tracking of private sector involvement
• Comparative platform : countries / regions can be
identified and analysed based on investment destinations
• Verification of data: companies’ own internal pricing
models / data can be verified
• Competitiveness & sustainability: using the outcomes
of this project and applying them to business models
• Lobbying practices: Providing companies with data and
information in order to launch lobbying practices in
selected countries
• Reduction of risk and project cost: associated with new
investments due to increased certainty during the
development of business models / financial models in the
due diligence phase
• On-site workshop
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Project Scope
The scope of the report includes a 15 year forecast of electricity
generation prices across countries and application areas
• Electricity generation prices (end –users) Market Definition
• Electricity prices, overview of electricity landscape Products
• South Africa
• Kenya
• Nigeria
• Angola
Geographic
Scope*
• Industrial including mining
• Commercial
• Agricultural
• Residential
Potential
Application Areas*
• Base year- 2013
• Outlook/ forecast period 2014-2029 Forecast Period
*The countries included in the
report may be expanded upon
*To be customised according to
client interests
9
Client Issue:
A large electricity end-user have identified electricity pricing as a key driver in their medium and
long term competitiveness strategy. Their future investment in their South African business is
based in part on an understanding of how electricity tariffs will increase over the period 2009 to
2020, as well as the quality and security of electricity supply in the country.
The company required a detailed analysis and a predictive modelling tool which would allow them
to:
• Gain a comprehensive understanding of the electricity industry and markets in eight
countries namely South Africa, China, India, Kazakhstan, Russia, Canada, UAE and
Saudi Arabia
• Establish the drivers and restraints of electricity prices
• Use a bespoke modelling tool to forecast the change in electricity prices by adjusting
certain variables according to their scenario planning
Frost & Sullivan Approach:
– In order to perform a detailed analysis of the various electricity markets and industries,
Frost & Sullivan, conducted intensive primary and secondary research at a country
level and performed a specific comparison analysis of key data elements to be used in
the modelling tool
– A detailed predictive model was developed with a simple user interface, which
incorporated all of the key data elements gathered in our research phase
– Finally Frost & Sullivan used the model to perform scenario planning analysis in
conjunction with systems thinking in order to create plausible strategic options for our
client
Result:
Frost & Sullivan presented the client with a comprehensive global analysis of potential countries for
future investment. By using the modelling tool the client was able to develop their strategic options
for further investment in the industry over the period to 2020.
Industrial electricity pricing
comparison
Country profile: China
0
2
4
6
8
10
12
14
16
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
South Africa
India
Russia
Kazakhstan
China
Saudi Arabia
UAE - Abu Dhabi
UAE - Dubai
Canada - Quebec
-1
1
3
5
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Infrastructure
Macroeconomic stability
Labour market eff iciency
Quality of electricity supply
Security of Electricity supplyElectricity Pricing
Accessibility to Ore
Accessibility to grow th
markets
Environmental & Policy
Restraints
2009 2015 2020
Case Study
Frost & Sullivan has developed an Electricity Pricing Forecasting
Model with a 95% confidence level
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Contact details
Hendrik Malan
Operations Director
+27 (0)21 680 3270
Johan Muller
Programme Manager: E & E
+27 (0)21 680 3210
Guillaume de Bassompierre
Director – Business Development
+27 (0)21 680 3582
Antony Milton Whipp
Account Executive
+27 (0)21 680 3286