Study sees new wave of investments by utilities in CEE
Network expansion and unbundling topped the business agenda for grid companies in the last few years, but today's big issue is efficiency improvement. The impact of the economic crisis and growing demands by regulators have made this a priority. At the same time, however, utilities need to gain competitive advantages in the longer run, so they are planning to raise service quality and invest in new technologies (e.g. smart grids). They need to prepare in advance for upcoming trends. These findings emerge from a new study by Roland Berger Strategy Consultants entitled "CEE grid – On the road to efficiency". The study is based on a survey of leading grid companies in Austria and five Central and Eastern European countries. Managers were asked how they see the success factors and future challenges in their industry.
The energy sector is on the verge of a wave of major investments in infrastructure. Electricity grids must be technologically upgraded to boost efficiency. Utilities are also preparing the ground for the introduction of advanced technologies. This trend is being driven, on the one hand, by the need to modernize and the emergence of new technologies (decentralized power generation, electromobility, etc.) and, on the other, by investment incentives introduced by the national regulators.
Biggest improvement potential lies in procurement and grid expansion
The areas that offer the biggest scope for improvement are, according to the companies surveyed, procurement and grid expansion. They also attach high priority to creating leaner corporate structures: Organizational efficiency is a must if companies are to cope with falling tariffs over the long term. Most Central and Eastern European utilities already operate with outsourcing arrangements and shared-service centers. But they have not yet exhausted the potential for efficiencies. And when it comes to implementation, many actions have been shelved due to the crisis. In the short term, the managers interviewed identified the biggest need for improvement in those processes that concern customer service and emergency response teams. Plans for customer service are mainly aimed at raising quality and improving coordination with external service providers. As for emergency response teams, the focus is on regional arrangements.
Grid losses and power outages main problems in CEE
Grid losses currently present the biggest challenge for utilities in Central and Eastern Europe. The worst affected power companies in the region are the Polish grid operators. But the problem of blackouts also remains high on the agenda for CEE providers, with the exception of the Austrian utilities. The increasing frequency of extreme weather conditions is a difficult challenge, but the main cause lies in an aging infrastructure that is too frail to cope with demands. The grid operators find themselves in a dilemma here. On the one hand, they are forced to drive down their costs. On the other, the requirements set by regulators to ensure grid reliability have become much tougher – and this means above all high demands on process quality and investment efficiency.
Cutting-edge technologies still not a priority
Most of the companies surveyed regard customer acquisition as essential for sustainable growth. Unfortunately, this success factor is strongly dependent on the wider economic situation. And for grid companies, it plays only a limited role in driving growth. This is why they see the development of new, additional services as a key to success – if only as part of a medium- to long-term perspective. On the technology side, pilot projects for automatic meter reading and smart grid technology have already been launched. These cutting-edge technologies are perceived by the utilities as a long-term prospect. They still don't enjoy top priority.
Infrastructure expansion in Central, quality offensive in Eastern Europe
In addition to tracing the general development in the market, the study also identifies trends specific to individual CEE countries. In Austria, for instance, the pressure to invest is currently strongest in the field of network infrastructure because large sections of the grid lag behind the latest technical standards. In Poland, too, investment programs are at the top of the corporate agenda. Here, however, the relevant regulatory framework has not yet been put in place. The need to invest is contradicted by a trend toward lower tariffs for grid companies. Some regulators have recognized this problem and are helping to alleviate the situation by creating investment incentives. In Croatia, by contrast, utilities tend to see quality improvement as the most important challenge to be tackled. Likewise in Russia, where the pressure to make operational improvements is growing after switching to an RAB (Regulatory Asset Base) tariff model. In Hungary, capacity building is seen as a major imperative alongside efficiency improvements.
Over the next few years, the issues dominating the industry will again be the strong pressure from regulators and the long-term rise in demand. But they are being joined by new concerns such as integrating renewable energy sources or electromobility. So, going forward, grid companies will face some exciting challenges. Over the next five years, grid companies must above all work on their in-house structures and optimize service quality if they are to remain competitive. And they need to take full advantage of the new business models for grids that are gradually taking shape.
The energy sector is on the verge of a wave of major investments in infrastructure. Electricity grids must be technologically upgraded to boost efficiency. Utilities are also preparing the ground for the introduction of advanced technologies. This trend is being driven, on the one hand, by the need to modernize and the emergence of new technologies (decentralized power generation, electromobility, etc.) and, on the other, by investment incentives introduced by the national regulators.
Biggest improvement potential lies in procurement and grid expansion
The areas that offer the biggest scope for improvement are, according to the companies surveyed, procurement and grid expansion. They also attach high priority to creating leaner corporate structures: Organizational efficiency is a must if companies are to cope with falling tariffs over the long term. Most Central and Eastern European utilities already operate with outsourcing arrangements and shared-service centers. But they have not yet exhausted the potential for efficiencies. And when it comes to implementation, many actions have been shelved due to the crisis. In the short term, the managers interviewed identified the biggest need for improvement in those processes that concern customer service and emergency response teams. Plans for customer service are mainly aimed at raising quality and improving coordination with external service providers. As for emergency response teams, the focus is on regional arrangements.
Grid losses and power outages main problems in CEE
Grid losses currently present the biggest challenge for utilities in Central and Eastern Europe. The worst affected power companies in the region are the Polish grid operators. But the problem of blackouts also remains high on the agenda for CEE providers, with the exception of the Austrian utilities. The increasing frequency of extreme weather conditions is a difficult challenge, but the main cause lies in an aging infrastructure that is too frail to cope with demands. The grid operators find themselves in a dilemma here. On the one hand, they are forced to drive down their costs. On the other, the requirements set by regulators to ensure grid reliability have become much tougher – and this means above all high demands on process quality and investment efficiency.
Cutting-edge technologies still not a priority
Most of the companies surveyed regard customer acquisition as essential for sustainable growth. Unfortunately, this success factor is strongly dependent on the wider economic situation. And for grid companies, it plays only a limited role in driving growth. This is why they see the development of new, additional services as a key to success – if only as part of a medium- to long-term perspective. On the technology side, pilot projects for automatic meter reading and smart grid technology have already been launched. These cutting-edge technologies are perceived by the utilities as a long-term prospect. They still don't enjoy top priority.
Infrastructure expansion in Central, quality offensive in Eastern Europe
In addition to tracing the general development in the market, the study also identifies trends specific to individual CEE countries. In Austria, for instance, the pressure to invest is currently strongest in the field of network infrastructure because large sections of the grid lag behind the latest technical standards. In Poland, too, investment programs are at the top of the corporate agenda. Here, however, the relevant regulatory framework has not yet been put in place. The need to invest is contradicted by a trend toward lower tariffs for grid companies. Some regulators have recognized this problem and are helping to alleviate the situation by creating investment incentives. In Croatia, by contrast, utilities tend to see quality improvement as the most important challenge to be tackled. Likewise in Russia, where the pressure to make operational improvements is growing after switching to an RAB (Regulatory Asset Base) tariff model. In Hungary, capacity building is seen as a major imperative alongside efficiency improvements.
Over the next few years, the issues dominating the industry will again be the strong pressure from regulators and the long-term rise in demand. But they are being joined by new concerns such as integrating renewable energy sources or electromobility. So, going forward, grid companies will face some exciting challenges. Over the next five years, grid companies must above all work on their in-house structures and optimize service quality if they are to remain competitive. And they need to take full advantage of the new business models for grids that are gradually taking shape.
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