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China's rise in global energy market

After three years of stagnating GHG emissions, they increased by 1.4 per cent in 2017, driven by economic growth stimulating energy demand

Study reveals China's role as a leading player in tech, equipment and utilities' ownership
Study reveals China's role as a leading player in tech, equipment and utilities' ownership

China has emerged as a leading worldwide player in technology, equipment and utilities ownership but increased energy demand as a result of global economic growth potentially jeopardises climate targets, a new study warns.


The 20th edition of Capgemini’s annual study, the World Energy Markets Observatory (Wemo) report created in partnership with De PardieuBrocas Maffei and Vaasa ETT, also found that while the utilities landscape “rebounded with renewed financial strength” the need to accelerate their transformation heightens as competition from new players emerges.


Digital transformation


In response utilities are adapting their business models with new technologies such as Internet of Things (IoT), artificial intelligence (AI), chatbots, and blockchain. All segments of the value chain are impacted by digital transformation, the report notes.


“The utilities landscape is changing fast. All segments of the value chain are impacted by digital transformation, from client relationships and operational processes, through to grids and interactive services, with a huge potential to decrease costs,” said Perry Stoneman, head of the energy, utilities and chemicals sector at Capgemini.


“Utility incumbents need to accelerate their transformations and step up their focus on new service-based business models as competition from different domains including new entrants, oil majors, retailers, and GAFAM [Google, Apple, Facebook, Amazon and Microsoft], is increasing.”


The four main findings of the 2018 edition Wemo report are:


1 China, the world’s second largest consumer of energy, leading emitter of greenhouse gases (GHG), significant energy equipment supplier, and key player in critical resources, has also become a dominant investor in energy companies


Energy requirements are constantly growing in China, which in 2017 increased its imports of liquid natural gas (LNG) by 46 per cent, making it responsible for 30 per cent of the growth in global demand. Pollution levels remain a concern and China is the world’s biggest emitter of GHG. China has a long-term policy of developing equipment for domestic usage first before selling it internationally.


It is aggressively exporting coal-fired power plants (with 700 currently under construction), photovoltaic solar panels (of which it was responsible for almost half of newly installed worldwide capacity), and wind turbines. According to the report, electricity storage and electric vehicles, as well as nuclear reactors, are likely to be the next wave of Chinese equipment exportations. China also has a dominant share (95 per cent) in the worldwide production of highly sought-after rare metals and rare earth elements needed for energy transition. Finally, China’s decade-long dynamic acquisition policy, mainly in Africa, South America and Asia, has now extended to Europe’s electricity networks and utilities.


2 Economic growth puts into question climate change objectives but has in turn driven electricity and gas wholesale market price rebounds, improving utilities’ financial health

After three years during which GHG emissions had stagnated, in 2017 they increased by 1.4 per cent, driven by economic growth that stimulated increased energy demand. The already fragile climate change objectives of the Paris 2015 Climate Accord could be threatened, despite the significant rise in carbon prices (up in Europe from €5 per ton in early 2017 to €20 early September 2018), resulting from the rebounding global economy and geopolitical tensions.


3 Renewable energy and storage prices continued to decrease, but tech limitations and cost of development means full renewable generation is far off for the majority of countries

During the past 12 months, the costs of renewable energies have continued to fall (-20 per cent for solar photovoltaic): onshore wind and utility scale photovoltaic (PV) costs are becoming competitive almost everywhere (without including extra grid costs) compared to most traditional electricity generation resources. Battery costs are following the same downward trend. This combination could lead some countries, such as Denmark, to set goals for a 100 per cent renewable generation mix. However, at the large country or state level, even with battery storage, this type of grid is not manageable at present because of limitations in the technology, intermittency management, and huge development costs.


4 The utilities landscape continues to evolve along with the renewed financial health of industry players, while new challenges emerge

A slight improvement in the financial positions of utilities had been reported, notably in Europe, thanks to wholesale electricity and gas market price rebounds and transformation achievements of industry players. This situation has led to a landscape transformation and merger and acquisition activities, each country having its own transformation path: Germany is concentrating on value chain segments, the UK is correcting some liberalisation retail market consequences with new regulations, Asian markets are starting the deregulation process, and new players are entering the markets everywhere.


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