UNLOCKI NG TH E P OWE R OF T H E E L E C T RI C AL GRI D
END TO THE GRIDLOCK THE NORWE GI AN E L E C T RI C I T Y MARKE T
Even though 15 years have passed since the deregulation of the electricity market, the Norwegian power industry is still fragmented and dominated by municipality ownership. Significant economies of scale can be realised through consolidating electrical grids in adjacent geographic areas; however, due to disincentives such as insufficient financial gains from the regulatory income model and the complications arising from grid companies’ integration with regional utility companies, consolidation hasn’t been on the negotiating table for a decade. This picture is now changing, with several factors pointing towards a new era for the power industry in Norway. First, the Norwegian government has expressed a strong desire to consolidate, and is exploring possible strategies. A recently published report has recommended increased segregation of grid company tasks in utilities and
As consolidation takes off, national and international financial players will be eager to participate, making economies of scale possible and generating a stable, attractive, longterm return on capital.
a simplification of the grid structure. Second, the argument for utility ownership of grid companies is weakening due to the introduction of the suppliercentric model, which means that utilities no longer can use grid companies as brand builders. Third, grid companies have ceased to be cash cows for utility companies – in the coming years, significant cash flows will be needed to upgrade ageing grids. In addition, power prices are expected to remain low, putting pressure on the profits of the utility companies, and in turn reducing financial returns for municipalities. As consolidation takes off, national and international financial players will be eager to participate, making economies of scale possible and generating a stable, attractive, long-term return on capital.
FROM INTEGRATED VALUE CHAIN TO UNBUNDLED INDUSTRY
IN DUSTRY STRUCTURE OF TODAY
I NDU ST RY ST RU C T U RE I N 1 0 Y E ARS?
Company activity type split 2012, based on the revenues of the 70 largest Norwegian energy companies
Future company activity type split (estimated)
PRODUCTI ON
P RODU C T I ON
GRI D G R ID SA LE S
SAL E S
Today, the operations of most Norwegian energy companies are focused on electricity generation, distribution and sales. In the future, increased specialisation is expected, although a core of these integrated companies will continue to exist. What keeps energy leaders awake at night?