Regulatory uncertainty could cause power failure and nuclear revival

Regulatory uncertainty is holding back vital investment in the utility sector and could lead to blackouts and an inconsistent power supply, a leading market analyst survey has reported.

This uncertainty will affect investment in renewables and could lead to a revival in the fortunes of the nuclear industry, it claims.

Under Pressure, PricewaterhouseCoopers’ seventh Global Utilities Survey, found that regulatory worries top the list of investor concerns about funding the industry. Over a third (39%) say that deregulation and market reforms are damaging confidence, highlighting the dangers of inconsistent regulation, energy, tax and environmental policies within regions and between countries.

This anxiety within the industry means that, despite its growth prospects, it is failing to attract the investment it needs.

The PWC survey found that most investors rate utilities as being as attractive as several other sectors such as financial services, consumer, retail and pharmaceuticals. This sentiment was also found in investors already focused on utilities.

A spokesperson for PWC told edie news that the EU was a good example of regulatory uncertainty: “Each territory in the EU has separate regulations for each utility, so you can have around 50 different regulatory bodies all saying slightly different things. And, that produces uncertainty as you don’t always know what’s coming. There is a similar problem in the US where different states can have different regulations for different utilities – so making longer term plans can be a problem.”

Two-thirds of utility company respondents to the report said that without regulatory certainty and high levels of investment, power blackouts could be a more frequent occurrence, and these concerns are spreading across the industry.

Nearly 72% of utility company respondents say supply security and transmission capacity are major concerns facing the sector – up from 65% in 2004.

This is also affecting investment in renewables, the report says. While the focus on renewables is increasing, with the industry trying to change the fuel mix, investors feel this area will face the biggest funding challenge creating a new vulnerability for the sector. Over half the respondents, 52%, said they expected a nuclear revival in such a climate.

Manfred Wiegand, Global Utilities Leader at PWC, said the challenge for the sector was immense: “We urge governments, utility companies, investors and consumers to work together to find a truly sustainable and long-term strategy for the industry. This means getting the equation right in the market through a balanced view of renewables and a streamlined regulatory environment, generating market rates of return for investors and encouraging transparent and well-communicated business strategy among utility companies.”

Despite the uncertainty over certain regulations, utility companies report that they are being driven more by other regulatory influences such as Sarbanes-Oxley and International Finance Reporting Standards to bring greater transparency to reporting. Nearly two-thirds of companies signal that they intend to step-up environmental reporting.

By David Hopkins

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