Energy research offers hope and global warnings

By FIONA ROTHERHAM

The election of a Labour Government in New Zealand - and how far it moves to the left - is being watched closely worldwide as a sign that faith in the free market is waning, says a Deloitte consultant.

A utilities and communications director for Deloitte in Washington, Dwight Allen, was in New Zealand to preview a research study due out next month on the future of energy retailing.

The report, 21st Century Utility Retailing, defines four global scenarios from now until 2010 covering regulation, economic trends, globalisation, technology, climate and population change.

The research involved 75 interviews from industry and Government sources, including more than a dozen in New Zealand and Australia. There was strong disagreement on virtually every question.

One of the four potential scenarios, Second Thoughts, envisages a lack of support for liberalisation and globalisation as macro-economic conditions worsen.

It turns into a time of nationalism and protectionism along the lines of policies promoted by Labour's Coalition partners, Mr Allen said.

"People are looking at New Zealand as a sign that enthusiasm with the free market is running its course and you are going to see that develop politically as a return to Government intervention and regulation."

In this scenario, utility retailing is not so competitive, with the incumbents protecting their patch. Steve Morris, president of an American utility retail newsletter, said in the Deloitte report, "By 2005, a number of [US] states will have re-regulated the retail energy market for residential customers due to the failure of competition to reduce prices significantly."

In the another scenario, SuperAbundance, the business environment sails smoothly through the decade. Liberalisation gains popularity and centre-right Governments dominate. Industry rides waves of privatisation, deregulation and market reforms similar to those under way in New Zealand.

New finds and better technology ensure oil and gas are abundant despite rising demand. Utilities are run by private enterprise with stiff competition and customers buying on price. Low costs and strong brand are key. Oil multinationals seek to diversify through buying global utilities.

The next scenario, Techno World, is similar. Key differences are oil prices are kept moderately high, e-business thrives and problems with energy infrastructure breakdowns and bottlenecks are resolved.

Successful utility firms are those who master information technology and retail through an interactive web, Mr Allen said.

Old economy businesses must consider alliances with retail specialists offering a variety of products or be taken over by much smaller, but well-capitalised, dot.com entities.

Troubled Planet is the final and gloomiest scenario. Global warming and ratification of the Kyoto protocol leads to fossil fuels being taxed and restricted.

A European Commission staffer told Deloitte, "The economic impact of measures to deal with global warming will be equal to the oil embargo of the 70s." Oil production starts to taper off and infrastructure constraints result in periodic bottlenecks and outages.

New Zealand's reliance on hydro-power insulates it from some of these problems, but climate changes lead to drought and low water levels. Energy prices stay high.

Technology advances make micro-generators more affordable and convenient. There is a major rethink on the traditional industry model of delivering energy from central points via networks.

Uncertainty about how events will unfold for utility retailing means companies betting on one vision risk picking a loser. But indecision leaves you lagging behind your rivals.

Mr Allen said utilities should make bold decisions but stress-test plans against multiple possibilities.

This is a challenge for many utilities that are 100 per cent state-owned and monopoly providers.