Marsh: Possibility of blackouts to increase in future

30 December 2014 Consultancy.uk

The risk of blackouts will increase in the future, according to a survey by Marsh. The research shows that more than a third classifies the state of the industry as ‘unhealthy’. Regulatory uncertainty is seen as the biggest threat to stability in the sector. As such, the advisory firm emphasises the need for policymakers to consider the future when making regulatory decisions.

Insurance broking and risk management consulting firm Marsh recently released a research report on the health of the power industry: ‘The State of the Power Industry: The Lost Era of Regulatory Certainty’. For this report, the firm surveyed 54 power industry professionals from across Europe.* Participants included ‘C-level’, executives and senior risk/insurance, finance, and operational managers from investors, manufacturers, distributors, and generators.

Marsh’s research highlights the concerns about the overall state of the power industry in the power industry among the majority of respondents stated to be concerned with the state of the industry across Europe. More than a third (35.2%) indicated to view the industry as ‘not healthy’, with 11.1% even identifying it as ‘not at all healthy’. Just over a fifth (20.4%) considers the industry to be ‘stagnant’. Only respondents from the Nordic region (Norway, Sweden, Denmark, and Finland) and Turkey indicated to consider the state of the market to be healthy.

Overall state of the power industry

According to three quarters (79.6%) of respondents, regulatory uncertainty is the main barrier to the stability of the power system. And almost two-thirds believe that regulatory/political risk has increased significantly in the past five years, increasing the instability. Only 3.7% believe this does not present an obstacle to stability whatsoever. Once again, respondents in the Nordics are more positive as 63% describe regulatory uncertainty as a major barrier to stability.

The risks arising from regulatory issues are also seen as the greatest barrier to investment in the power industry, and almost half of respondents (46.3%) believe that stability and transparent policymaking would improve investment in the industry.

Regulatory uncertainty

Blackouts
One of the risks of an unstable power industry is the possibility of blackouts. Of the people surveyed more than half (53.7%) thinks that this possibility will increase in the future, with almost a quarter (24.1%) believing this risk will increase significantly. Surprisingly, of the countries represented in the survey, Finland is the most pessimistic as 83% of the Finns believe the risk of blackouts will increase. The Italians are the most optimistic.

Possibility of future blackouts

The report concludes that regulatory uncertainty is the greatest problem for the stability of the power sector as investors are diffident about the regulatory context. This leads to a slowing down of investments in the power system and a lack of necessary infrastructural development. According to Marsh, policymakers should consider the long term when making regulatory decisions as current investments in power generation, transmission, and distribution will shape the market 30 years into the future and beyond.  The reluctance to invest in the development of the power infrastructure will result in grave challenges for the power system in many countries across Europe, as this will make it harder for the power industry to deliver on the most important objectives of the policymakers: supply security, an equitable and sustainable pricing model, and an acceptable environmental impact.

* Participants came from companies in Belgium, Denmark, Finland, France, Germany, Italy, the Netherlands, Norway, Poland, Spain, Sweden, Switzerland, Turkey, and the UK.

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