19/09/2019 – News / Energy / Electric Vehicles / Sustainability / Utilities / Oil & Gas
Analysts explain how the drive towards zero-emission vehicles alters outlook for utilities and O&G players
Europe’s energy sector is bracing itself for the impact of the electro-transformation of the auto industry, set to usher forth multiple new challenges – and opportunities. Scope Ratings analysts Sebastian Zank and Marlen Shokhitbayev take a closer look at how the EU’s push toward zero-emission vehicles is altering the outlook for utilities and oil & gas companies.
Electric car sales are growing fast in Europe from a low base. What impact will this have on electricity and fuel demand?
SZ: The growth is impressive, with electric vehicle registrations up 35 per cent in Western Europe in H1 2019 amid a shrinking overall market – though at 250,000, they still only make up a small fraction of the overall H1 registrations of 8.4 million. If we assume that more than a fifth of the cars on the road in Europe are electric by 2030, such growth would increase electricity demand by 5-10 per cent (160-320 TWh) – modest, given the timescale, but significant all the same for Europe’s power utilities.
MS: For oil & gas groups, the 80bn litres in gasoline and diesel demand they would lose in this scenario represents around a tenth of the current EU oil consumption, which is manageable over the long term. However, the decline in demand could be more dramatic if we also assume further efficiency gains in internal combustion engines, greater electrification of heavy-duty vehicles and a potential decrease in demand from the European petrochemical industry.
For utilities, where are the gains to be had in terms of growth in demand linked to e-mobility?
SZ: Growth in electricity demand should benefit companies across the industry’s value chain – providing extra income to generators, grid and storage operators and energy suppliers – though the burden of capital spending will fall most heavily on electricity distribution in urban areas. Such extra income is expected to come from the increased electricity flows but also through supplementary (newly) developed business segments that help to improve diversification and customer loyalty such as services and partnerships with end-customers. Partnerships and targeted acquisitions may also be the way for utilities to capture an important share of the broader e-mobility market, particularly as companies outside the electricity sector seek to cash in on new demand for electricity and e-mobility services. German utility RWE has, for example, set up partnerships with automakers Daimler and Renault.
Might transport-related growth in electricity demand strain Europe’s electricity network?
SZ: We do not think that is very likely. That said, the impact of hundreds of thousands of people recharging cars in the evenings could exaggerate spikes in demand with important consequences for the load curve and network management. Smart metering as well as power storage such as power-to-X power technologies and industrial large-scale batteries will increasingly provide opportunities.
MS: Agreed. Surges in demand during peak-load hours would remind governments and regulators of the importance of having peak-load capacity from gas-fired plants when intermittent generation from renewables – wind and solar – is not enough to keep the lights on.
What about the oil & gas sector facing the long-term challenge of declining fuel demand?
MS: Oil & gas companies have already begun investing in electricity generation and distribution – and e-mobility services – as they look for long-term diversification away from fossil fuels. In Europe, France’s Total SA has acquired electricity distribution companies in Belgium and France, and battery maker Saft. Royal Dutch Shell wants to become the world’s largest electricity company by the 2030s. And this makes for a potentially much more crowded electricity sector in Europe.
SZ: Indeed, even companies from outside the energy and transport sectors, such as German agriculture conglomerate BayWa, are looking at e-mobility services as a new source of growth.
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