Handbook Utility Management

Transcription

1 Andreas Bausch Burkhard Schwenker Editors Handbook Utility Management 4y Springer

2 Preface Overview List of Contributors IV VI XI XXXI Part I: Introduction to Management 1 Managing in an International Environment Introduction Building a Global Talent Network Globalization of Talent Management and Development Global Leadership Development Global Performance Management How Can an Organization Overcome Cultural Differences to Maximize Collaboration and Productivity? What Core Principles or Practices Can Be Used to Encourage a Global Workforce to Act in Concert Toward Common Objectives? What Factors Contribute to an Optimal Climate for Coordinated Research and Development? How Can External Areas of the Business such as Partner Networks - Be Engaged to Support Globalization Efforts? The Ecosystem Approach: Managing Business Networks in a Global Economy Different Models for Different Markets The Business Network Life Cycle How Technology Can Support Business Network Transformation and Globalization The Challenge for Management in the Era of Business Network Transformation 13

3 XII 2 Superior Performance Through Value-based Management Introduction Concepts of Value-based Management Overview of Different Concepts Overview of Performance Measures Utilized by thedax-23 Companies Calculation and Interpretation of EVA and MVA Applications and Techniques of Value-based Management Overview Strategy Development Mergers & Acquisitions Performance Measurement Value Creation by Large German Firms Value Creation by Large and Medium-sized German Utilities 32 3 Ways to Corporate Growth Growth Is a Strategic Necessity Five Reasons for a Growth Strategy TheEndoftheV-Curve How Declining Transaction Costs Open up New Dimensions Special Challenges to the Energy Sector Ways to Growth The Basic Building Blocks of a Growth Strategy for Utilities Growth Must Add Value Finding the Right Blend of External and Organic Growth Organic Growth ' External Growth The Right Way to Organize Growth Decentralization Keeps Companies Agile The Human Factor 51 4 Diversification and the Achievement of Scope Economies Introduction Corporate Strategy and Diversification Historical Patterns of Firm Diversification Diversification Types and Their Implications for Corporate Management The Performance Implications of Diversification 60

4 XIII 4.3 Economies of Scope as an Imperative for Diversification Production Economics and the Relationship Between Economies of Scale and Scope Economies of Scope in Management Research Potential Sources of Economies of Scope Diversification and the Achievement of Economies of Scope in the Utility Industry The Utility Industry and Potential Directions of Diversification Sources of Economies of Scope within the Utility Industry Conclusion 68 5 Innovation and Technology Management Innovation - The Key to our Future Pioneers of Modern Life Big Questions and Megatrends Innovations for a Future Worth Living In Innovation - an Essential Driver for Profitable Growth The Changing Face of Industry From Invention to Innovation Elements of Innovation Management Innovation as an Integral Part of a Company's Strategy Growth Clusters Innovation Processes: PhaseGate Success Criteria: Key Performance Indicators Project Evaluation Open Innovation Processes Managing Complex, Multi-level Innovation Processes Venture Capital Intellectual Property Rights Ensuring Sustainability Integrating Customers into the Innovation Process Innovation - a Cultural Issue 87 6 Entrepreneurial Orientation Introduction The Concept of Entrepreneurial Orientation The Dimensionality of Entrepreneurial Orientation Entrepreneurial Orientation and Firm Performance Contingency Theories Environmental Variables 92

5 XIV 6.7 Organizational Variables Combined Models of Venture Performance Critique Conclusions 98 7 New Paradigms in Organizational Design Introduction: Main Drivers Influencing the Organizational Framework of European Utilities Regulation as a Dominant Driver of Organizational Change in European Utilities in the Past 12 Years Liberalization of Electricity and Natural Gas Markets Privatization and Increased Financial Pressure Organic and M&A Development and the Search for Growth Relays Keys to Reading the Current Organizational Framework of European Utilities Significant Remnants of the Pre-liberalization Organization of European Gas and Electricity Utilities Current Organization of European Energy Utilities Can Be Read Along Three Dimensions Challenges and Emerging Paradigms in Utilities Organizational Design Performance and Speed: Leaner and Simpler Organizations to Enable Profitable Growth Control and Standardization: The New Operational Steering Model Integration: The Systematic Push Toward Realization of Group-wide Synergies The Next Model: Value Chain-based Organization and Centralization Empowerment: New, Customized Organizational Design for New Activities An Overview of US Utilities Organizational Trends 132 Part II: Fundamentals in Utility Management 8 An Industry Overview - Strategic Groups and Critical Success Factors Preface An Industry Overview- Segmenting European Power Utilities Vertically Integrated Power Utilities 139

6 XV Power Generators (Regional) Integrated Distribution & Supply Utilities (Independent) Grid Operators Retailers Critical Success Factors of Top-performing Utilities Conclusion The Utility Industry in Introduction Stakeholders in Utilities Basic Drivers and Business Models Evolutionary Scenario in the Utility Industry in Revolutionary Scenario in the Utility Industry in Conclusion The Changing Structure of the Electric Utility Industry in Europe: Liberalisation, New Demands and Remaining Barriers Introduction The European Electricity Supply Industry in Pre-liberalisation Days Restructuring of the European Electricity Supply Industry Price Formation in a Liberalised Competitive Electricity Market Performance of the Wholesale and Retail Markets Remaining Barriers to Effective Competition Decreasing Excess Capacities , Lack of Players " Extending the Markets: a Solution? Conclusions The Changing Structure of the Utility Industry from the Perspective of Regulation Authorities Introduction Structural Changes in the Utility Landscape in Germany Radical Legal Changes The Utility Landscape in Germany at a Glance Unbundling Integrated Utilities Model of an Independent Network Company Level of Implementation in Germany Challenges Facing an Independent Network Company.. 199

7 XVI 11.4 Strategic Options for Utilities Cooperative Activities, Mergers and Network Sales Opening Up New Fields of Business or Concentration on Core Business Regulatory Perspective Outlook The Changing Structure of the Utility Industry from Its own Perspective The Importance of Regional Utilities - with EWE AG as an Example EWE AG as Infrastructure and Energy Service Provider Economic Significance of the EWE Group EWE's Strategies for Growth and Competition Influence of Liberalization and Regulation on EWE's Development Positioning in the Competition for Electric and Natural Gas Customers Growth in the Information and Telecommunications Markets International Involvement EWE Group's Strategy for Tomorrow's Energy Supply Climate Protection - a Shared Responsibility Renewable Energy and the Energy Mix of the Future Investments in Innovative Technologies, Research, and Development Outlook Mergers & Acquisitions from a Strategic Perspective Introduction The Need for Acquisitive Growth in the Utilities Industry Limited Perspectives in European National Markets The Requirement for Strong Positions along the Value Chain Convergence of the Power and Gas Sectors Integration of European Markets M&A Patterns in the Utilities Industry Privatization and Liberalization National Consolidation and International Expansion Continuous European Consolidation E.ON's Development in the M&A Market 228

8 XVII The Merger of VEBA and VIAG in Germany and the Transformation into a Focused Energy Company Integration and Performance Growth in the Energy Business Success Factors and Organizational Line-up Success Factors for Strategic Mergers Conclusions for the Organizational Line-up Conclusion What Next for European Power Utilities? Introduction European Power Sector Key Drivers Expensive Oil Increasing Environmental Awareness Unbundling Financial Players Nationalism Value Creation Transactions How the Sector Might Look in 10 Years' Time Unbundling - Strategic and Organisational Challenges for Power and Supply Companies Introduction Transmission and Operation of the System in a Liberalised Environment Vertical Unbundling Alternatives Independent System Operator and Transmission System Operator Models Transmission System Operator Independent System Operator Advantages of the Transmission System Operator Model Disadvantages of the Transmission System Operator Model Advantages of the Independent System Operator Model Disadvantages of the Independent System Operator Model International Experience The United States.: Latin America ' The European Union 259

9 XVIII 15.5 Upcoming Developments in the European Union - the Third Package Convergence of Gas and Electricity Markets: Economic and Technological Drivers Introduction Characterizing the Gas and Electricity Sectors The Gas Sector The Electricity Sector Categorizing Market Convergence Drivers for Convergence of Gas and Electricity Markets Convergence of Products and Services Regulatory Convergence Business Convergence Technological Convergence Conclusions 276 Part III: Power Generation 17 Investing in Power Generation Introduction Investment in Risky Assets Methods for Assessing Investment Projects Under Uncertainty : Risk Management Strategies Investment Timing and Policy Impacts Changing Paradigms? Historical Overview Paradigm Shift During Electrification of the US Distributed Generation Economies of Scale and Technological Lock-in Safety Considerations The Power Electronics Revolution Selected Examples Smart Metering Variable Speed Mini-turbines with 'Electronic Gearbox' Conclusions 303

10 XIX 18 Perspectives on Capacity Investment in Germany and Europe - The Future of Power-Mix Optimization The Underlying Conditions Have Changed Dramatically The Power Plant Age Structure Needs Investment Running into Billions The Risks in Power Plant Investment Have Definitely Increased Lack of Investment Means Higher Power Prices Investment Program for Environmentally Sound Power Plant Capacities Market Intervention by Energy Policy Slows Down Necessary Investment Summary Renewable Resources for Electric Power: Prospects and Challenges Driving Forces Behind the Rethink in Energy Policy Renewables in the National and International Settings Limited Potential of Geothermal Energy, Solar Power and Biomass Wind Power is the Most Promising Growth Segment The Offshore Mega-trend: Prospects and Challenges Integration into a National Energy Supply Concept Outlook: The Right Social Framework Is Crucial Emission AUowances - a New Production Factor in the Power Sector Introduction Characterisation of the New Input Factor Emission Allowances Emission Trading The Theory of Emission Trading The Theory of Allowance Allocation Allocation of Allowances According to the National Allocation Plans Effects of Emission Trading Theoretical Effects of Emission Trading Effects of the European Emission Trading Scheme and the Corresponding National Allocation Plans Consistent Strategies Under an Emission Trading Scheme Summary 345

11 XX Part IV: Energy Trading and Wholesale 21 Energy Trading, Emission Certificates and Risk Management Different Roles of Energy Utility Companies in the Energy Markets Overview of Energy Markets and the Contracts Being Traded Day-ahead (Spot) Market Forward and Futures Contracts The Forward Price versus the Day-ahead Price Trading From a Risk Management Perspective Concluding Remarks The Future of Liquefied Natural Gas Trade Introduction Liquefied Natural Gas Some Background Regional Developments Drivers of Current and Future Liquefied Natural Gas Market Development Demand Growth Resource Rents, Transport Costs, Diversion Capability, and Seasonal Trends Transit-country Issues The Rice World Gas Trade Model Reference Case - One Possible Future Various Risks to Liquefied Natural Gas Market Development High Prices, Alternative Supplies and First-mover Advantage Market Structure Geopolitical Forces Concluding Remarks Cross-border Trading Introduction The Nordic Power Exchange - The Nord Pool Group The Common Nordic Power Market Auction Trading Bidding Areas Implicit Auctioning of Trading Capacity Area Prices System Price 389

12 XXI 23.4 Price Formation at Nord Pool Spot Handling of Internal Grid Limitations Cross-border Optimization Between Denmark West and Germany Financial Products Related to Cross-border Trading The Intraday Market - Elbas The Future of Gas Supply in Europe Introduction Supply Outlook to Indigenous Production Supplies in Future Supplies : Security of Supply Russia A Worsening Geopolitical Environment Security and Import Dependence - Empirical Evidence and Legislation Conclusions: a Constrained Future for Gas in Europe? Strategic Use of Gas Storage Faculties Introduction and Fundamentals of Storage The European Gas Market and the Role of Flexibility Use of Storage Storage Facilities in Europe Value of Storage.' Current Gas Market Development and Implications-for Gas Storage Strategic Use of Storage for a Gas Market Player Access to Storage Facilities Investment in Storage Facilities Conclusion 430 Part V: Transmission and Distribution 26 Regulation of Network Charges Introduction.' Cost-based Regulation Price-based Regulation 440

13 XXII Price and Revenue Caps Yardstick Regulation The Investment Incentives Further Developments in Network Pricing - a Menu of Sliding Scales Concluding Remarks Transmission Management and Pricing Introduction - the Tasks of Transmission System Operators Value Drivers and External Influences External Environment Value Drivers Management Mapping of Activities and Capabilities to Value Drivers Prioritisation Among Value Levers Tensions Between Value Levers Organisation of Transmission Operations What is in an Independent System Operator? Geographic Footprints The Road to Mergers and Acquisitions? Transmission System Operator Revenues and Pricing Revenue Streams Use of System Tariffs Capacity Auctions Management Information New Challenges for Information Systems A Possible Approach to the Challenge Summary The New Entry-exit Model in the EU and Its Consequences for Gas Supply Companies Introduction Network Access in the Liberalized Gas Market Structure of the Liberalized Gas Market Components of a Network Access Regime Network Access Models in the Gas Market Overview : Point-to-point Model Entry-exit Model Postage Stamp Method 484

14 XXIII 28.4 Decision for the Entry-exit Model Consequences for Gas Supply Companies Capacity Tariffs Is Entry-exit a Universal Remedy? Conclusion Implementation of the EU Unbundling Guidelines in Germany - a Legal Perspective Community Law Bases Current Community Law Development Overview of the Systematic of the Unbundling Requirements in Germany Scope of Application Legal Unbundling Operational Unbundling Taxation Law Aspects Informational Unbundling Accounting Unbundling Unbundling Targets The Energy Arteries of a Continent - Natural Gas Networks Secure Europe's Energy Supply Introduction Declining Domestic Production in the EU The EU Expects Natural Gas Imports to Increase Insufficient Energy Efficiency New Natural Gas Pipelines for Europe The Nord Stream Project Is of Interest to Europe Economic Benefits from New Natural Gas Networks Russia Is a Reliable Natural Gas Supplier Natural Gas Fulfils Climate Requirements Producing and Transporting Natural Gas Is Capital Intensive Pipeline Across the Baltic Sea- Europe's Energy Artery Planning of the Pipeline Across the Baltic Sea Offshore Pipelines Are Secure Investments Are Profitable ' No Growth without Secure Energy Supplies 517

15 XXIV 31 Dispatching in Unbundled Electricity Markets Operation of Restructured Power Systems System Operation in a Competitive Environment Effects of Restructuring the Industry on System Reliability New Requirement for Computation Tools and Software Systems in Electricity Markets Coordinated Real-time Dispatch of Unbundled Electricity Markets Power System Operation Coordinated Real-time Dispatch Through a Balancing Mechanism Several Major Operational Issues in Unbundled Electricity Markets Modelling and Analysis of Electricity Markets Pricing of Electricity Evaluation of Available Transfer Capability Transmission Congestion Management Financial Instruments and Their Role in Market Dispatch and Congestion Management Ancillary Services Load and Price Forecasting Analysis of Generating Companies' Strategic Behaviour Bidding Problems in Electricity Generation Markets Decision-Making in Electricity Markets Improvement of Transmission Services by FACTS Control Conclusions 537 Part VI: Retail 32 The Retail Electricity Service Business in a Competitive Environment Enter Competition Branding Price Discounts and Innovative Pricing Enhanced Customer Service Value-based Service Bundling Attitude and Image Research Customer Preference and Behavior 550

16 XXV Are all Customers Alike? The Challenge Using a Segmentation System Understanding Residential Customer Needs Defining Residential Customer Needs Today's Residential Energy Needs Customer Needs Segmentation Using Customer Needs Segmentation Commercial and Industrial Customer Needs CLASSIFY Needs Profiles Commercial and Industrial Needs-based Customer Segments Conclusion Customer Segmentation in the Utility Industry Introduction Conceptual and Contextual Background Segmentation The European Energy Market The Dutch Energy Market for Retail Customers Segmentation and Strategy Formation within Essent Introduction Customer Value Management Customer Value Customer Value Segmentation Strategy Formation Conclusion and Outlook Current Trends in Serving Industrial Customers Macro-and Micro-trends in Serving Industrial Customers Macro-trends Framing Industrial Customers' Attitudes to Energy Supply Micro-drivers of Industrial Energy Consumer Market Competition and Service Innovation Conclusions Cases and Trends in'best Practice' From Trading to Structured Portfolio Management Consumer-owned Power Generation Revisited Intensive Energy Utility and Industrial Customer Cooperation : Conclusions.' 590

17 XXVI 35 The Energy Retail Market from a Customer Perspective Industrial Energy Consumption - with the Nonferrous Metals Industry as an Example Basic Energy Management Conditions for Energy-intensive Industrial Companies in Germany Adaptability of Energy-intensive Industrial Enterprises - with Norddeutsche Affinerie AG as an Example Petition for German Energy Policy 602 Part VII: Regional Peculiarities in the Utility Markets 36 Options for and Regional Peculiarities of Investment Funding in Energy Markets Introduction Main Characteristics of the Energy Markets Barriers to Investment Investment Climate Regulatory Framework Predictability of Revenues Specificity for Emerging Countries Financing Considerations Financing Sources Specificity for Funding of Renewable Energy Projects Conclusion A Comparison of Market Structure and Regulation Between US and European Utility Markets Introduction Why Regulate? A Short Survey Infrastructure Arguments Control of Monopolistic Bottlenecks Environmental Concerns Regulatory Approaches in the US Who's Who in the US Power Sector? Brief Regulatory Overview of US Wholesale Markets Brief Regulatory Overview of US Retail Markets Why the Disillusionment with Markets? Expectations vs Reality Are We Better off Now? 647

18 XXVII 37.4 Regulation of the Electricity Industry in Europe Electricity Market Directive Environmental Regulation Promotion of Renewables Conclusions Investment Opportunities in South America Investment Wave in the Region: The Privatization Process of the 1990s Future Investment Requirements Latin America's Macroeconomic Situation Regulatory Framework Generation and Energy Mix Hydroelectric Power Natural Gas Coal Power Plants Nonconventional Renewable Energy The Distribution Business Sustainability - an Unavoidable Choice Final Stages in the Reform of RAO UES of Russia - Future Developments in the Russian Energy Market Introduction Progress Finance Market Creation : Commissioning Energy 692 Part VIII: Special Issues in Utility Management 40 Creating Competitive Advantages Through Co-operations Between Municipal Utility Companies Introduction Development of New Profit Potentials by Entering the Market of Electricity Generation, and Importation, Production and Trading of Gas : Electricity Generation Importation, Production and Trading of Gas 700

19 XXVIII 40.3 Co-operation in the Field of Supply Network Systems as an Answer to Cost Pressure and Unbundling Nationwide Distribution to Standard Customers to Compensate for Customer Losses and Development of further Market Potential Successful Change Management Summary Growth Options for Regional Utilities What Is Growth? German Municipal and Regional Utility Sector Structure Market Changes and Competition Despite Saturated Markets Energy Sector in Constant Change Regulation of Natural Monopolies Energy Policy Decisions Challenges and Options for Regional Utilities Strategy of MVV Energy Costs and Price Leadership in the Traditional Business Segments Power, Gas, Water, and District Heating Adapting the Company Structure Internal Implementation Program Expansion of the Municipal Utility Network Despite Market Consolidation Expansion of the Growth Segments Conclusion and Outlook Climate Protection Requirements - the Economic Impact of Climate Change Climate Change - Why Do We Bother? Economic Impacts of Climate Change Climate Protection Requirements Climate Protection: What Next? Final Remarks European Energy Policy on the Basis of the New Provisions in the Treaty of Lisbon Introduction Basis for Current European Energy Policy Development of the Energy Competence Provision 742

20 XXIX Reorganization of the European Competence Provisions The Future of European Energy Policy The Elements of Art. 194(1) TFEU The Energy Policy of the Union The Regulatory Mechanism of Art. 194(1) TFEU The Goals Defined in Art. 194(1 )(a-d) TFEU The Guiding Principles of the Energy Policy Goal Conflicts and Hierarchies Legislative Procedures, Art. 194(2) TFEU The Limits of the EU's Energy Competence Subsidiarity and Proportionality The Restrictions in Art. 194(2)(2) TFEU The Role of Energy Efficiency in Electric Power Systems: Lessons from Experiments in the US Introduction Background Demand-side Management-a Brief History Energy Efficiency vs Energy Conservation The Energy Efficiency Paradox The Nature and Value of Energy-efficiency Techniques Elasticity of Demand The Relationship of Power Systems and Use Sectors Demand-side Management in Practice Technology Behavior Market Transformation Effectiveness Going Forward Conclusion Private Water and Economic Regulation in the United States Introduction Market Structure of the US Water Industry Privatization Ownership and Rates Ownership and Performance Regulatory Structure The Role of Economic Regulation Regulatory Jurisdiction 792

21 XXX Regulatory Authority Regulation and Utility Ownership Expanding Regulatory Oversight Regulation and Privatization Conclusion 798 Index 803