Energy & Utilities

Energy & Utilities has become a prominent topic around the world. Consumers are facing supply constraints and higher prices. Governments are concerned about energy & utilities security and climate change.

Global growth and change are putting pressure on scarce energy and water resources like never before. The energy & utilities sector is in the spotlight as companies, governments and consumers grapple with issues such as security of supply, environmental impact, carbon exposure, the impact of efforts to regulate greenhouse gas emissions, and affordability. The sector is on a journey of major change, anticipating a world with a much wider range of technologies than at present and in which the industry is taking on a new shape. Companies are seeking to extend their value chain both upward and downward to secure supply and end-markets. The traditional boundaries that defined the energy & utilities industry are becoming blurred as the interdependence of different energy sectors and between utility and technology companies becomes more critical.

PwC is the world’s leading adviser to the energy & utilities industry, working with exploration, production, downstream and service companies to provide tailored business solutions. Our strength in serving this truly global business comes from our skills, our experience and our team of industry specialists. For more than 100 years, we have helped energy & utilities companies succeed.

Your challenges and our solutions

In an increasingly complex environment, full of conflicting priorities, changing geopolitics, tightening regulatory requirements, greater competition and higher stakeholder demands, energy & utilities companies face major challenges:

• Addressing sustainability and climate change issues

  In order to maximize and maintain public and customer trust, utilities companies need demonstrable and provable levels of transparency, accountability and integrity. The companies in this sector also are at central stage in efforts to address climate change and minimize harmful environmental impacts.

  PwC services:

  • Carbon management
  • Environmental due diligence
  • Advice on certificate trading
  • Non-financing reporting
  • Life cycle assessments
  • Health & safety reviews
  • International tax structuring - tax planning with low tax countries and favorable tax regions
    
    

• Improving performance and operational effectiveness

  The pressure on Energy & Utilities companies to deliver greater efficiency and operational effectiveness is intensifying. Higher prices, stretched supply lines and investment in expanded and diversified infrastructure are putting significant additional cost into the value chain. At the same time, companies can expect continued and greater resistance to costs being passed on to end-users.

  PwC services:

  • Business performance improvemen
  • Financial effectiveness (office of the CFO, Shared Services)
  • Corporate Performance Management (Reporting, Costing)
  • Treasury management
  • IT effectiveness (Office of
    the CIO, Shared Services)
  • Crisis management
  • Tax risk management
  • International tax planning
    
    

• Industry transactions and consolidation

  Transactions move at tremendous speed in the Energy & Utilities sector. The fundamentals of strong investor appetite, the importance of non-organic growth, high fuel prices, security of supply concerns and room for consolidation in all key markets have pushed deals to record levels. Consolidation has a long way to run in most of the major markets around the world, but competition authorities will be watching developments closely. Industry players are intent on building super- national and super-regional footprints, while keeping an eye on wider global opportunities. The pattern of ownership in the sector is changing, as financial investment institutions enter the utilities space in order to develop their infrastructure presence.

  PwC services:

  • Strategic advice and business modeling
  • Mergers & Acquisitions advice including tax structuring
  • Financial and Vendor Due Diligence
  • Synergy reviews
  • Working capital reviews
  • Post-merger integration advice
  • Valuations
  • Regulatory reviews
  • Project management
  • Deal execution
    
    

• Managing financial risk

  Utility companies are exposed to significant wholesale price volatility and, increasingly, face the uncertainties of competitive customer markets. Methods for measuring market and credit risk must better reflect a company’s business portfolio, as these companies are significant investors, borrowers or users of derivatives. External oversight bodies are requiring more rigorous financial disclosure and demonstration of robust corporate governance policies and practices. Energy & Utilities trading and, now, emissions allowance trading have added to the need for good oversight.

  PwC services:

  • Financial and commodity risk management (financial instruments)
  • Internal controls
  • Risk valuation and measurement methodologies
  • Operational and risk management processes and controls
  • Tools for price forecasting, asset modeling, etc.
  • Corporate governance framework to manage financial risks
  • Enterprise-wide risk management (Strategic, Operational, IT)
    
    

• Managing Industry Regulatory Change

  Companies in the utility sector face a range of market and regulatory environments. The industry remains caught between a pure market- oriented approach and a more planned and structured environment. All markets demand a careful focus by companies on regulatory relations and strategies must take full account of regulatory risk. Privatizations continue to play a key part in the sector, both in developing and mature markets. Regulatory frameworks, however, vary widely and competition authorities are keeping a close eye on sector activity. Companies need to pay close attention to their structure of merger and acquisitions. In Europe, for example, concerns about market operation have spurred fresh regulatory scrutiny, even putting the prospect of the unbundling of currently integrated entities on the regulatory radar screen. Companies will need to ensure that their ownership structures are sustainable in a changing regulatory context.

  PwC services:

  • Restructuring and regulatory advice including tax structuring
  • Privatization assistance
  • Unbundling businesses
  • Commercial & regulatory strategy
    • Identifying and understanding value drivers
    • Market entry and exit
    • Analyzing and validating strategic options
    • Commercial contracting
      
      

• Securing the Supply

  Ensuring the supply of Energy & Utilities worldwide is a key challenge for utility companies nowadays. In many developing economies, for instance, water-dependent and power-hungry economic growth is placing an immense strain on the infrastructure of these nascent markets. In developed economies too, the availability of fuel sources, complex geopolitical factors, and environmental concerns are compelling a large number of companies to diversify their fuel mix to include a greater amount from renewable resources. Add the fact that supply lines are becoming increasingly stretched and uncertain, and it is easy to see with clean coal technologies and liquefied natural gas (LNG)-made possible by new technological advances - are playing an increasingly significant role. Likewise, nuclear power is once again about to assume an important place in the Energy & Utilities policies of many countries. However, companies in both developed and developing countries face complex situations. Short term, the volatility of fuel prices can render companies vulnerable. Long term, critical investment decisions have to be made now, despite an uncertain regulatory environment and unpredictable prices.

  PwC services:

  • Enterprise-wide risk management
  • Political risk assessment
  • Supply chain security
  • Fuel mix optimization
  • Business advice on Liquefied natural gas (LNG), renewable and nuclear power
    
    

• Complying with regulatory and reporting requirements

  Energy & Utilities companies conduct operations in a variety of regulatory and tax regimes, many with more transitional rather than static regulatory environments. The geopolitical, environmental, Energy & Utilities and natural resource supply and trading environment, combined with often complex stakeholder and business relationships, adds to the complexities utility companies face. In addition, the advent of International Financial Reporting Standards and section 404 of the Sarbanes - Oxley Act for US registrants has added to the challenges. All of these circumstances demand careful judgment around corporate governance, internal controls and external reporting.

  PwC services:

  • Governance
  • Risk and compliance
  • International Finance Reporting Standards advice
  • Sarbanes – Oxley compliance
  • Global compliance services
    • Preparing and reviewing tax returns and computations
    • Negotiating with tax authorities
    • Indirect tax compliance
    • Corporate income tax compliance
    • Accounting services
    • Payroll services
    • Corporate secretarial services
      
      

• Renewable energy

  • Wind

    • Turbine manufacturing and assembly capacity is lagging behind growth in installed capacity;
    • Current lead times of 2 – 3 years for wind turbines and capacity expected to lag demand for at least 2 – 3 years;
    • Production capacity of the turbine manufacturers themselves is not the key reason for the bottlenecks as turbine manufacturers can grow their assembly facilities without significant capex commitments. Availability of components remains the key issue;
    • Turbine manufacturers not keen to deal with small players and want large players who can fund the large down payments from cash;
    • Smaller developers being forced to sell down sites once consented.

  • Solar photovoltaics

    • Government initiatives have driven rapid historic growth – this is expected to continue;
    • Cost per MW remains high, but these costs are expected to decrease to viable levels:
      • Estimates for timing for this vary, but the industry believes that this is achievable over the next decade;
    • Alliances/JVs, M&A and long term contracts have become prevalent in this industry:
      • Rapid technological change of cells is driving alliances and M&A among cell manufacturers. This increases risk as technologies may become obsolete;
      • Silicon supply constraints have slowed growth and have driven long term contracts and alliances with wafer producers;
    • Production line capacity is likely to become a limiting factor going forward;
    • Opportunities exist in:
      • Feedstock – silicon remains main ingredient and solar technology will continue to complete with the microelectronics industry. Recycling technologies may offer attractive investments;
      • Production lines – particularly for thin film technology;
      • Cell manufacturers – generation 3 technologies expected to have high efficiency at low cost. This technology is high-risk/high-reward opportunity.

  • Biofuels

    • Biofuel production has grown rapidly, driven by government subsidies, a drive by oil majors to appear green and excitement in the investment community;
    • Prices remain high, but subsidies and blending mandates are driving the market;
    • Biofuels have the potential to lower dependence on mineral/petroleum fuels and they emit less carbon than traditional fuels;
    • Current technologies compete with crops used for human food consumption – this is highly controversial:
      • World opinion is beginning to move against biofuels;
      • Several investments in plants have been delayed or cancelled;
    • Cellulosic technology does not use food crops and will be capable to lower costs;
    • Until cellulosic technology is developed, biofuels are a risky investment and unsustainable in the medium term;
    • There may however be some opportunities in developers of and refiners using cellulosic technology or algae.
      

Our lines of services:

• Audit and other Assurance services (including Mergers & Acquisitions services)

  PwC audits Energy & Utilities companies in all sectors – including national, international, upstream, midstream, downstream and oilfield services companies. Our market share of the Global Energy & Utilities sector is 32%. Audit Market Share of Global Energy & Utilities Companies with REVENUES $5.0 B+ Energy & Utilities companies want audit teams to know their issues and understand their business challenges. Our industry-dedicated professionals receive specialized training, including regular updates on regulatory and technical issues. This training, combined with hands-on experience allows PwC’s Energy & Utilities professionals to bring a high level of industry knowledge to their work.
  
  PwC auditors around the world use a single, global audit methodology, fully compliant with International Standards on Auditing and applicable national standards. Our globally consistent approach to the audit means that regardless of location, PwC people can understand and evaluate your business using a single language and common methods. In turn, that gives you a uniform level of quality in all our audits. This methodology also enables us to quickly organize and deploy the kinds of multinational audit teams often required by our larger Energy & Utilities clients.
  
  In addition to audit services, we offer a full range of other assurance services to Energy & Utilities companies – covering areas such as Sarbanes-Oxley compliance and independent review of controls and processes.
  

• Advisory services

  Through our deep understanding of finance, risk management/compliance, IT systems, operations and human resources, we can identify and implement cost saving initiatives, improve management systems and controls, improve performance, identify and manage risk, improve quality and deliver greater financial effectiveness. We combine our expertise on overall performance and financial improvement with expertise on key industry specific areas such as Energy & Utilities trading and climate change. We also seek to maximize the value and effectiveness of companies’ internal audit processes by advising and assisting in the development of internal audit and risk management plans and methodologies, including assessing whether the internal audit function is delivering effectively to stakeholders.
  
  We are well-known in the marketplace for our skills in assisting with and executing all types of financial transactions. We help our clients in mergers and acquisitions, including financial and operational due diligence, accessing the capital markets and valuing, negotiating and structuring deals. We also assist with divestments and development of exit strategies. Post acquisition, our merger integration specialists can assist with the planning and the execution of the integration efforts. Our advisory services are also on hand to assist in crisis management, dispute analysis and litigation support, investigations and forensic services.
  

• Tax services

  We have the strongest international network of any professional services firm, with dedicated tax specialists in 148 countries. This means that we can support you both locally and globally, wherever you require tax advice.
  
  Our tax professionals solve challenging issues, anticipate changes that can impact your tax situation and financial statements, and keep you apprised of local, state, foreign and international tax regulations as they pertain to your company’s operations. Our network of international tax structuring professionals can enable you to structure your international business in a tax efficient manner, both locally and globally. We can help you construct effective cross-border strategies and manage your global structural tax rate. We will also keep you abreast of new developments in the international arena that affect your business.
  
  Indirect taxes, including Goods and Services Taxes (GST), Value- Added Taxes (VAT), severance, property, employment, excise, motor fuels, sales and use taxes, and customs and duties are uniquely imposed by a variety of jurisdictions and can be a significant burden for any Energy & Utilities company. Energy & Utilities companies in particular, due to their large volume of commodity based transactions, can be exposed to significant taxes on transactions. Our indirect tax professionals can assist in first determining what taxes are imposed by a jurisdiction, whether the activities of a company are enough to subject it to tax, and how to either structure the company’s activities so as to avoid the tax or assist in complying with the filing requirements.
  
  Due to the significant differences in taxes and related rules among the jurisdictions, it may be possible to minimize the overall tax paid through proper planning.
  Early tax planning for mergers and acquisitions is essential to reduce both the actual transaction tax costs and the long term sustainable tax rate following the transaction. PwC has the largest network of M&A specialists in the world and we can offer you expert deal structuring and financing advice at all points throughout the deal cycle. We deliver value through quantitative analysis, rigorous implementation and leading edge structuring techniques, carrying out pre-acquisition due diligence, ensuring tax efficient deal structuring, and ensuring post- deal integration.
  
  Inter-company transactions across borders are growing rapidly and are becoming much more complex. At PwC, we have a strong international network of dedicated transfer pricing specialists with advanced training in economics, accounting, law and project management, ready to work with you. Our industry and tax authority experience and unique capabilities enable us to develop innovative approaches for Energy & Utilities industry participants.
  

Publications

Our worldwide network of industry specialists are linked by a sophisticated internal knowledge management system, giving them the tools to input their insights and draw upon the most up to date information for the benefit of our clients. Our programme of ‘thought leadership’ is widely respected. From round-table discussions to global surveys, we share knowledge with our clients on industry issues. PwC plays a central role in many key developments in the industry.

We are represented on the committee of the World Energy Council (WEC) and are a WEC patron. Each year, we prepare industry-dedicated reports and gather opinions on the issues that are of key strategic importance to our clients and the challenges that lie ahead. Our extensive ‘thought leadership’ programme draws on the insight of our worldwide network of industry specialists as well as the industry itself.

Download our Statement of Capabilities (pdf - 10Mb).

Visit www.pwc.com/energy and www.pwc.com/utilities to download or order hardcopies of reports.