Mapping and addressing the future business model
KPMG Energy Chair starts by mapping the challenges
The KPMG Chair on the future of Electricity and Gas Distribution Grid Companies, which was launched last January, is dubbed “Rising to the power grid challenge”. Why this focus on distribution system operators (DSOs)? And what’s on the research agenda for the years ahead? We asked Jorn De Neve, Partner Deal Advisory at KPMG, Daniël Pairon, Global Head of Asset Management at KPMG, and Professor Leonardo Meeus and Daniel Dobbeni, respectively Director and Chairman of the Vlerick Energy Centre.
Jorn gets the ball rolling: “DSOs represent the part of the energy value chain that is undergoing the most profound changes. New technologies are emerging, the relationship between DSOs and transmission system operators (TSOs) has changed, and whereas – from a shareholder’s point of view – electricity and gas distribution companies used to be considered safe havens of low risk and guaranteed returns, current market dynamics are such that this might no longer be the case. What’s more, the current regulatory landscape is rather fragmented. Harmonisation is desirable but will not be without impact. Given the challenges the sector is facing, we believe DSOs will have to adapt their business model.”
The key people involved in the KPMG Chair (from left to right): Daniël Pairon (Global Head of Asset Management, KPMG), Jorn De Neve (Partner Deal Advisory, KPMG), Leonardo Meeus (Director of the Vlerick Energy Centre) and Daniel Dobbeni (Chairman of the Vlerick Energy Centre).
Filling the gap
Daniel Dobbeni adds: “While there are 41 TSOs operating in Europe, there are more than 2,500 DSOs. Because the DSO landscape is highly fragmented, we have less information about the individual players, the way they’re organised and their vision for the future. Yet the changes in the energy market will have a major impact on the DSOs. All the more reason to fill the knowledge gap.”
Leonardo points out that the timing for this Chair is perfect. “So far the liberalisation of the energy sector has primarily led to changes at TSO level. But regulators are now starting to focus on DSOs. The debate is lacking academic input, however. The European institutions are eager to have access to independent data and insights. We’re convinced that this Chair, in addition to our Energy Centre, will become a valuable forum for debate between all the stakeholders.”
The research team intends to proceed as follows: first they’ll map the European DSO landscape, creating a database with detailed information about its players, their financial and operational structure, the regulatory framework within which they operate, etc. From these European DSOs they will then select a representative sample to conduct a survey in which C-level representatives will be asked what they consider to be the most pressing challenges facing their business. This will take up the better part of the first year. In subsequent years, the team will zoom in on the most important themes identified in the survey.
It’s still early days, but does the team have an inkling of what those themes might be? Jorn: “We expect we’ll be looking at mid- and long-term strategy, business models and financing. Given the current fragmentation of the sector, we also believe consolidation, collaboration and mergers & acquisitions are likely to be covered. And then there’s the regulatory framework, which could become more harmonised, following the example of the TSOs. As far as the operational aspects are concerned, we’ll most likely be looking at asset management and, not least, at the impact of new technologies, such as smart meters, smart grids, etc.”
Daniel Dobbeni agrees: “These new technologies will impact distribution networks even more than they will do transmission networks. Also, it’s often overlooked, but capital expenditure by DSOs is much higher than that of TSOs.” Daniël Pairon picks up on this point: “That’s why we expect asset management to be one of the topics on the agenda. DSOs are asset-intensive companies par excellence: physical assets make up more than 80% of their balance sheet total. We notice, however, that awareness of the strategic importance of asset management and its value-adding potential is often lacking. So we aim to raise awareness and bring asset management to the boardrooms of DSOs, just as we’ve done in other sectors. Incidentally, the framework we’ve developed to do so formed the basis for the ISO 55000 international standard for asset management.”
It’s obvious that the challenges facing DSOs are manifold. This is why the research team involved will be multidisciplinary, to ensure a holistic view of the issues. KPMG has built up extensive practical expertise in all of the fields that are likely to be covered, in Belgium as well as globally. Vlerick, in turn, has an established track record in cross-disciplinary research and this Chair will be no exception. In addition to sector experts Leonardo Meeus and Daniel Dobbeni, Professor of Operations & Supply Chain Management Behzad Samii will also be joining the team. And for research in the area of M&A, for example, they can count on the expertise of our Dean, Philippe Haspeslagh.
The team is keen to move forward and Jorn is already looking ahead to the outcome of this Chair: “We aim to produce thought leadership content on any of the issues researched. We’re convinced it will be of great added value to all stakeholders involved – DSOs as well as regulators, consumers, other researchers, etc. This is why we also intend to share our findings with as large an audience as possible. And last but not least, the insights we’ll gain will enable us to assist our customers even more effectively.”
Why did KPMG decide to embark on this energy Chair with Vlerick? Read the interview with Patrick Simons (Senior Partner at KPMG) and Dean Philippe Haspeslagh.
Last year the Elia Group teamed up with Vlerick in the Chair on “Future of Power Grids”, while Professor Behzad Samii has been leading the Eandis Chair on “Resilient Supply Chains” since 2011.
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