www.pwc.

com/jp/deal-advisory

Energy Transformation
and power market design

PwC Advisory LLC

Infrastructure PPP
6 March 2018

The views expressed in this presentation are the views of the author and do not necessarily reflect the views or policies of the
Asian Development Bank Institute (ADBI), the Asian Development Bank (ADB), its Board of Directors, or the governments
they represent. ADBI does not guarantee the accuracy of the data included in this paper and accepts no responsibility for any
consequences of their use. Terminology used may not necessarily be consistent with ADB official terms.
Agenda Page

1 About PwC 3
2 Paris Accord 6
3 Power Sector 8
4 New Technology 11
5 Market design 12
Text list table 13
1 Information from PwC Global Network 14

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1 About PwC

About PwC Global

PwC is one of the largest professional services networks in the world.
At PwC *, our purpose is to build trust in society and solve important problems. We’re a network
of firms in 158 countries with more than 236,000 people who are committed to delivering quality
in assurance, advisory and tax services. Find out more and tell us what matters to you by visiting
us at www.pwc.com.

Europe, Middle East & Africa

Asia Pacific
North & South America 96,960 people
68,563 people
70,982 people

Revenue
Locations

158 countries 736 locations US$ 37.7 billion

People **

236,235 people

* “PwC” refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity.
** Incl. support staff (as of 30 June, 2017)

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1 About PwC

About PwC Japan Group

PwC network in Japan
PwC Japan Group represents the member firms of the PwC global network in Japan and their subsidiaries. Each
firm of PwC Japan Group undertakes its business as an independent and separate corporate entity. To address
complex and diversified business challenges, PwC Japan Group consolidates expertise of assurance, consulting,
deal advisory, tax and legal services as well as enhances its structure in order to cooperate organically. As a
professional service network with a total number of about 6,300 partners and staff, PwC Japan Group provides
quality client services to meet their needs and expectations.

PwC Japan Group

PricewaterhouseCoopers Aarata LLC PwC Research Institute (Japan) LLC

PricewaterhouseCoopers Kyoto PricewaterhouseCoopers Sustainability LLC

PwC Consulting LLC PwC Cyber Services LLC

PwC Advisory LLC PwC Business Assurance LLC

PwC Tax Japan PwC Japan LLC

PwC Legal Japan

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1 About PwC

About PwC Advisory LLC

Advisory

PwC Advisory LLC helps changing companies achieve their growth strategies by offering highly
specialised advice on M&A, business recovery, and infrastructure-related deals. In collaboration
with the PwC global network we provide optimal services to help our clients establish an even
stronger competitive advantage in the global market.
Industries

 Date of foundation Manufacturing, Pharmaceuticals, Communications Finance

Retail, Services Healthcare Media
15 June 1999
(Date of organisational change Automotive Healthcare Communications Banking & capital markets
Industrial manufacturing
29 February 2016) Chemicals
Pharmaceuticals
life Sciences
Entertainment & media
Technology
Insurance
Financial services
Energy, utilities & mining
Asset management
 Representative Engineering & construction
Transportation & logistics
Airlines & airports
Yasuhiro Hirabayashi, Retail & consumer
Solutions

Chief Executive Officer Government/Public Services

Trading

 Staff
Approx. 530
(as of 30 June 2017)
Deal Advisory
 Offices Business Recovery Service/M&A Financial Advisory/Deal Strategy
Tokyo, Osaka Delivering Deal Value/Transaction Services
Valuation & Modelling Public Private Partnership(PPP) & Infrastructure
 URL
www.pwc.com/jp/e/
deal-advisory
2 Paris Accord

Paris Accord: Where are we now in the global challenge

of decarbonisation?
• Falling carbon intensity: In 2016, global GDP growth was 3.1% but emissions grew by only
0.4%. This means carbon intensity – emissions per dollar of GDP –fell by 2.6% in 2016. In the
future with projected global average economic growth of 2.1%, carbon emissions need to fall by
over 4% every year average to hit the two degrees target.
• Differences in each country’s results: Some countries leading the action: Some countries
lead the decarbonisation by reducing the coal, but off-set by increase in coal consumption in
others. Although renewable grew significantly, only accounted for smaller share.
Figure 1: Low Carbon Economy Index 2017: Transition Pathways

*1: “Low Carbon Economy Index (“LCEI”) 2017” (PwC-UK)

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2 Paris Accord

Pathway to decarbonisation varies from one country to

another
• Nationally Determined Contributions(“NDC”) determines the CO2 reduction pathways
to achieve Paris target for participating countries. In 2016, UK and China reduced their intensity
exceeding the target.
• Paris accord with regional approach: Figure 2 and 3 shows historical and projected
changes in carbon intensity to be on 2 degree pathway for Developed economies and Emerging
economies respectively. The pathways varies from one countries from another due to its initial
energy mix and the approach to decarbonisation.

Figure 2: Developed Economies NDC Figure 3: Emerging Economies NDC

*1:“Low Carbon Economy Index (“LCEI”) 2017” (PwC-UK)

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3 Power Sector
Europe: Carbon factor in the power sector is lowest since
2001 and largely contributed by non-renewable sources
Decarbonizing European Power
• Europe is on the right track to meeting its
objective of lifting the proportion of
renewable energies in final energy
consumption to 27% by 2030.
• Power sector reaffirmed the goal calling for
21% of electricity to be generated from
renewable sources.
Figure 4: Change in the carbon factor
Contribution by sources
• When we see the “carbon factor, it declined
by 3kg CO2/MWh, or 1.1% year on year and
75% was attributable to the improved carbon
factor from non-renewable sources (399kg
CO2/MWh in 2015 compared with 402kg
CO2/MWh in 2014) and 25% to the increase
of renewable energy.
Figure 5: Main changes in electricity generated
from renewable energy sources
*2:“Climate Change and Electricity” (PwC France)
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3 Power Sector

India: Generation capacity to reach 640 GW by 2027

with RE leading the path to decarbonization
Strong demand growth continues 70% of new additions from RE
• Currently, India has accumulated its • In order to meet both the demand and
generation capacity to meet its peak electricity energy transformation need, over next 10
demand. years, cumulative generation capacity is
• New demands foruniversal access, EVs, likely to reach 640 GW by 2027.
industrial corridors, public transport, etc. • These additions will be contributed largely
Central Electricity Authority (CEA) estimates by renewable energy(70%)
to grow at 4-6% Figure 7 : Projected Installed Capacity (GW)
Figure 6 : Power Demand Growth 700
600
2400 2,047 500
500 275
1,566 400
175
1600
1,143 299 10 15
72
250 300 57 60
226 7
44
800 160 200
278 278
100 218
0 0
0
2017 2022 2027
2017 2022 2027
BU GW Thermal Hydro Nuclear Renewable
*3: Indian power sector - overview, challenges and opportunities (PwC India)

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3 Power Sector

Central and Eastern Europe Power: A distinctive road to

energy transformation under different economic systems

A different energy trilemma emphasis in central and

eastern Europe

• The region is highly diverse situations; with EU member/ associate

states, and the Russian Federation-led Economic Union states with
difference in the market and policy context of power systems.
• Concerns about security of supply and affordability significantly
outweigh cleaner energy priorities in the region. Major players in
the CEE region don’t expect to put emphasis on cleaner energy in
the ‘energy trilemma’ trade-off as their global counterparts.
• But there is widespread recognition of the need for market and
business model change with current market models considered to
be unsustainable. The need for change is becoming urgent and the
Companies are planning a major shift away from centralized fossil-
fuel generation.

*4:“A distinctive road to energy transformation”, (PwC-CEE) 2016

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4 New Technology

New Technology: Market design shall lead the

introduction of new technology in the new power market
Multiple technologies used in emerging power market
• PJM Interconnection LLC (PJM) is a regional transmission organization (RTO) in the United
States, one of the largest and innovative electricity market and Ancillary service market is one of
power market contributing to the market stabilization in energy transformation era.
• The market contracts multiple technologies and in the last three years, proportion of battery
has grown significantly exceeding Gas. In addition to the large introduction of RE technologies,
the importance of new technologies such as battery in the new market design shall upsurge.
Figure 8: Technology mix in PJM Ancillary market

DR, 70
2016 Batteyr, 2,021 Coal, 427 Hydro, 926 Gas, 1,489

DR, 36
2015 Battery, 1,384 Coal, 591 Hydro, 936 Gas, 2,076

2014 Battery 807Coal, 543 Hydro, 910 Gas, 2,708 DR, 29

Source: PJM “State of the Market Report”

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5 Market design

Market design varies considerably in different

jurisdictions but faces common challenges
Trilemma of reliability, affordability and sustainability
• In a changing energy world, power systems are becoming more
decentralised and, with that, comes volatility. The need to balance “What you’re seeing is a
massive change that has
energy resilience with flexibility is adding a new tension to the led to the security of the
central trilemma of reliability, affordability and sustainability. national electricity
market being called into
• Energy systems need to deliver flexibility whilst also ensuring question. There’s always
reliability and regulators, policy makers and companies are able to been a debate about
combine to create good energy market outcomes.. is as central as balancing sustainability,
security and affordability,
ever. the so called trilemma,
but there’s no doubt that
We can learn from global experiences the questions of price and
• The contrast between the similarity of the challenges and the security are now front
and central in the
difference in market design approaches offers a great opportunity. national debate.”
There should be no need to invent market design solutions from
scratch. Different parts of the world have followed different *Dr Peter Davis, Board Member, The
evolutionary paths and have adopted different policy frameworks. Australian Energy Market Operator
(AEMO), from a blackout that left
There are things that are done well and things that are done badly South Australia, in September 2016,
everywhere and we can learn from them.

*5: “Market design in a world of energy transformation, PwC-Global EU&R

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Text list table

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1 Information from PwC Global Network

Information from PwC Global Network

Title Contents
*1 “Low Carbon Economy Index (“LCEI”) 2017” LCEI tracks the progress G20 countries have made to decarbonise their
(PwC-UK) economies

https://www.pwc.co.uk/services/sustainability-climate-change/insights/low-carbon-economy-index.html
*2 “Climate Change and Electricity” (PwC European carbon factor Benchmarking of
France) CO2 emissions by Europe’s
largest electricity utilities
https://www.pwc.fr/fr/assets/files/pdf/2016/12/etude_uk_carbone-factor_nov_2016_web.pdf

*3 Indian power sector - overview, challenges Workshop for Japan Smart Community Alliance, October 31, 2017.
and opportunities (PwC India)

*4 “A distinctive road to energy transformation” PwC Central and Eastern Europe Power & Utilities Survey. Current and
future challenges in the region’s power utilities sector.
https://www.pwc.ru/en/publications/road-to-energy-transformation.html

*5 “Market design in a world of energy Senior executives and experts from 12 countries and four continents
transformation” gathered for a PwC roundtable on market design in Brussels. The event
brought together leading players with substantial experience from both
the regulatory and corporate spheres to discuss how market design can
best evolve to meet the challenges of new energy systems.
https://www.pwc.com/gx/en/industries/energy-utilities-resources/publications/market-design-in-a-world-of-energy-
transformation.html

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Please see http://www.pwc.com/structure for further details.