Nuanced Change In Developed States’ Power Outlook


BMI View : We have revised down our 2013 forecast for electricity consumption and generation for developed states, in line with revisions to BMI ' s macroeconomic forecast s . Over the long-term, we expect the North American power market to outperform other developed states due to favourable demographic and economic fundamentals. We also predict that the share of natural gas and renewable energy will grow in the future as developed nations look to reduce emissions and their reliance on nuclear energy.

Here are some of the key trends that we have identified in the power sectors of developed countries:

  • Weak macroeconomic conditions continue to impair growth in electricity consumption .

  • Government debt as a percentage of GDP has been on the uptrend in several developed states, and is expected to have an effect on power utilities and subsidies.

  • Austerity measures and growing risk aversion will favour divestments over capital expenditures , especially in Europe, where cash-strapped European utilities need to reduce outstanding debt.

  • The share of natural gas and renewable energy is set to grow in the energy profiles for many developed states.

We have slightly revised down our 2013 electricity consumption growth forecast for developed states from 1.31% to 1.26%. This was prompted by several downward revisions by BMI's Country Risks team to our macroeconomic forecasts, most notably for several developed European and Asian economies. In contrast, our economic and energy forecasts for the US and Canada remain relatively unchanged from the previous quarter.

2013 Regional Real GDP Growth Forecasts, % Change y-o-y
Previous Forecast Revised Forecast
Source: BMI.
USA 2.1 2.1
Eurozone 0.5 0.4
Japan 1.2 0.9
World 3 2.9

In December 2012, BMI ' s 2013 GDP growth forecast for the eurozone were downgraded from 0.5% to 0.4%, owing mainly to a downward revision in the Italy projection to -0.2% (previously 0.0% ) . Other countries affected by downgrades include Austria, Sweden and the UK ( see our online service, December 18 2012, ' Global Assumptions - Q1 2013 Update' ).

We also decreased our 2013 real GDP forecast for Japan from 1.2% to 0.9% in December 2012 due to new economic data released by the government. The country's economy contracted by 3.6% quarter-on-quarter (q-o-q) annualised (in seasonally-adjusted terms) in Q312, with net exports contributing the largest contraction and domestic demand also waning significantly. Additionally, we expect the large amount of public debt to remain a significant burden on the Japanese economy.

Europe And Asia Revised Down
Developed States - 2013 Generation Forecast By Region, TWh

These revisions in macroeconomic data led us to revise down our 2013 electricity consumption and generation forecasts for Europe and Asia, as electricity consumption (and also generation) will be significantly affected by poor industrial activity and domestic demand in these countries. In contrast, our 2013 forecast for electricity generation in North America remains unchanged, and we even see potential for upside should the issue of the debt ceiling and automatic spending cuts be resolved successfully (by March 01 2013).

Long Term: US To Outperform

Over the long term, we expect electricity consumption in developed states to remain relatively subdued due to poor economic performance arising from global macroeconomic headwinds. At present, we are forecasting electricity consumption in developed states to grow at an average rate of 1.2% per annum from 2013 to 2017.

We expect the North American power market to outperform over our forecast period. Recent economic data and electricity consumption data for both the US and Canada have been relatively encouraging, and economic performance in North America is expected to remain relatively resilient over the period. Some factors underpinning our outlook include the benign demographic situation in the US (as compared with other developed states) and a favourable business environment (the US ranks as one of the top countries in our business environment ratings).

North America Outperforms
Developed States - Generation By Region, TWh

Our outlook for the eurozone is far more bearish as the sovereign debt crisis continues to act as a drag on economic growth and the power sector. Government debt as a % of GDP has been on the uptrend in several developed states, and is expected to have an effect on power utilities and subsidies. Austerity measures continue to be implemented throughout the region, and more measures are likely to be implemented if countries such as Spain will require further bailouts (with strings attached).

We are also seeing tighter credit conditions, especially in Europe. Greater capital controls for European banks has led to a tightening of credit, leaving financiers increasingly reluctant to lock away capital in lengthy and capital-intensive power projects. Investors are also growing increasingly risk averse, and we expect lesser funds to be available for renewable, thermal, and nuclear energy projects. We believe that most investments will arise from the renewable energy sector, as developed states look to substitute aging capacity and reduce greenhouse emissio ns.

We do not expect significant growth in the power sectors for developed states in Asia as both Japan and Australia are faced with macroeconomic difficulties. Japan faces a demographic crisis and severe fiscal concerns, while Australia is grappling with overinvestment in the mining sector, external indebtedness, and a possible housing bubble. We believe these factors will impair both the demand for electricity over the coming decade.

REGIONAL REAL GDP GROWTH Forecasts, % CHG Y-O-Y
2011 2012f 2013f 2014f 2015f 2016f 2017f
Source: BMI.
US 1.7 2.2 2.1 2.5 2.5 2.4 2.4
Eurozone 1.6 -0.7 0.4 1.4 1.7 1.9 1.9
Japan -0.6 0.5 0.9 1.2 1.1 1.1 1.1
China 9.1 7.7 7.5 6.7 6 5.8 5.8
World 3.1 2.5 2.9 3.4 3.4 3.5 3.5

Going Towards Natural Gas And Renewables

We believe that the majority of developed states are looking to expand their gas-fired and renewable energy capacities in order to reduce emissions and their reliance on nuclear energy. In recent years, many developed countries have begun reducing the share of emissions-intensive coal- and oil-fired capacity. For instance, the share of coal energy in the US has progressively lessened in recent years, and we anticipate that its share will dwindle further as electricity demand is increasingly met by natural gas and renewable technologies. We estimate that the US retired approximately 9,000MW of coal-fired capacity in 2012, and will retire additional capacity in the coming years. Additionally, several countries such as Germany and Japan are looking for viable alternatives to reduce their reliance on nuclear energy following the Fukushima accident in 2011.

Growth In Gas And Non-Hydropower Renewables
Global - Generation By Type, TWh
This article is tagged to:
Sector: Power, Renewables
Geography: Global

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