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New business models of energy markets

Press Release

XIII. Mezinárodní energetické fórum

Prague, March 28, 2017 – The thirteenth annual prestigious International Energy Forum took place on March 22, 2017, in the Prague hotel Grand Majestic Plaza. Its participants included representatives of European and national regulatory authorities, but also key players from the ranks of energy experts and top managers of leading utility companies.

The main topics were the targets of the European Commission and a new model of energy markets, global and European trends in the energy sector, – energy services, convergence of networ k industries, cyber security and the new role of regulators, smart cities and the development of data networks and the role of energy and alternative players.

Key conclusions of the International Energy Forum

Global energy

Presenters: Dean Brabec, Managin g Partner CEE, Arthur D. Little s.r.o.; Ignacio Garcia Alves, CEO, Arthur D. Little

The priority of global energy markets is availability of energy in the face of increasing migration of populations into cities. There lack primary sources; the first impor tant projects are emerging focused on renewable resources, but the global energy mix will see no fundamental change until 2030 and 2050. Global prices will not grow by too much, but consumption will grow substantially affiliated with digitalization and the fourth industrial revolution. Changes could be brought about by new technologies, storing electricity and alternative possibilities for electricity transmission over great distances, or, on the contrary, generation at the spot of consumption.

European ene rgy "JUMBO" package

Presenters: Maroš Šefčovič, Commission Vice - President for Energy Union, European Commission

The new energy package brings strengthening of regulation to the detriment of liberalization, pressure on centralization and coordination of ene rgy markets and creation of regional centers for managing networks. It introduces new targets in the area of decarbonisation and energy efficiency. Will the ideas prevail of a unified power generation market or strengthening the reliability and security of the electricity supply at the national level?

New business models and strategies of the largest energy companies in Europe

Presenters: Thomas Merker, Vice Chairman and CFO, innogy Česká republika a. s..; Lars Lagerkvist, Regional Coordinator, Senior Vic e President, E.ON SE; Pavel Cyrani, Member of the Board and Chief Sales Officer, ČEZ a.s.; Hans.Josef Zimmer, Member of the Board of Management and Chief Technical Officer, EnBW Energie Baden – Würtenberg AG

The company innogy implemented the most successful IPO in the past decade in Germany. By entering the stock exchange, it gained capital in a value of nearly CZK 124.2 billion. The focus on retail, commodity and non - commodity services, infrastructure and re newable resources is attractive for investors and a guarantee of future success. Fulfillment of expectations will be a great calling for the group.

The E.ON group above this is expanding strongly outside of Europe in the USA and South America, and is sear ching for long - term strategic partners to build its business. EnBW has decided to divest its activities in the area of the wholesale market. Margins are very low and even negative in certain cases.

The ČEZ group has similarly diversified its business into new and conventional power generation. The group has long been one of the most successful European energy companies. It is betting on renewable resources, and is one of the few that can make up lost margins from the sale of electricity through energy serv ices.

Even despite its renewable energy policy, emissions in Germany are growing thanks to the program of decommissioning its nuclear power plants. On the day of the conference, a discussion was being held in Germany on the future and how to proceed in th e area of nuclear energy. One must state meanwhile that today's renewable resources cannot fully replace conventional power generation.

Creating a unified electricity market will be very difficult, agreed representatives of EnBW, E.ON, innogy and ČEZ. The y also agreed that electricity prices will grow the same as electricity consumption even despite activities affiliated with increasing energy efficiency.

Energy Services

Presenters: Petr Štulc, Director of Products and Markets, ČEZ ESCO a.s.; Richard Piege r, Head of company development, VSE Holding, a.s.; Ivo Slavotínek, Chairman, The Czech Association of Energy Services Providers (APES)

Energy services represent the future of conventional power generation and its transformation. A splendid example is the USA market, what is key is segmentation of products and customer needs as well as replicability of solutions for smaller groups of customers. In the area of energy services, ČEZ has developed the furthest even thanks to a series of key acquisitions on both the domestic and foreign market. Organic growth is not enough.

Slovak power generation

Presenters: Juraj Krajcár, Chairman of the Board, ZSE Energia, a.s.; Pavel Bárdoš, Head of Strategy and Business Development, Stredoslovenská energetika, a.s.

The Slov ak energy market is moving through a turbulent environment. Double issue of new tariffs, "tearing" and nonpayment of invoices were preceded by a limited discussion on feasibility and true impacts of this decision. The resignation of the regulator and the g overnment's effort to create a Slovak energy holding only underscore the uncertainty of foreign investors. There is no discussion of whether a Slovak energy holding should be created, just in what form. A second Hungary?

Convergence of energy and telecommunications, strengthening regulators, regional centralization

Presenters: Alena Vitásková, Chairwoman, Energy Regulatory Office; Jaromír Novák, Chairman of the Council of the Czech Telecommunication Office; Vladimír Kešjar, Regulatory Authority for Electronic Communications and Postal Services (SK)

Liberalization has not fulfilled the expectations, and nobody duly assessed previous packages. It can be said that regulation will continue to strengthen. Whether there will be regulators in such form as we know them, or if regional centers or agencies will be set up, e.g. like in Munich or Warsaw, or whether the example in Ljubljana will be followed, is extremely difficult to tell. At any rate, prices of energy and telecommunications should decrease despi te the rift with major energy players. Regulators have also agreed that one will not be established for both telecommunications and energy. The priority of both is not only a price decrease but also the quality, reliability and security of supplies.

Smart cities – cities of the future

Presenters: Radek Lucký, Company Executive, E.ON Česká republika; Zdeněk Židek, CEO and Company Executive, OMEXOM GA Energo s.r.o; Tanja Vainio, Country Managing Director, ABB s.r.o.; Roman Knap, CEO, SAP ČR; Michal Fišer, Ch airman of the Board responsible for Smart City, Operator ICT (Prague), Tomáš Skuček, principal, Arthur D. Little

Clean, smart cities living in peace. Numerous cities have their visions that they are partially fulfilling. We know a series of interesting exa mples from abroad, from Singapore to Dubai, London or Amsterdam, Stuttgart and others. But there lacks a definition of a "Smart City" and everybody imagines something different. Even in the Czech Republic, a number of examples exist...pilot projects. Large cities just like Prague however are limping along a bit. Not only does the term "Smart City" remain undefined, there is also no defined strategy, platform, etc. A four - year term of office is too short. But there is something that Prague may boast. That is its very high mobility index, which is based mainly upon public transport, quality, serviceability and shortening trips to work. It is worse off of course in terms of emission, accident rates and permeability for passenger transport.

High - speed Internet

Presenters: Miroslav Řezníček, Chairman of the Board, ČD – Telematika a.s., Česká republika; Radovan Vargic, Head of Innovations, Orange Slovensko, a.s.; Martin Dvořák, Strategy Regulation, Dial Telecom, a.s.; Tomáš Novotný, Deputy, Ministry of Industry an d Trade of the Czech Republic

Passive infrastructure of energy companies, just like the railways, must bring significant changes to the high - speed Internet market. The existing speeds of between 2 – 6 mbit/sec are very far from the targets of the European Union, i.e. 30 – 100 mbit/sec. Coverage of white routes is both a European and a Czech priority. The Ministry of Industry and Trade has prepared 14 billion Crowns, interest so far is not too great. But the one who builds the first and last mile will be the winner in the digitalization of households and the initiator of a new living standard.

Thanking for patronage, thanks to partners, media partners and all in attendance

As the organizer of the thirteenth International Energy Forum, Arthur D. Little would l ike to take this opportunity to say thank you for the participation of all energy and telecommunications companies, for providing patronage to the Ministry of Industry and Trade and the Energy Regulatory Office, and thank the companies E.ON, SAP, Omexom an d PRE as partners as well as our media partners of the Forum, Pro Energy and New Energy.

Arthur D. Little

Arthur D. Little, the world's first management consultancy, specializes in the areas of strategy, regulation, increasing profitability of energ y activities, risk management, increasing the value of the customer portfolio and new business models. Activities in Central and Southeastern Europe are managed by the Prague office, which has been helping clients over its 25 years in the energy, telecom munications, transport and state administration sectors.

In 2014 and 2015, the company was chosen as the best consultancy for the energy sector According to Corporate LiveWire headquartered in London, it won a nd received the 2017 Award for Innovation and E xcellence.

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