In an energy market marked by great uncertainty, energy utility companies are ill–equipped to make the major decisions they face in choosing future sources of power generation, according to a report released today by Arthur D. Little according to a report released today by Arthur D. Little in cooperation with the Dresden University of Technology and Opexis GmbH. The new study, "Real options for the future energy mix" suggests that in an economic climate marked by depleting natural resources and increasing legislative requirements for climate protection, the traditional methods utility companies use to determine what energy sources and facilities to invest in no longer apply. The result, according to Arthur D. Little, is the current trend of potentially fruitful investment opportunities being undervalued, and therefore not pursued by utilities companies.
"Real options for the energy mix" offers a new approach, real option valuation, which allows utilities providers a broader perspective on the most promising sources of investment. The valuation is based on modeling the complete set of possible outcomes facing utility companies operating in the current climate. As a result, Arthur D. Little´s suggested valuation offers utilities companies not only the future value of different potential investment strategies, but also the likelihood of each option becoming reality and its single value.
"Given the two–way squeeze on electricity utilities - upward pressure on costs and investment, downward pressure on pricing - uncertain developments that will be more evident in the future must be taken in to consideration when making strategic investment decisions today," said Stephen Rogers, Arthur D. Little´s Global Energy–Utility Practice Leader. "In today´s environment," the author warns, "utilities providers using the same old valuation models to decide new investment in generation facilities risk missing positive growth opportunities, or investing in sources that are not sustainable due to rapidly changing market conditions."
The full report, available online, outlines Arthur D. Little´s four–step approach to leading a fair valuation of energy generation investments. The report demonstrates the new approach using a synthetic case study, and explains how top management can break out of traditional corporate systems to develop more adaptable, flexible valuation techniques suitable for the current volatile industry environment.
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Real options for the future energy mix is now available for download at www.adl.com/realoptions.
About Arthur D. Little
Arthur D. Little, founded in 1886, is a global leader in management consultancy, linking strategy, innovation and technology with deep industry knowledge. We offer our clients sustainable solutions to their most complex business problems. Arthur D. Little has a collaborative client engagement style, exceptional people and a firm–wide commitment to quality and integrity. The firm has over 30 offices worldwide. With its partner Altran Technologies, Arthur D. Little has access to a network of over 16,000 professionals. Arthur D. Little is proud to serve many of the Fortune 100 companies globally, in addition to many other leading firms and public sector organizations. For further information please visit www.adl.com
About Arthur D. Little´s Global Energy Utility practice
For over 40 years we´ve helped clients solve some of the world´s toughest energy problems. We help energy companies master huge and complex challenges, in rapidly changing situations, often under very demanding geographic, economic, regulatory and political conditions. Our clients include the world´s largest
oil and utilities companies. We work together with them as partners to bring clear thinking to bear on key strategic issues. What sets us apart is our unique ability to combine four factors: a deep practical understanding of the energy industry and its most difficult challenges, the highest calibre of people, innovation to produce fresh insights and a commitment to achieving measurable results. It´s what we´re known for and enables us to create solutions that effectively satisfy the needs of our clients, all the way from boardroom to operations.
