Regulatory woes bother investors

According to the survey, regulatory worries top the list of concerns expressed by investors. Despite its growth prospects, it is failing to attract the investment it needs, primarily on this account. This, despite the fact that the sector is rated as attractive as several other sectors, including financial services, consumer and retail and pharmaceuticals.

While a majority (55 per cent) of investors believe deregulation is helping the investor climate, more than a third (39 per cent) say market reforms are damaging confidence, highlighting the dangers of inconsistent regulation, energy, tax and environmental policies.

The survey was based on responses from 119 senior executives, from 108 utility and utility investor companies across 36 countries. Research covered Europe, the Americas, Asia-Pacific, Africa and West Asia.

Without regulatory certainty and high levels of investment, blackouts can become a more frequent occurrence.

In fact, two thirds of utility company respondents in the report believe the likelihood of blackouts will increase or remain the same.

These concerns about security of supply are spreading across the industry. Nearly three-quarters (72 per cent) of utility company respondents say supply security and transmission capacity are major concerns facing the sector "� up from 65 per cent in 2004.

The regulatory uncertainty was also affecting investment in renewables, the report adds.

While the focus on renewables is increasing, with the industry trying to change the fuel mix, investors feel this area will face the biggest funding challenge creating a new vulnerability for the sector. In this climate, more than half (52 per cent) of utility respondents expect a nuclear revival.

Respondents in Asia-Pacific see a 23 per cent shift away from coal and oil in favour of gas and nuclear in the fuel mix of their companies.

Most companies in the region say they foresaw a rush for gas as the fuel mix changed over the next 10 years.

The share of gas was expected to go up from 34 per cent to 55 per cent, while that of coal is expected to go down from 42 per cent to 23 per cent.

"Asia-Pacific accounts for 29 per cent of global net consumption of electricity, making it a critical world market. Security of supply is key to meeting the promising economic growth in the region," said Kameswara Rao, PricewaterhouseCoopers' India leader for Utilities.

To achieve this, he adds there is "need for Governments, utility companies, investors and consumers to work together to find a truly sustainable and long-term strategy for the industry".

In general, respondents from Asia Pacific rate underlying causes of supply security more strongly than in other parts of the world, with regulatory pressure and the reliance on single source of fuel leading the list of concerns.

"Since coal is the dominant fuel in most countries - accounts for 70 per cent of generation in India, considerable investment is needed for more efficient plants with lower emissions levels, as well as alternatives to coal", Rao adds.