Power & Utilities Economic Advisory

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EY’s UK & Ireland Power & Utilities Economic Advisory team combines experience in economics and finance with deep sector knowledge to help regulated businesses, economic regulators, governments and investors design, influence and optimise regulatory and market arrangements across the energy and water sectors.

EY - Power & Utilities Economic Advisory

Electricity generation and wholesale power markets

We can help stakeholders in the electricity generation sector respond to the challenges they face, including through:

  • regulatory and commercial strategy e.g. responding to Brexit or the CMA’s findings, or potential changes in network charges (e.g. locational adjustments for transmission losses)
  • power price modelling and forecasting, including advice about pricing strategies for participating in CFD auctions
  • help designing and optimising government support mechanisms e.g. contracts-for-difference, feed-in-tariffs, capacity markets
  • valuation of losses arising from retrospective changes to support mechanisms
  • evaluating the financial attractiveness of new asset classes e.g. storage, enhanced frequency response
  • evaluating trading and hedging strategies
  • design of system operator incentives and charging regimes e.g. Project Nexus.
Energy networks

We can help stakeholders in the electricity, gas and heat transmission and distribution sectors respond to the challenges they face, including:

  • optimising upcoming price control reviews e.g. RIIO mid-period reviews, RIIO-2 price controls, ongoing gas T&D PC4 review in Ireland and RP6/GD17 reviews in Northern Ireland
  • the design of price controls and regulatory frameworks e.g. for new asset classes such as OFTOs and CATOs, or for heat networks
  • application of regulation to existing assets in need of financial support e.g. gas storage facilities
  • regulatory and commercial strategy, including decisions to enter/exit markets or the role businesses want to play (e.g. system operator functions, electricity storage)
  • cost of capital and regulatory finance (including potential changes to indexation of price controls)
  • regulatory accounting and reporting
  • access pricing, charging arrangements and tariff design e.g. changes to DUoS to reflect expanded DSO functions arising from increased distribution-connected generation and embedded-storage
  • efficiency analysis, including through benchmarking and econometric/statistical tools
  • financial modelling e.g. building or auditing price control models
  • customer engagement and research
  • price control appeals and disputes.
Energy retail/supply

We can help stakeholders in this sector respond to these challenges, including with:

  • advice about regulatory and commercial strategy e.g. market entry strategies
  • help designing commercially viable energy efficiency schemes
  • help developing time of use tariffs
  • help responding to the CMA’s recent recommendations e.g. back-stop pricing for certain customers, enhanced customer engagement requirements
  • compliance with regulatory requirements e.g. for suppliers about to exceed the “small supplier” threshold
  • an assessment of the costs and benefits of smart meter roll-outs.
Water and wastewater

We can help stakeholders in this sector respond to these challenges, including through:

  • the design of price controls and regulatory frameworks for directly procured assets or newly separate business units (such as sludge or water resources)
  • customer engagement and research, augmenting traditional willingness-to-pay survey methods with behavioural economics and experiments/trials
  • cost of capital and regulatory finance e.g. the approach to the cost of debt at PR19 or revenue neutrality of changes to indexation
  • regulatory accounting and reporting, including cost and RCV allocation exercises
  • access pricing, charging arrangements and tariff design e.g. structuring and calibration of tariffs for water resources, water treatment, sludge, sewage treatment and network-plus activities
  • efficiency analysis, combining benchmarking and econometric/statistical tools with market testing and other tools
  • design and calibration of incentive mechanisms, such as the future of SIM and ODIs
  • financial modelling e.g. building or auditing price control models
  • regulatory and commercial strategy, including decisions to enter/exit markets and sectors
  • price control appeals and disputes.
Regulatory and commercial due diligence support

Whether the assets in question are generation (conventional or renewables), networks (electricity, gas or heat), water/wastewater infrastructure, (smart) metering businesses, retailers/suppliers (or associated entities like ESCOs or DSR providers), recognising the critical role of regulation in infrastructure investments, our approach is to work closely with deal teams to add value by:

  • helping investors (both debt and equity) understand the existing regulatory and market frameworks in detail, not only through reports and presentations, but also by ensuring the implications of those frameworks for future cash flows are appropriately captured in financial models
  • forecasting the future evolution of those regulatory and market frameworks e.g. support mechanisms for low-carbon generation, price control frameworks for pipes and wires businesses
  • providing practical advice on the implications of potential change to the regulatory and legislative frameworks by forecasting the likely range of outcomes, identifying what the significant impacts might be for valuation, and reflecting these changes into tools that help decision-making.