Rennie believes three factors will affect the sector globally: the rebalancing of money between conventional ways of generating energy and new ways of generating through renewables, the electrification agenda and the massive amounts of activity in that space, as well as the convergence of consumer products, telecommunications and the electricity markets.

These comments were made following the release of EY’s global report Power transactions and trends: 2015 review and 2016 outlook, which identifies Australia as the likely regional hotspot for investment activity within the sector.

“In terms of conventional versus the renewables, we’re seeing that in countries like the US and Germany – which have low wholesale prices – flows of capital have moved from traditional business models to newer models as companies start to investigate ways of maintaining their profits and their company’s shares,” Rennie said.

“Regarding the electrification agenda, which concerns countries like Vietnam, India, Indonesia and Sub-Saharan Africa that don’t have easy access to electricity, we’re seeing a massive amount of activity to find solutions in that space.

“Particularly relevant to Australia and to other developed electricity markets is the convergence of consumer products, telecommunications and electricity coming through in the solar battery integrated market, which is where we’re starting to see real disruption in the sector as customers start to demand more choice in the way their electricity is produced.”

The report identifies several key themes behind the year’s transactions, which include:

• Convergence and midstream/upstream investment;
• Contracted renewable energy assets being in demand;
• Emerging markets attracting investment;
• Disruptive trends becoming mainstream; and
• Energy reforms driving opportunities.

According to Rennie, customers today want greater control over the price that they pay as well as their level of involvement in the production supply chain, with aspirations to be in closer partnership with electricity companies as they move from being just a consumer to being much more of a producer.

“The interesting part about that is if we look at what’s happened with the models for electricity retailers in particular over the last 15 years, they’ve moved to where customers are now in constant contact with the utility,” Rennie said.

“Retailing is really now about trying to decrease overhead costs in order to compete in a reasonably low margin market, and I suppose one of the challenges is – and where I think 2016 is going to be interesting – that electricity companies are going to need to define a new way of interacting with the customer, particularly as the customers become more empowered.

“It’s probably the first time that this convergence of technologies and customer versus producer agendas has ever happened in electricity.”

The report also states that sentiment towards renewables will strengthen off the back of COP21, while gas demand will rise across the globe amid depressed prices.

Energy technology, particularly battery storage, and a move towards grid independence will also set off a new wave of mergers and acquisitions, with technology companies and utilities forming partnerships.

“In the developed markets renewables are now simply a part of the wholesale market - much like coal and natural gas – so they are just simply part of the status quo,” Rennie said.

“In the electrification markets it’s a much more complicated question because we have this intergenerational trade-off between coal-fired power that is very cheap and a very cost-effective way of bringing electricity to new populations, and renewables that have a lower carbon footprint.

“One of the real complexities for policy makers going forward is how they resolve that.

“On the one side you could say that investing in renewable energy will mean that the very large number of megawatts that need to be produced will be done in a low carbon environment.

“But on the other hand there is a relationship between the number of people that can afford electricity and the number of people that will ultimately get electricity, and a decision to move away from coal could mean that fewer people have the ability to access it.”

While ongoing economic uncertainty in many markets may affect some power and utilities deals in 2016, EY hopes that confidence from executives in relation to future activities regarding mergers and acquisitions, combined with the strong trends that are currently shaping the sector, will deliver a “blockbuster year for the global utilities industry”

Looking ahead to the next 12 months, Rennie believes we will start to see utilities acquiring battery, solar and IT software integrations and offering them to customers in order to change the relationship the sector has with their consumers.

“If you were going to be in business with your retailer in a way where you were selling electricity or capacity back into the grid, you need to have a slightly different relationship that involves trust on both sides,” Rennie said.

“At present the relationship between customers and electricity companies doesn’t really allow that to occur, so I would be looking for a change in that, as well as acquisitions and divestments around those sort of technologies in the next 12 months.

“For the electrification agenda, we have to reconcile with the need for low cost power to connect as many human beings as we can to the grid. That needs involvement by the developed countries with the undeveloped countries, as we simply can’t expect developing nations to choose a higher cost level of production, while denying many others access to power.

“In relation to convergence, I’d like to see us consider three markets – consumer products, telecommunications, and electricity – together as one, because I think that by focusing on each of those separately, we’re missing the possibilities that will change the market forever.”

- This article was first published in affiliated publication WME Business Environment Network.