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DNV KEMA's Retail Energy Markets Team Forecasts Competitive Power Markets to Expand

Small Consumer Demand Will Drive Competitive Power Market Expansion in Short Term

BURLINGTON, MA -- (Marketwire) -- 02/13/13 -- Competitive power markets will continue to expand aggressively in the next two years for homeowners and small businesses. Slower growth is expected in the non-residential segment over the same time period, according to the latest Retail Energy Outlook forecasts by the Retail Energy Markets Team at DNV KEMA Energy & Sustainability.

"Our analysis shows that retailers are seizing opportunities created by increased margins in these smaller markets," said Sonny Kanlier, Vice President, DNV KEMA's Retail Energy Markets. Residential and small commercial competitive market sales grew by 31 TWh (19%) over the past 12 months. DNV KEMA forecasts that trend to continue over the next 12 to 18 months.

A substantial increase in competitive retail suppliers entering restructured markets signals that residential and small markets are going to heat up. Competitive retailers are offering commodity prices with savings compared to the regulated utility rate, and customers are paying attention.

"This is indeed an interesting dynamic," said Hugo van Nispen, Chief Operating Officer, Americas Division. "Traditionally, the large non-residential market drives competitive sales. Now it appears that a growing number of retailers are beginning to focus on the mass market, a market many tended to ignore in the past."

Competition for smaller energy consumers intensified last year in Illinois, Ohio, and Pennsylvania. In Illinois, voters in over 300 communities adopted municipal aggregation referenda last year that allow them to pursue opt-out aggregation deals with competitive suppliers, who will provide savings to residential and small business customers compared to their incumbent utility provider.

Significant residential and small commercial switching to competitive retailers also took place in Pennsylvania, Maine, and New Hampshire in the past 12 months.

"Maine is an especially interesting story," Kanlier noted. "Less than two percent of the residential market had switched to competitive providers historically, though Maine consumers have had choice since 2000. Favorable retail margins, effective social media and grassroots customer acquisition strategies have enabled a small startup to make unprecedented inroads in this market. Currently, nearly 30 percent of the small customer segment in Maine is competitively served. That's an impressive growth."

In the non-residential market segment, steady growth continued in Illinois, Pennsylvania, and Ohio. In Ohio, the Commission adopted a hybrid approach to the contentious AEP capacity recovery mechanism for customers on competitive retail supply, which means good news for some retailers. Essentially, this will create a level playing field for retailers, which will boost migration rates, especially through May 2013.

DNV KEMA expects that New Jersey and some New York markets will improve shopping rates for mid-sized commercial customers with the lowering of hourly price thresholds.

"These developments mean that there are significant short-term opportunities for retailers and large end users alike in some markets," van Nispen said. "For competitive retailers, it means that effective marketing strategies could lead to increased market share and long term customer relationships, if done properly. For large consumers, it means opportunities to lock in better prices for a longer period of time."

Growth prospects have led to an increase in the number of retail supplier licenses granted, with the greatest number of new entrants in Ohio, Pennsylvania, and Illinois. "These increases are due to a combination of favorable retail margins, pro-competition policies, and opt-out municipal aggregation opportunities," Kristie Deiuliis, report author and principal consultant for DNV KEMA's Retail Energy Markets Advisory Service, observed.

DNV KEMA projects a 6.6 percent compound annual growth rate (CAGR) in the total U.S. competitive market over the next two years, and flat to modest growth (1.7% CAGR) in the following years due to increased upward pressure on power prices. By 2017, DNV KEMA forecasts non-residential competitive sales to reach 622 TWh, a growth of 51 TWh from 2012. More than half (57%) of this growth is expected to occur in the next two years.

Overall, DNV KEMA estimates that the total competitive sales reached 740 TWh in 2012, representing 56 percent of the eligible market, and 20 percent of all U.S. power sales. In 2013, DNV KEMA expects that competitive sales volume will increase by 26 TWh, or 3% from 2012.

For 2014 and beyond, a considerably slower growth rate of 1.3% CAGR is forecasted, with non-residential markets returning to the driver's seat in competitive retail sales. "After 2014, we expect residential markets will be flat or slightly declining," Deiuliis said. Yet, some markets such as Illinois, Maine, and New Hampshire will continue to grow at a rapid pace. "We do not expect markets that have shown growth the last few years to retrench."

About DNV KEMA Energy & Sustainability
DNV KEMA's Retail Energy Practice provides a wide range of strategic and technical consulting services to organizations involved in competitive power and gas markets. DNV KEMA's Retail Energy Advisory Service provides a current, detailed knowledge base of the opportunities and risks in competitive markets. DNV KEMA also leads an industry benchmarking collaborative that develops performance data and comparative analysis for retail suppliers. DNV KEMA's assignments range from strategic planning and market analysis to operational gap analysis and process improvement to customer research and product design.

DNV KEMA Energy & Sustainability, with more than 2,300 experts in over 30 countries around the world, is committed to driving the global transition toward a safe, reliable, efficient, and clean energy future. With a heritage of nearly 150 years, we specialize in providing world-class, innovative solutions in the fields of business & technical consultancy, testing, inspections & certification, risk management, and verification. As an objective and impartial knowledge-based company, we advise and support organizations along the energy value chain: producers, suppliers & end-users of energy, equipment manufacturers, as well as government bodies, corporations and non-governmental organizations. DNV KEMA Energy & Sustainability is part of DNV, a global provider of services for managing risk with more than 10,000 employees in over 100 countries. For more information on DNV KEMA Energy & Sustainability, visit www.dnvkema.com.

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