In 2015, major energy companies were still trying to navigate a systematic re-orientation of electricity markets. NRG, E.ON, RWE and Enel all amended their corporate structures to address broader changes in the sector. The first three, NRG, E.ON, and RWE, announced plans to split off their advanced energy activity from their conventional, fossil fuel oriented businesses, while Enel re-integrated their renewable energy subsidiary Enel Green Power (EGP) back into the parent organization.
While each of these changes comes under unique circumstances, the clear theme is that we are in an epic energy transformation that presents a tremendous opportunity. However, that change is messy, and incumbency does not guarantee survival or success. Much like the telephone landline, energy companies face a daunting challenge, subscribers are unplugging. Advanced energy is the future, and as energy companies recognize a need to adopt, a pattern does seem to emerge from the chaos. It goes like this (with predictions on the future as well):
Phase 1: Diversified energy companies form a power generation division in order to own and operate power-producing assets in deregulated markets.
Phase 2: These energy companies enter into advanced energy and try to organically grow their business.
Phase 3: With limited success operating on their own, they end up acquiring another group to gain the upper hand. (NRG buys Solar Power Partners, Edison busy SoCore, NextEra buys Smart Energy Partners, Duke buys REC Solar, etc..).
Phase 4: As a result, the company quickly builds an advanced energy portfolio but struggles to consolidate their old business under the same structure as the newer advanced energy business.
Phase 5: Realizing that being part of larger company comes with inherent slow decision making, and can potentially erode revenue of the legacy business, they split off the renewable energy division so that they can have more autonomy, speed and agility. In some cases, like NRG, investors put overwhelming pressure on short-term profit as the renewable energy division requires heavy investment.
Phase 6: The subsidiary succeeds while the future of the core business becomes increasingly uncertain as the market changes faster than anticipated.
Phase 7: The parent company buys back the subsidiary, as utility executives come to the realization that the utility of the future must include renewable energy assets.
Phase 8: The power company of the future increasingly manages and orchestrates a digitally connected and flexible set of assets comprised of increasingly intermittent resources. This is a major shift from steady power production to managing intermittent power.
Phase 9: The successful utility of the future is one that learns to manage a very complex set of assets that are increasingly distributed and produce energy intermittently. That change requires the utility to forge a new business model whereby the utility trades energy and helps the customer manage and maintain their energy producing assets.
The companies that will succeed in this environment will need to be digitized from front to back. The energy future is one governed by kW and MW scale networks, not GW scale hierarchies. Utilities will need to accurately predict energy production so they can more effectively trade energy. The energy companies of the future will have real-time insights into their business and operations in order to manage and process massive amounts of changing information.
Energy companies navigating this changing environment should consider the processes and tools they use today. What worked for them for the last 100 years will need to be re-engineered if they are to survive and thrive in the epic energy transformation.
Lead image: Change ahead sign. Credit: Shutterstock.
This article was originally published by Engerati and was republished with permission.