plotting strategy for the new energy economy. a number of unknowns will affect the electric power...

Plotting Strategy for theNew Energy Economy

A number of unknowns will affect the electric power industry

Copyright 2013 New Markets Advisors 2

Changes in consumer

preferences and behaviors

Advances in technologyRising fuel prices

State and federal

regulations and

compliance costsU.S. economy

Global economy

Emerging trends in the electric power industry spell trouble for utilities


Costs

Consumption

Rising costs for utilities• Materials

• Compliance

• Investment

Leveling electricity consumption• Energy efficient behavior

• Financial crisis hangover

Capital costs and operating costs will continue to rise


Capital costs• Additions for generation,

transmission, and distribution

• Compliance costs for environmental and safety regulations

• Rising interest rates and cost of capital

• Portfolio integration of renewable energy

Operating costs• Additional operating costs for

environmental compliance retrofits

• Rising fuel prices

Federal and state regulations will continue to impinge on profitability


• FERC Order 1000 encourages a more coordinated build-out of new electric transmission lines, and it aims to allow large-scale renewable energy projects to connect to the grid

• In doing so, Order 1000 will create new challenges for utilities

— Coordinated planning that accounts for public policy concerns

— Compliance with cost allocation reforms

— Easier access for non-incumbents

• Environmental and safety regulations continue to take a “double bite” by requiring capital expenditures and increasing operating costs

The future of energy consumption is uncertain


Increases in Demand

• Increased use of consumer electronics

• Increasing popularity of hybrid / electric vehicles

• Trend toward return to US-based manufacturing

Areas of Uncertainty

• Weather patterns and impact of global warming

• Resurgence of US and global economies

• Utilities passing on increased costs to consumers may cause further decline in consumer demand

Decreases in Demand

• Advances in energy efficient technology

• Consumer inclination toward energy efficient behavior

• Energy conservation policies for businesses and governments

How serious is the potential for an unprecedented decrease in demand?

Will the recent trend toward demand destruction become permanent?

This bleak outlook illustrates the need for innovation and re-evaluation


• While unyielding incumbents are facing trouble, utilities that consider new business models will be able to control costs and discover new sources of demand

• Opportunities in electricity generation and storage (for both business and residential consumers) can unleash new revenue streams

• Bundling electricity services with other services can create a more successful financial formula

• Diversification and alternative investments can reduce overall risk

New business models offer increased value for all actors along the chain


• Improved business models allow utilities and consumers to recognize new forms of value, including information and services

• New actors can be brought into the equation

How New Markets can help

• Identify opportunities to reduce controllable costs and generate new revenue streams

• Assist in putting together total solutions for evolving consumer needs, potentially encompassing a range of products / services– Reassess how those are sold and the profit formula used to monetize

their value• Evaluate how mergers, acquisitions, and strategic partnerships can create

synergies• Create a business planning process that allows for fast iteration and option

value, in the style of good entrepreneurs• Help drive decisions from over-arching strategy

– Understand the scenarios for industry evolution, your leverage points to shape the future, and how your actions in individual functions / business units affect those leverage points


Embrace a process that creates stakeholder-centric solutions, driven by clear strategy• Develop consensus about your current situation, your present strategy,

baseline knowledge, and key upcoming decisions• Undertake primary research with target customers and other stakeholders

to see the world through their eyes• Rigorously define the challenges these stakeholders grapple with, and

create total solutions that put you in a competitive class you can own• Develop business plans focused on mitigating key risks, validating success

drivers, and rapidly reaching milestones that improve odds of success– Reduce risk before investing for scale– Avoid false precision in financial estimates. Focus instead on “what you have

to believe” financial assumptions and achieving certainty behind those assumptions

– Explicitly link near and long-term decisions to underlying strategy

Throughout – Work cross-functionally to make the process consensus-building from its inception. Strategic change works best when it is a collective endeavor


New Markets qualifications

• The principals of New Markets Advisors have been responsible for:– Creating strategic plans for dozens of enterprises in the midst of

disruptive industry change

– Drafting policies for the financial implementation of the UN Framework Convention on Climate Change

– Developing the business plan for E+Co, a leading organization in financing renewable and energy efficiency projects

– Working with Global 1000 firms as well as start-ups in crafting responses to the changing energy industry

11Copyright 2013 New Markets Advisors

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Who is New Markets?

• Experts in reframing market space and generating growth• Senior

experience• Creative and

pragmatic• First-class

consultants, thought leaders, and entrepreneurs

Recent Clients

Copyright 2013 New Markets Advisors

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Our team’s publications have appeared in:


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Contact

Stephen WunkerManaging DirectorNew Markets Advisors245 First Street, 18th FloorCambridge, MA 02142 USATel. +1 617 337 3060Fax +1 617 337 [email protected]


plotting strategy for the new energy economy. a number of unknowns will affect the electric power...

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increased costs

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