Last year I predicted that energy companies needed to diversify or they would disappear. Renewable energies are no longer a plan for the future, they are a reality that make up a significant portion of our energy supply today. To compete, power generation companies are diversifying and investing in renewable energy.
But this introduces fresh business management challenges alongside traditional methods of power generation, driving companies to embrace new business models that bring new challenges.
The power generation industry is changing
A key driver of this change is the environmental impact of burning fossil fuels. The implementation of Taxes and regulations to achieve global environmental goals are making the use of fossil fuels impractical. And consumer demand for green energy is causing suppliers to favor sustainable energy sources.
But the demand for energy is increasing.
In 2018, global energy demand grew by two point three percent, the fastest since 2010. And by 2040 the equivalent of a whole new China and India will be added to the planet’s global energy demand, a thirty percent increase compared to today.
To supply this demand and react to external pressures, power generation companies are turning to renewable energy sources.
Different Diversification Options
Power generating companies are taking advantage of the changing market. Many are investing in renewable energy: wind farms, hydro stations, solar power, and biomass. As a result, solar and wind’s share of electricity generation is already growing, from one percent in 2007 to around seven percent in 2018.
Energy storage projects offer an alternative route to diversification. Battery energy storage solutions provide flexibility to the grid and enable a more reliable energy supply from renewable sources. Some companies are entering into partnerships with car manufacturers to recycle electric vehicle batteries for power storage, enhancing their environmental credentials.
Other companies are working with communities to set-up microgrids. They are offering decentralized energy to rural areas or to self-sufficient energy projects, such as business parks and residential estates, allowing them to use their own renewable energy sources to power their community.
AUGMENTED PRODUCT OFFERING
Another, less established path to diversification is to enter the retail space. Shell will become an energy supplier through the acquisition of First Utility. Now Shell Energy supplies 100% renewable energy, as well as broadband contracts, smart home technology, and boiler servicing to UK homes.
New business models
All diversification drives three significant changes to business structure:
- Joint ventures – acquisitions and joint ventures are becoming more common in the power generation industry, as businesses look to expand their capabilities.
- Two-way exchange of power – the power generation business model is changing from one-way supply to a two-way exchange, as consumers become active energy producers and supply their additional power back to the grid.
- Service centricity – renewable energies require a more service-centric business model than traditional fossil fuel power stations. This means a business must maintain aftermarket contracts with OEMs to manage servicing, or become more service-oriented and manage their own assets, bringing significant organizational and cost implications.
Meet these new challenges
Switching to renewable energy sources presents specific challenges to power generation companies.
- Maintenance & reliability
- Long-term planning
Diversification into renewable energy sources presents a management challenge for power generation companies, requiring a significant change to company structure. The success of these new business models will depend on the implementation of the right enterprise technology solutions.
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