In recent months, utilities have been active on the Demand Response question: while Alpiq previously acquired Flexitricity and Engie invested in Kiwipower, two new acquisitions targeted major players in this nascent market: EnerNoc acquired by ENEL and ReStore purchased by Centrica.
What do these acquisitions reveal about the strategy and mindset of some energy companies? How are they likely to influence this emerging market? How are they revealing different strategic options available to energy providers?
For a large energy company, investing in a start-up offering Demand Response services makes it possible to take an observation position, to put itself in close contact with a market in order to better appreciate its evolutions and the tendencies that it follows and, finally, gain an understanding of the Demand Response and some of the associated skills.
Acquiring a company is a more engaging approach. While the acquisition confirms in theory the buyer’s long-term desire to be a Demand Response provider, it also assumes that the latter can influence the development of the business.
In the case of the Demand Response, several growth conditions are worth mentioning:
– The development and update of the software platform, managing the aggregations and the relationship with the different valuation markets (spot, reserve, capacity). This activity requires a technological dimension, a speed of decision, a frequency of update far from the standards of the energy companies. The company bought will have to keep enough independence to remain efficient on this point. Its directors will have to be flexible and understanding to make the connection between a dynamic organization and a rather heavy one.
– The ability to exploit industrial flexibilities and to sign associated contracts presupposes a perfect knowledge of the processes involved. When it comes to valuing the load-shedding of an oven on the tertiary reserve or an electrolysis bath on the primary reserve, the necessary skills can be easily available or developed. When the issue is to promote the flexibilities of thermal systems on the primary reserve (cold storage, large air conditioning, heating and cooling networks), the skills are sharp. I am not sure that an energy company is best placed to develop them, unless it relies on a powerful and historic service activity.
– Lastly, the role of operator of flexibility valuation services is a particularly sharp service activity that needs to be managed appropriately. These service activities are, once again, a new skill to be acquired by energy companies.
The example I am developing around the Demand Response shows how difficult it is for energy companies to gather the conditions for success of such new activities. The creation of the Agregio subsidiary by EDF to target this market is an even more demanding process: its first target, the producers of renewable energies, is not a big challenge, its second, the industrial consumers is one of size, especially when starting from an almost white page.
There are therefore three major issues around the creation of these new activities:
– The acquisition and development of skills, tools and know-how.
– The adaptation to the management style of these activities, for which the classic style of an energy company could be ineffective.
– Lastly, the cohabitation of different management styles and operating procedures within the same energy company is a real challenge. Most of the time, the traditional management style is required for all activities, in the name of uniformity, tradition, simplicity and lower costs.
Two reasons can then lead energy companies to engage in such new activities:
– A reasoned and constructed strategy that has led to the selection of very strategic activities to be mastered internally and therefore to develop with all the means, adaptations and changes necessary to make them succeed.
– The pursuit of a quasi-genetic characteristic that has led energy companies over the past decades to master everything and develop internally.
I fear that the second reason is predominant and that the continuation of this path leads to insurmountable difficulties in view of the diversity of tomorrow’s energy activities.
Should not it be better for energy companies to learn to rely on specialists and to stimulate and promote their growth and development? Should not it be better to position themselves as the builder and the main animator of an ecosystem of actors? Should not utilities define a clear vocation, not necessarily universal, and select the activities to be mastered to succeed in such a strategy?
The challenge of energy companies in the face of new technologies is not primarily technological but cultural, organizational and strategic.
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