Implement decision-making support for successful megaproject management
Energy & Utilities
Professional insight into every level of the business
Energy enables countries, companies and individuals to grow, develop and change. Now the energy sector itself must evolve. We see five important trends: The energy transition, further integration of energy markets and globalisation, efficient use of resources, regulation leading to free market systems and liberalisation, and new technologies.
At Roland Berger, we work with both clients and investors and are a global authority with local knowledge and professional insight into every level of the energy and utilities business. In volatile times, one thing is certain: Energy markets will soon be very different. How do you plan to advance your business?
Trend 1: New Energy transition
The replacement of fossil fuels with renewable energy is underway. At the forefront of the pack is the electricity sector. Wind and solar in particular are increasing their share in the fuel mix. Replacement of fossil fuels by sustainable alternatives for heating and transport will follow. The advent of renewables causes disruptions for utility companies and energy users and new corporate strategies are called for.
At Roland Berger, we dare to plan for the unexpected, partnering with clients to develop a novel mindset, phasing out the old world, while setting up new assets and business models. Our project experience has taught us how to reshuffle organizations and processes, bringing new business models into reality. Customers are the driving force behind the energy revolution and existing businesses will be transformed or will disappear. We are market leaders in the field of restructuring and corporate performance. In good times and bad, we support our clients to transform their business and concentrate on new activities to offset lost revenues and create growth.
Renewable energy is creating new business opportunities. Be it incumbent utility companies offering new solutions to their clients, or new entrants providing new technologies and services to the market. Renewable energy needs to compete with existing fossil based central solutions. In a highly regulated sector, rules for both the fossil and renewable energy worlds determine the space for new business. At Roland Berger we holistically develop new business models in close cooperation with the client, from the concept, to the business and financial plan. Based on the action plan and roadmap, we then support implementation. Our clients have set up a new business in less than a year. Your customers can now benefit from a new solar PV installation concept, innovative, decentralized energy solutions or supply of its premises based on 100 percent renewable energy. Our expertise spans the entire renewables value chain and technologies. We have also successfully delivered incentive framework reforms to governments and public entities.
- Our expert Klaus Müller
Renewable energy with its zero marginal costs is leading to low margins for traditional power plants and low load hours. Decreasing demand because of energy efficiency and strong competition with price pressure in retail markets is increasing the burden for ailing utility companies. Some companies have to right size their operations to return to viable business.
At Roland Berger we pursue a holistic approach in restructuring cases. We conduct a strategic reorientation and lead an operational and financial restructuring, closely monitoring the operational business to ensure continuity. We identify the healthy core and implement solutions for a continuously sustainable business model. Building on our experience, we can conduct a complete restructuring in 12 to 15 months, reducing the cost base by up to 30 percent.
Trend 2: Market integration and globalization
Globalization is a driving force uniting previously separate energy markets. The advent of shale gas in the US coupled with the permission to export LNG to other markets is leading to a global convergence in energy prices. In Europe, on-going efforts to increase interconnection capacity between countries are bringing the single energy market closer. Plans have even been developed to connect the Chinese electricity grid to Europe, or connect North African CSP to the European continent. For players in energy, globalization means the competitive environment will be determined by global competitors and events.
Energy requires large infrastructure to flow freely between countries. At Roland Berger we support you in setting up, evaluating and managing these large projects. With the advent of new players, existing energy contracts may no longer be attractive. We help you renegotiate these contracts. Likewise, we assist you in improving your operations to be competitive in a changing landscape.
Large projects are often characterized by delays and cost overruns. A typical project can be 55 percent more expensive than projected, equating to billions. Large scale innovation and infrastructure projects bring challenges requiring a specific program management approach.
Roland Berger delivers this with a holistic perspective. We include all aspects of the project - organization, processes, technical, legal, finance, risk management and communication. We typically proceed in three steps. First, we stabilize the organization and establish a core team. Secondly, we restructure the organization and establish a framework for delivery. Finally, we oversee and manage implementation. This approach enables our clients to build projects within the designated time frame. A cost reduction of only 10 percent would capture between EUR 3 and 7.5 trillion in savings over the next 15 years.
Under changing economic conditions, gas prices in long term contracts can deviate from those observed on wholesale markets. Decoupling of oil and gas prices in Europe and the advent of new gas supplies in Asia has led to a rise in disputes over prices.
Roland Berger provides an external analysis of the fair price, delivering arguments for negotiation and even offering support in arbitration tribunals. In our economic analyses, we assess the contract marketability and profitability over time. With more than 15 cases in the last five years, we have obtained a deep understanding of arbitrations, which allows us to properly manage the process and anticipate opponent's arguments. We have won all large litigation cases, claiming back more than EUR 1.5 billion for our clients.
- Our expert Denis Depoux
Fluctuating feedstock prices, more efficient production technologies, and a shift in the gravity of global market demand has shaken the competitive position of refineries worldwide. European refineries face difficulties competing against the US and Middle East. A performance optimization of the refinery would enable it to stay in the market for the long-run. We can set up a performance improvement program in a 12 week period. In the first phase of one to two weeks, we analyze the strengths and weaknesses of the plant and identify areas of performance potential. In the second phase of two to three weeks, we confirm the size of the performance gap, establish the levers to close it and set targets and KPIs. In the third phase of five to eight weeks, the concrete performance projects are defined in close cooperation with the employees. In these projects, our consultants rely on our tools and databases, like the design to cost approach, maintenance benchmarking, personnel efficiency analyses and operational expenditures reduction database. On average, we have saved 20 percent of the OPEX cost base in our projects.
Trend 3: Efficient use of resources
Using resources more efficiently saves costs and reduces environmental damage. This is not limited to reducing CO2 emissions. Countries and industries seek ways to save, treat and re-use water, raw materials and waste. China has set specific goals for the energy intensity of its economy. Other countries have strict policies on resource efficiency. For energy and utility companies, resource efficiency implies lower growth in some regions and decline in others.
Lower volumes of energy put pressure on company margins. The assets of the DSOs and TSOs will be used less, while costs remain the same. We support infrastructure companies in improving their performance. Improvement of the procurement function is an important lever for energy companies to reduce their cost base and better compete in volatile markets.
Declining end-user demand leading to lower volumes puts pressure on distribution and transmission companies. Regulatory pressure exacerbates the need to reduce costs.
With its accelerated zero based budget approach, Roland Berger can realise cost savings of 10-25% within 6-24 months. The continuous improvement approach maintains these and realises additional savings in the long run. In a typical 12-week AZBB project we map the costs, design levers, validate them and put them in action plans – Focusing on all cost types, including FTE sizing and external procurement (OPEX & CAPEX). Continuous Improvement creates a performance culture. In five recent projects we have realised savings between 19 and 40%.
Many energy companies face competitive environments. Asset disposal plans and large performance plans are put in place, while procurement as a lever to improve performance tends to be overlooked.
In our experience, optimization of a client's procurement program can save between 10 and 20 percent of total spends. We can develop a strategy that goes beyond price savings. Applying advanced optimization levers, which are not only cheaper, but also more effective. We also develop a true approach per category. We learn alongside the client, increasing client involvement with each new procurement category wave. We also help design an organization that is fit for the new role of procurement in energy companies.
Trend 4: Regulation and deregulation
Energy has always been a strategic resource for countries. In many regions governments are redesigning their rules and regulations, for example with the introduction of free market systems for energy with the theoretical aim to reduce costs and improve service quality for the end user. Lagging behind the US by about 10 years, the European Commission is striving for a single liberalized European Energy market. Japan, China, Mexico and other countries are on a similar path. Changes in rules and regulations have a drastic impact on the competitive landscape. Incumbents need to change their way of working, meeting competition. Others have the opportunity to enter the energy market in a new region.
Utilizing our global experience, we help you design the right strategies to benefit from the new competitive environment. For example we can assist you in setting up, developing, or framing portfolio management and trading activities and grasp the opportunities from liberalization. For bolder moves, we support you in the full merger and acquisition process, from deal identification to capturing the value creation anticipated in the merger rationale.
Beginning with the simple buying and selling of energy, utility companies offer services and products that become increasingly sophisticated. They have set up fully fledged portfolio management and trading activities in order to be active on organized and over the counter markets, optimizing their physical and financial exposure. Managing risks has become mandatory, bringing about the need for sound frameworks. "Trading" helps utilities maximize the value of their various activities using an integrated approach. Other parts of the utility can benefit too, such as customer pricing, flexible monetization and the integration of renewables in the wholesale market.
Roland Berger understands the complexities of pricing, sourcing, portfolio management, trading, and risk management. We have supported companies to develop unregulated offerings or improve their pricing, set-up or expand their trading activities, assess and redesign risk management frameworks and organizations including the concrete development of risk policies and indicators, and devised models to create synergies with other business activities.
New rules and regulations for the energy industry, liberalization and unbundling will lead to a shift in industry structure. Large M&A deals may take place. When an industry is consolidated, companies extend their business across national borders or enter new areas. The new company must increase its value and realize the merger logic.
At Roland Berger, we support you in this journey. A sound process starts the PMI before the deal closure and typically runs for more than a year. We develop a new business plan for the new company, setting ambitious, but realistic synergy targets. We operate a disciplined project management office, overviewing and steering all integration activities. It is critical to set-up a system enabling full overview/control over integration measures, progress and effects. Our databases on synergy levers help pinpoint opportunities. We also prepare the cultural integration and change management concept. Experience in cross-border mergers is crucial. In the last 10 years, we have supported 20 PMI projects.
- Our expert Arnoud van der Slot
Trend 5: New technologies and digitalization
The digital age is highly relevant for energy companies, as common rules of the game are changing at an incredible speed and to an unbelievable extent. For instance, players from outside the industry are claiming the household consumer for themselves – this is happening in the field of energy as well. An abundance of de-centralized micro power stations and so-called "prosumers" are turning the energy flow upside down. First blockchain applications lead to an autonomous administration of the participants in these pilot projects, leaving the established utility firm out. However, there are new fields of business opportunities for emerging energy firms as well. To capture these, cooperation with start-up firms needs to be built up systematically and aligned with internal fields of innovation. In addition, there is often the need to make the own organization more agile and to initiate and foster cultural change.
As a consequence, energy companies are increasing their expenditures on research and development, designing new business models and starting corporate venturing. By giving insights into new technologies, linking these technologies to business models and analyzing the new competitive landscape, you can devise strategies to prepare for the future.
At Roland Berger, we help you redesign your innovative activities and reshape your business models. We help you capture these opportunities and prepare for the ongoing digitization of the economy. Benefiting from our Terra Numerata platform, we assemble the right partners and the right team for you.
Energy companies typically spend only 0.4 percent of their revenues on innovation, which is a tenth of what the average industrial company spends on research and development. Liberalization and market opening in the late 1990s transformed European Utilities R&D into a cost regulated function. However, new research, development and innovation issues have arisen along the energy and utilities value chain. In the midterm research, development, and innovation are credible levers to restore competitiveness.
New business opportunities and the rise of renewable energy raise questions for energy companies on what activities to conduct and which to outsource. Answering these questions, we support these companies in setting their innovation strategy and developing their innovation portfolio management tools. We support the change of mindset needed in order to be able to participate in an industry of changing surroundings.
The energy and utilities sector is lagging behind in digital transformation. In other industries, old business models are not viable anymore, e.g. in retail, media and travel. With the Terra Numerata initiative, our ambition is to help European champions become digital market leaders rather than followers. Digital transformation increases efficiency, creates new 'digital' business opportunities, and encourages a more customer centric approach.
We have supported companies in drafting their digital agenda and sequential development implementation of detailed business cases to realize the agenda. We have set up a digital unit for a large utility to enable the roll out of internal and external innovative digital services. For a large oil and gas company, we set up a startup factory concept - an approach to evaluate and build successful business models, delivering three new digital businesses in the first year. Digital has delivered our clients revenues exceeding EUR 10 million in the first two years.
- Our expert Raphael Cariglio