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Three transformative energy trends – decarbonization, decentralization and digitization – are creating significant growth opportunities for energy companies in the B2B energy solutions business. These solutions help businesses achieve several benefits: reduced energy bills, improved carbon footprints and higher energy independency and flexibility.
Energy solutions offer the opportunity to build a faster growing customer business and diversify revenue streams away from traditional energy retail which is increasingly under pressure from limited growth prospects and stagnating margins. At the same time, energy companies are in a prime position to succeed in the energy solutions market given their strong customer base, established brand and deep know-how of demand trends.
Most energy companies are already active in many of the market’s key segments and plan to increase their presence even further, both organically and through M&A. Our research highlights that the number of acquisitions by energy companies in this market more than doubled between 2016 and 2019. And these acquisitive players are on the right track: We believe that M&A is the quickest and most suitable way to enter this nascent market, as long as integration is handled carefully, balancing freedom to operate with the desire to realize synergies.
Based on our project experience, expert interviews, and specific research, we conclude that three factors are critical when building up or integrating an energy solutions business within an energy company:
If done properly, the B2B energy solutions market represents an attractive growth opportunity for energy companies. But energy companies will need to prepare themselves to participate in the right segments, with the right capabilities.
Challenges
Energy companies typically struggle with several types of capabilities required for success in the B2B energy solutions market. The most common are: go-to-market capabilities (including brand management, channel and platform operation, and deep customer understanding), product design capabilities (such as the solution bundling offer, product and service creation and value based-pricing), technical capabilities (such as analytics or new engineering solutions like waste heat recovery), and experience in partnering and innovative financing.
Dos
- Assess the required capabilities and existing capability gaps systematically and honestly; and develop a clear roadmap to close these gaps
- Share insights about existing customers and give the new business access to those customers
Don'ts
- Don’t superimpose on the new business established processes from the mother company that are not suitable for the solutions environment (a classic example is unwieldy corporate procurement processes geared towards large investments or traditional hiring processes)
- Don’t focus only on internal transfers and hiring to build-up capabilities; also consider M&A and joint ventures with companies that bring additional capabilities at larger scale
Challenges
In both, organic and acquisition-driven build-up scenarios, energy companies need to consider the differing cultural DNA of players. In the energy solutions market, the risk of a culture clash is arguably higher due to significant cultural differences. On the one hand, the traditional energy business operates within the context of a relatively stable demand base, an often-regulated business environment and is part of the critical infrastructure that comes with high standards of compliance, regulation, and safety. On the other hand, the energy solutions business faces more fluctuating and project-based revenue streams based on intense customer intimacy. As a result, these businesses tend to have a more agile, risk-taking, and entrepreneurial culture.
In an M&A scenario, the risk of cultural clash should be screened beforehand and addressed already during the investment and due diligence process. In an organic scenario, it will be necessary to create sufficient space for an emergence or development of a suitable project and solutions culture.
Dos
- Maintain and promote an entrepreneurial and agile working environment and encourage (sensible) risk-taking: “try fast, fail fast”
- Carefully balance the integration of the new solutions business into the existing business while maintaining its freedom to operate
Don'ts
- Don’t ignore cultural issues and differences − these need to be put on the table during target selection and addressed systematically
- Don’t impose the entirety of operating procedures and the current ‘way of working’ on the solutions business (for example, stringent reporting requirements or unnecessarily elevated IT/technical standards are not suitable for these types of business)
Challenges
Successful energy solutions businesses will need buy-in from the very top of the company, both in terms of resources and visible leadership support. Furthermore, these businesses will likely be more volatile than traditional energy businesses and therefore need a longer-term horizon to endure fluctuations.
Dos
- Show visible leadership commitment − show your intention and your support via internal communication channels and stay in regular contact with the team to support removing roadblocks
- Be prepared to invest a disproportionate amount of time and resources in the beginning to get it going − “make a few bets”
Don'ts
- Don’t expect positive cash contribution from day one − as for most new business endeavors, this is a long-term game to establish brand, credibility and necessary capabilities
- Don’t let it run by itself, without constant protection, support and guidance from top leadership − your new business will require it to prosper
Contact us
Adrian Del Maestro
Head of Global Thought Leadership in Energy, Strategy& UK
Tel: +44 (0)7900 163558
