The Energy Efficiency Opportunity

The Energy Efficiency Opportunity

          
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The Energy Efficiency Opportunity

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    …With Consolidation on the Horizon

    Traditionally, success in the EE industry has required only a few core capabilities: ready access to customers through a proactive sales organization, the ability to provide cheap financing, and qualified engineers able to plan and execute projects. As EE markets mature and more new competitors emerge, the requirements for success will change.

    New Requirements for Success. As the number of quality providers increases and business models converge, cost competitiveness will become a more critical differentiator. (See Exhibit 4.) Convenience and ease of use, enabled by advances in technology and the growing prevalence of “smart” applications, will also become more important. As the number of external providers of financing for EE projects increases, however, access to cheap financing will not make as great a difference as it does today. Talent scarcity will remain a hurdle, although the challenge will gradually ease as the number of qualified project engineers grows in concert with the industry’s overall professionalization.

    exhibit

    Because of these changes, industry players will need to find new sources of advantage. To optimize costs, they will have to generate and leverage scale. They will also need to embrace “mass customization” approaches, standardizing service delivery across projects, segments, and locations. Further, they will need to evolve from their current focus on equipment contracting to competing end to end. This will entail skillfully integrating different technologies into a single, cohesive offer and providing comprehensive energy-management solutions.

    Business models enabled by big data will offer companies additional opportunities to achieve competitive advantage. Through value discovery algorithms, for example, companies could use actual consumption patterns to optimize customer selection and identify opportunities based on benchmarking against peers. Advanced applications could enable “smart operation” models that are based on remote monitoring, management, and maintenance of customer equipment.

    In the medium term, this evolution in what it takes to win will drive most players to broaden and integrate their offerings. Traditional ESCOs will increasingly compete with utilities and facility managers to become customers’ single go-to provider. To do so successfully, they will extend their offerings to include full energy and facility management services. They will also increasingly act as demand aggregators to optimize their customers’ energy-procurement costs.

    More utilities, in turn, will compete end to end with ESCOs’ traditional businesses. They will invest heavily in their technological and project execution capabilities or will try to find a partner that helps them serve customers in this space more comprehensively. OEMs will be forced to broaden their portfolios and extend their scope toward energy management and supply as well. Otherwise, they will risk losing market share.

    Industry Consolidation. Propelled by these dynamics, the EE industry will consolidate in the long run, with a range of effects. The expanded availability of full-service offerings will diminish some of the traditional advantages of business model differentiation. Scale effects will give larger players an inherent cost advantage in competing end to end. EE will become a volume industry.

    As a consequence, the industry will likely experience a wave of increasing M&A activity and forced market exits. This will result in the emergence of a few large, supraregional full-service companies that integrate EE, self-generation, management services, and potentially the aggregation of decentrally generated power.

    Other, smaller companies will need to carve out viable niches for themselves. Regional champions that combine a convincing service package with strong local customer access and dense market penetration will stake their claims. Highly focused specialists with clearly tailored offerings will be able to penetrate individual segments.

    See, for example, “The Age of Digital Ecosystems: Thriving in a World of Big Data” (BCG article, July 2013) and “Big Data’s Five Routes to Value: Opportunity Unlocked” (BCG article, September 2013).