Energy & Utilities

Developing a Power-Generation Strategy for a Major Energy Utility Company

Challenges

Strongly negative net present value (NPV) of the power-generation portfolio (own power plants and industrial investments/contracts) over the next ten years—even when taking already defined but not realized cost-cutting measures into consideration

 

Urgent need for action to improve the NPV of the existing portfolio by operational and structural measures

 

Limited opportunities for growth:

  • Highly competitive environment for gas-fired and steam power plants that cogenerate heat and power; attractivity of other technologies very restricted
  • Opportunist asset acquisitions possible, but require superior skills due to the high price level

Additional risks due to the uncertain future development of coal prices and CO₂ emission taxes

Problem-Solving Approach

Building a quantitative model in order to simulate the future development of the power-generation market by drawing on the System Dynamics methodology

 

Examining the current cost and revenue structure and defining additional cost-improvement/value-enhancement measures

 

Conducting a market and competitor analysis and a high-level benchmarking

 

Computing a business case in order to determine the target costs for the existing power plant portfolio and for the contracted capacities

 

Identifying sources of competitive advantages and deriving strategic options by applying game theory

 

Supporting the communication of the results (e.g. with power plant managers)

Results

Power-generation portfolio optimized along the following key levers:

  • Operating & maintenance (O&M) costs of the (partially) owned power plants reduced to best-practice level
  • Unprofitable block-unit power stations/sites sold or shut down
  • Contracted capacities further consolidated and successfully renegotiated
  • Own market power moderately exerted in bidding situations
  • Purchase price for lignite reduced as a result of renegotiations

Selective international expansion by new gas-fired and steam power plants with power-heat coupling initiated

 

Forward-looking vision and concept for the role as an asset-backed world-class electricity trader in a market maker position