by John Ryan, TRANSEARCH International
When we step back and review companies in the power sector, at first it’s difficult to come up with a concrete list of success strategies that broadly apply to all players. After all, what do investor-owned utilities, independent power companies, and capital providers (funds, banks) in this sector truly have in common other than their focus on energy.
Let’s say 1978 was the baseline year for growth in this sector. In that year the Public Utility Regulatory Act (PURPA) passed and, as a result, companies other than utilities could now own and operate power plants. In those early years, firms like AES Corporation were established (1981) as well as Calpine (1984).
Over the last 38 years, we’ve experienced various trends in the power sector, some of which include the global expansion of many organizations, the restructuring that ensued after the collapse of Enron, the rise of renewable energy, and now most recently, the development of gas-fired power plants.
We have noticed that companies that have experienced long periods of success share many common qualities. Some readers might disagree, or ascribe a firm’s success as mere luck. Here are the five enduring qualities of successful companies in the power sector:
1. Evolve or die
If you had told participants at the 1992 Platts Global Power Markets Conference in New Orleans that in five years they would be developing power plants in Colombia and China, they would have laughed. And if you told this group in 2000 that Enron would declare bankruptcy in 12 months or that most of them would be working on wind deals in some form or fashion by 2007, they would probably call security. And if you told the same crowd in 2009 that many of them would be involved in gas-fired projects in 2015, they would all run out of the room. The only constant for the last 35 years has been change.
2. Renewables are now “a fact of life”
David Crane, longtime CEO of NRG, said this several years ago. Let’s face it, whether or not you believe in global warming, most people think it’s important to reduce air pollution. On the wrong side of this issue were companies that stubbornly tried to keep championing coal-based power generation. Currently, coal production is down to 1986 levels and that industry is struggling. Renewables are here to stay.
3. Buy, sell, repeat
The power sector goes through cycles as much as other industries, like real estate. A new trend emerges, capital flows in, and new companies are established on a weekly basis. But eventually markets become frothy and highly competitive. This can trigger leadership teams to take advantage of valuations and sell off assets at peak value.
4. “I have a bad feeling about this.”
Han Solo and others have uttered this prophetic statement. How does it apply to the power sector? It applies with respect to decision making. Aggressively expanding worldwide in multiple verticals while acquiring other companies has caused some to question SunEdison’s strategy. It’s fair to say that most solar industry veterans regard First Solar as a business that has had it made. In contrast, other companies like Duke and Florida Power & Light have made steady, successful decisions.
5. There is no “I” in team but there is in win
No one is suggesting that Michael Jordan (above quote is attributed to him) become CEO of a power company, but in our own way we’ve had visionary leaders over the last 35 years. They include Pete Cartwright (Calpine), Dennis Bakke and Roger Sant (both at AES) and countless others. AES’ revenues in recent years have been over $17 billion and has operations in over 29 countries and over 30,000 employees.
John Ryan is managing director and the U.S. regional vice president for TRANSEARCH International.
He currently serves as the Global Practice Leader for Power, Renewable Energy and Cleantech with TRANSEARCH.