RETAIL STRATEGIES: A SPECIAL DNV GL WORKSHOP May 19, 2017 1
Retail Landscape: Capturing the MOOSE What is the current landscape and how it is evolving? What policies and regulations should we be aware and how might they change in the short-term? Who are the key players and drivers affecting change in the market? What products and services are demonstrating value in the market? What gaps exist that can be exploited? What new services can we expect to see emerge? Are retailers looking to build, partner or buy? How is value being coordinated, aligned, and delivered? Is there a pragmatic approach prioritizing values? Are key organizational players aligned? Do current business models need to be refined? What are the necessary strategies to navigate markets and position greater value? Does business trajectory align with strategic business goals and values? What barriers exist preventing strategy migration? How do we integrate strategy goals into financial plans? What are the pricing, investment, and risk dynamics and how do they yield ROI? 2
Competing in Convergence Key Considerations Capabilities What are the operational and cultural shifts necessary to meet changing market demands. Will you build, buy, make, or partner to build capabilities (and why)? Scalability How must your business model evolve to increase scalability? What new targets, products, and services must be developed? Funding What new financing strategies are necessary? How is the Convergence creating new opportunities and challenges that require your company to revisit its strategic investments? Customer Adoption What are the key drivers and scenarios impacting customers adoption? How are Convergence trends driving customers adoption? Demand Generation What are the current drivers of demand generation and how are they changing based on new market dynamics? What new opportunities for demand generation can be explored in this converging landscape? 3
Retail Electricity MARKETS 4
TWh $ Billions Retail Electricity Commodity Landscape: Current Players & Metrics The U.S. retail electricity commodity landscape is incredibly crowded, with over 2,000 active companies, representing nearly $390 Billion in revenue (~162 Million retail customers) and nearly 4,300 TWh as of 2015. 3,000 250,000 2,500 200,000 2,000 150,000 Revenue 1,500 1,000 100,000 MWh 500 50,000 Source: EIA-861, 2015 0 Investor-Owned Utilities Retail Energy Provider Municipal Cooperative Federal/State Authority Solar DG (residential only) 0 5
U.S. Retail Energy Markets Context 20% 31% all U.S. TWh are competitively served of the 63.5 million electricity accounts eligible to switch to a 3 rd party for commodity have switched >1,270 >2,500 active electricity supplier licenses active electricity channel partner licenses 52 % of all active channel partners licenses in the U.S. are in only 4 states (IL, OH, PA & TX) Source: DNV GL REM 6
Current Market Developments Nevada - First stage of ballot initiative to allow retail choice passed in 2016. Initiative must past again in 2018 to become law. Washington - Special retail wheeling contract with PSE allows Microsoft to obtain alternative supplies from wholesale market. Missouri Bill Introduced in January 2017 to allow large commercial and industrial customers to contract for renewable energy. Status: introduced to House. Oregon- Bill introduced in March 2017 to allow retail electric customer choice if generated by renewable resources. Status: introduced and public hearing held. Minnesota Bill introduced to allow large electrical customers to choose supplier where wheeling is required. Status: introduced to House. Kansas- Bill introduced in February 2017 requiring state to implement retail electric choice. Status: introduced and referred to State Committee on Utilities. Nebraska - Bill introduced in January 2017 to allow competitive choice for all customers. Status: indefinitely postponed. California - Hearing on May 19, 2017 to discuss potential electricity market deregulation. 7
What We Are Seeing: Solution Evolution & Share-of-Choice We are here Robust Data M&A Partnerships Investments New models, applications Data integration & automation Ultimate customer value 8
Retailer OFFERINGS 9
Q&A: Product & Services Offerings What products and services are you looking to either bundle, acquire, or build to implement your company's strategic vision? Data Analytics, Platforms Generation Procurement Forecasting, Pricing Hedging, Risk Management Financing, Credit Centralized Renewables Distributed Generation Energy Storage Electric Vehicles Combined Heat & Power / Cogeneration Demand Response Energy Efficiency, Conservation Home Automation Systems Smart Appliances Building Energy Management Systems Communications Systems (Wired and Wireless) 10
Products & Service Offerings What products and services are you looking to either bundle, acquire, or build to implement your company's strategic vision? Source: DNV GL REM 11
New Offerings But how? 2015 2016 2017 2% 7% 5% 3% 11% 14% 23% 23% 16% 43% 18% 63% 3% 23% 23% 23% Source: DNV GL REM 12
Convergence Through Partnerships "At what point do you get past denial (of disruption) and make an agreement with a capable partner to give up load or a revenue stream in order to get something else? -Todd Michaels, CEO Correlate 13
Q&A: Make, Build, Buy, Partner In the next 12-24 months, what represents your highest priorities to deliver customer value? Make (new creation) Build (add on to existing) Buy (acquire) Partner (joint or other ventures) 14
Products & Services Offerings Build, Partner, Make or Buy? In the next 12-24 months, what represents your highest priorities to deliver customer value? Source: DNV GL REM 15
Q&A: Offerings How do you track the success of noncommodity products & services? 16
Retailer Offerings Tracking Success How do you track non-commodity success? Source: DNV GL REM DNV GL 2015 17 14 May 2017
Retailer ORGANIZATION 18
Q&A: Business Model Evaluation Which of the following is the most important factor you consider as you evaluate whether to maintain, modify, or change your current business strategies? Customer Satisfaction Industry, Market Trends Customer Data Technology Costs/Benefits Financial Performance Growth Metrics Product/Services Diversity Competitor Dynamics Regulatory Risk, Opportunities 19
Organization: Business Model Evaluation Which of the following is the most important factor you consider as you evaluate whether to maintain, modify, or change your current business strategies? Customer Satisfaction 75% 13% 6% 6% Financial Performance 50% 44% 6% Growth Metrics 38% 38% 13% 13% Customer Data 25% 44% 25% 6% Regulatory Risk, Opportunities 25% 38% 31% 6% Technology Costs/Benefits 25% 25% 50% Industry, Market Trends 19% 38% 31% 13% Product/Services Diversity 13% 19% 63% 6% Competitor Dynamics 38% 44% 19% Other (specify) 6% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Source: DNV GL REM 5 (Highest Priority) 4 3 2 1 (Not a Priority) 20
Organization: Meeting Market Demands What operational changes is your company considering to meet changing market demands? 68.75% 68.75% 43.75% 56.25% 31.25% 31.25% 56.25% 43.75% New talent acquisition Simplifying the business model A more comprehensive the business model Leading a product or sector solution New Skills and Capabilities Needed Make the retail value proposition more SIMPLE Innovative thinking to anticipate customer buying behaviors Data & customer analytics Innovation partnering with technology and service enterprises Product management from outside the industry Do the basic stuff better Yes No Source: DNV GL REM 21
Retailer STRATEGY 22
Q&A: Business Models As you consider the migration of your next business model, which of the following models is your company considering? Expansion into new markets, industries Digitalization of products/services Outcome-based models Platform business Competing as an ecosystem Shared-economy business model 23
Retailer Strategy: Your Next Business Model As you are considering the migration of your next business model, which of the following models is your company considering (and when?) Expansion into new industries, markets 91% 9% Digitalization of products, services 70% 30% Outcomes-based models 67% 17% 17% Platform business 63% 13% 25% Competing as an ecosystem 50% 33% 17% Shared economy business models 33% 50% 17% 1-2 Years 2-4 Years 5 or More Years Source: DNV GL REM 24
Customer Value Gaps in Old (Current) Energy Business Models Common threads: customers do not want technologies; they want outcomes and often don t trust vendor blitzes 60% Commercial, Industrial Customers of C&I customers surveyed report dissatisfaction with the information that they have to make choices about energy prices, products & services Residential Customers What Word Best Characterizes Your Customers Experience in Evolving Energy Markets? Largest Energy Billing, Management Gaps (% C&I responses) Source: DNV GL REM, April 2016 Source: DNV GL. 2016 Market Pulse Survey, April 2016. Respondents include regulators, wholesale operators, generators, utilities, competitive retail suppliers, DER providers, manufacturers, developers DNV GL 2015 25 14 May 2017
Retail Strategy - Sales As more products and services are offered, an organized and efficient sales approach is essential to boost sales and ROI. And your sales team wants it. Current sales strategies are largely disjoined and inefficient. DNV GL REM found that only 24% of REPs have integrated products and services offerings. Channel Partners cite Customer Education & Engagement and Operational Efficiencies as the top 2 issues with the largest impact on evolving sales strategies. Source: DNV GL REM s Energy Blueprint: Sales Strategies, September 2016 26
Retailer Strategies - Hypergrowth Hypergrowth Strategies in Adjacent Industries (Surveyed retailers rank 1-5, where 5 is Strongly Considering) The following received at least one 5 rank: Air & Water Quality Entertainment Healthcare Home / Building Security Insurance Real Estate Telecom Warranties 27
Retailer ECONOMICS 28
Retailer Economics - Pricing Trends April 2016 April 2017 29
Retail Economics It s not just the kwh 30
Retailer Economics: Investment Focus Intangible assets enhancing the internal business ecosystem and linking external value to internal capabilities are the highest priority areas of investment for retailers. Despite nearly 70% of retailers reported considering a more comprehensive business model, only 44% prioritize investing in that model. Which areas are an investment focus for your company? 13% 6% 19% 6% 19% 13% 19% 6% 13% 25% 6% 19% 31% 25% 31% 25% 38% 31% 31% 19% 19% 13% 25% 13% 19% 31% 31% 31% 31% 25% 25% 19% 13% 13% 6% Enhancing internal business ecosystem Linking external value to internal capabilities Gaining external competitive advantage Simplifying the business model Leading a product or sector solution Developing a customer outcomefocused solution Developing a more comprehensive business model Other (specify) Source: DNV GL REM 5 (Highest Priority) 4 3 2 1 (Not a Priority) 31
Retailer Economics: Investment Focus & New Solutions If you received a capital injection today, what would you use it for? Source: 2016 Forum Audience Live Poll - % Audience Responses 32
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