ENGIE CEO Says The Coming Energy Revolution Is About Customer-Centric Strategies – Not New Infrastructure
March 13, 2018
The U.S. power sector could learn a few lessons from Uber.
That was one of the key takeaways from remarks by Sayun Sukduang, president and chief executive officer of ENGIE Resources, at the Manufacturers Education Council conference in Columbus, Ohio, last month.
In a far-reaching speech that focused on the changing energy landscape – what ENGIE calls the Energy Revolution – Sukduang broke from conventional industry wisdom that the best approach to grid reliability and supply security was to build more plants, lines, and wires.
Instead, he pointed to the ride-sharing company to make his case that the future of energy generation and distribution was not in new infrastructure, but in optimizing the current infrastructure to the benefit of customers.
“For very little capital investment,” he said, “Uber took stranded vehicle capacity, took a workforce that needed employment, and paired that with society’s need for transportation.” It did not build new cars, he added, nor did it create an extensive new employment network.
Rather, the company “created an entirely new business model” that was built around what previously existed – cars and drivers – and leveraged it to better serve customer demand.
The electric industry would be wise to take note.
Historically, Sukduang explained, in the few cases where electricity supply and demand became tight and prices spiked – maybe for 15 minutes, four times a year – companies typically “raised their hands and said, You need me to build you a power plant, to install a pipeline, to put in a new transmission line.”
“They automatically engage in an infrastructure solution,” he continued. “But do we really need that?”
From Sukduang’s perspective, the answer is an emphatic No. It’s a position rooted in economic reality.
He pointed out that 25 or 30 years ago, when the country’s Gross Domestic Product growth was four percent, the growth in energy intensity was six percent. In other words, as the economy steamed forward, demand followed.
But today the picture is different. Three percent growth results in a fraction of a percent of energy intensity growth, clearly indicating there is not much customer appetite for expensive new construction.
“Society has told us very clearly that the energy infrastructure in particular is not something they want or need,” he said. “So we have to ask ourselves, if society needs less of what you do, because society is growing at 3 percent GDP, and the fundamental core of your business is going to grow at a fraction of that, how sustainable of an investor value business model do you really have.”
Sukduang, who previously managed an energy company that concentrated on operating infrastructure, went on to note that a new standard-unit, combined-cycle 1,000 MW power plant costs between $800 million and $1 billion to build; it serves about 600,000 households.
“That’s $800 million to $1 billion for that 15 minutes, four times a year” of peak demand he previously referenced. “And we, society, pay for it. So how can we solve that problem differently?”
He believes the solution is in customer-centric, not infrastructure-centric, approaches that put what is presently available to better, more efficient use. Smart thermostats are an ideal example.
The devices are on the shelves now, and they cost about $200 each. So, he argued, if companies took those 600,000 homes that a new plant would serve, put a smart meter in each, and then “engaged them (customers) on one half of one degree of temperature flexibility” – that is, allow for the slight adjustment of climate control during hours of peak usage, when electricity is most expensive and the grid is most stressed – the cost would be $120 million.
That is a far cry from the price of a new plant. It doesn’t require companies to develop additional infrastructure. It reduces the demand for more capacity. And it still delivers the same outcomes that customers and society want from the traditional system:
Lower costs, because customers can manage their own usage and would not have to bear the cost of new construction; reliable supply, because pressure on the grid would be lifted, minimizing the potential for outages; and a reduced carbon footprint, since less power would have to be generated by fewer plants. It achieves all that by optimizing what already exists – in this case, smart technology and the regional power grids.
The move away from infrastructure and toward customer-oriented solutions has become a centerpiece of ENGIE’s business strategy. “That, to us, is where we have to go,” he said. “We have to go with customers.”
With all of this, ENGIE is operationalizing a company-wide focus on the “3 D’s” that Sukduang said will define the future of the power sector:
- Decentralization, in which electricity is generated at the fringe of the grid from battery-stored energy – closer to or at the homes and businesses where it is actually consumed – rather than at a single facility;
- Digitization, the conversion of customer data into digital form in order to allow companies to easily access and share it in real time, allowing for development of products and services that meet specific customer usage patterns; and
- Decarbonization, a conscious effort to partner with customers to minimize the environmental impact associated with power generation.
In the end, Sukduang said the industry must redefine its value proposition in a way that extends beyond the cost of electricity alone. It must ensure that customers have the tools, technologies, and resources to get the power they need, when they need it, without interruption, with the least possible environmental impact – and at a lower cost.
The key to lower customer costs, he reiterated, is to follow the Uber model:
“You take out the need to invest in incremental infrastructure. You optimize the usage of the infrastructure that’s already deployed. That’s what we feel is value engineering, and our strategy is hyper-focused on it.”
To view Sayun Sukduang’s full speech, click here.