Stories

How should Statkraft adapt to a changing world? Searching for the answer to that is what Andreas Alnes does every day.

The emerging markets in the south and east will produce new competitors who will likely challenge European companies, also in their home markets.

As SVP Corporate Strategy in Statkraft, Andreas Alnes closely monitors social and market trends.

"You think changes are happening fast today? In the future they’ll happen even faster," he says.

Alnes see five trends that will particularly affect how Statkraft meets the future: climate change, technological development, new emerging markets, big data, and market regulation.

Five trends

"First, climate change and local pollution are about to turn much of the energy industry upside down," says Alnes. "This is reinforced by the tremendous technological development of renewable technologies such as solar and wind, where costs have come down to levels that challenge traditional power generation. These technologies have low marginal costs, and in some markets there have been such large investments that the conventional power plants no longer set the market price during certain periods."

"At the same time, there is a shift from north and west to south and east in terms of where the new growth markets are emerging," he says. "Competitors will grow in these new emerging markets, and we must expect that they will challenge European companies in their home markets."

"A fourth trend is something called big data," says the head of strategy. "The amount of data generated is growing exponentially, and availability of data is becoming cheaper and easier," explains Alnes. "In the future, these volumes of data will be used in new and smart ways, and this will also affect energy markets."

In addition, market regulation will continue to play an important role.

"Even if countries choose different solutions, the trend seems to be towards more efficient and market-based solutions and stronger focus on customers and consumers.

SVP Strategic Analysis & Development in Statkraft Andreas Alnes.

New competitors

The five trends definitely present challenges, but also provide interesting opportunities.

"In our industry, the protections and entry barriers we had in the past, are gone," Alnes says. "It came about through deregulation, fair competition legislation and increased access to information. It came about through the introduction of simple technologies such as wind and sun, which do not require the same expertise and capital. And it came about through innovative financial models, with new entrants in the market."

This gives Statkraft new competition in a number of areas: from other technologies, from companies in other industries and from small startup companies.

"The competition picture becomes more complex," he says. "There are still very few companies that can develop hydropower, but they don't need to either; they can develop other energy solutions, or deliver services."

What about Statkraft – are we preparing to get involved in technologies we are not currently offering?

"We are already looking at sun and wind power in international markets, in addition to hydropower," says Alnes. "We do this because hydropower is competitively challenged in several countries and because in this way we can achieve a critical mass in the countries in which we operate. Size is important if we are to create value by leveraging our expertise."

He adds that there are some places where there can be synergies. One example is Brazil, where sun and wind power can complement each other, and together strengthen the utilisation of the grid and infrastructure.

Meanwhile, the business area Market Operations & IT has been mandated to explore new business opportunities.

"An example is the venture capital initiative in Germany, where the first investment was made in autumn 2015," he says. "Moreover, the business area has a mandate to look at solar power, also within distributed solutions such as that proposed in the recently signed cooperation agreement with Bharat Light & Power in India."

The changes mean that in any case there is one sure winner, and that is the customer.

Competitive edge

The strategy SVP stresses that several new players also mean more potential collaborative partners. "But if you are going to collaborate with someone, you need to be clear about your strengths, and develop them further," says Alnes.

"Our competitive advantages are the traditional ones: operations and maintenance, power optimisation, market knowledge, and market operations that have proven adaptable to changing conditions. To some extent, this also applies to development. Our wind power projects are delivered on time and cost, but we have struggled more with international hydropower projects."

To meet these challenges, Projects & Construction have established a separate unit in the International Hydropower (IH) area responsible for all hydropower development internationally. An important action to strengthen project implementation is to build expertise within the organisation.

Credible company

What about strict requirements and expectations regarding corporate responsibility? Could these also be a competitive advantage?

"There are probably other factors that give us a competitive advantage, but I think it can give us partners," says Alnes. "Being honest, having good systems and being effective and cooperative are good qualities for anyone looking for a partner."

Being an attractive partner can be crucial for access to capital in the future.

"Statkraft must have capital to develop new, high-quality projects. It must either come from our owner or with the help of co-owners of projects. In this case, it requires a clear partnership strategy where we agree on who should have the industrial role."

Weather expertise

Statkraft's background in flexible hydropower – with a unique opportunity to store water until the most profitable time for power generation – means that the company is way ahead in terms of expertise in areas such as precipitation, wind, temperature, snow conditions and thus the effects of climatic changes.

"This expertise will also be important to exploit in other areas," says Alnes. "Dams that can fulfil other objectives in addition to power generation will also be important. This is especially true in countries where dams for flood prevention, drinking water supply, agricultural irrigation and similar purposes are difficult to finance in any other way."

New products

Based on long and close relationships with major industrial customers, and in recent times on the many new customer relationships Market Operations & IT have established with a wide variety of entities, Alnes believes that Statkraft is able to build products that customers need – products that create value, and that not everyone else can deliver as well or as economically.

"The goal is to use our market operations to develop business opportunities in the markets that are now emerging," says Alnes. "The changes mean that in any case there is one sure winner, and that is the customer."

And the more complex the customer’s needs, the bigger the opportunities he sees for Statkraft.

"We are good at power optimisation and market operations, so we should have the potential to provide advanced power supplies to large customers across geographies, where we take into account what kind of energy source they want, what type of security they require, what they will produce themselves and what they will buy from the grid," says Alnes.

"I think we need to develop products and packages that are so complex that we need to have other companies on board to deliver them."

Consolidation or continued growth?

 The way you see it, do we have a growth strategy or a consolidation strategy in Statkraft today?

"To ensure continued autonomy for Statkraft, we must have a robust financial position, and the activity level must be adapted to the company's financial capability," says Alnes. "In my view, we are entering a rationalisation and industrialisation phase where it will be important to have cost effectiveness, improved quality and good cooperation on expertise utilisation throughout the company in order to create more value in Statkraft. So, after a phase of significant growth and establishing international positions, we are now in what might be called a consolidation phase."

"Within distributed energy and new technology solutions we will face competition from companies that do not look like us," he says. "It is therefore also important to simplify and adapt our processes and procedures to the new activities. The challenge will be to develop systems and structures that fit the new competition without us compromising quality requirements."

Text: Lars Magnus Günther
Photo: Morten Brun
The article has also been published in Statkraft's magazine People & Power no. 1/2016