The energy industry has been turned on its head by the impacts of the recession, global energy competition, and new regulations to reduce greenhouse gas emissions, expand renewable energy, and make the power grid smarter.
The insatiable energy demand from emerging economies is driving technology change making the oil patch more digital and accessible through horizontal drilling and hydraulic fracturing. Disruptive innovation technology dominates the transformation of the energy industry.
Even the tragedy of the BP oil spill in the Gulf of Mexico turned into a catalyst for change as drilling activity in the Gulf was hurt by the moratorium so oil rigs went elsewhere and savvy E&P professionals looked for ways to stay in business while the mess got cleaned up in the Gulf. Onshore drilling in shales by scores of small, scrappy firms grew tremendously helping pick up the slack.
This energy transformation has profoundly affected North American domestic energy production from onshore E&P activity in the shale and oil sands rapidly turning both the US and Canada into energy exporting nations, reducing our dependence upon imported oil and driving down the price of natural gas by decoupling oil and natural gas prices.
North Dakota passed California as the third largest oil producing state and is closing in on Alaska’s second place. Energy infrastructure designed to move product from the Gulf of Mexico north across North America is being rationalized as pipelines reverse flows to bring oil from shales and oil sands to the Gulf coast refineries and storage for export.
Global energy competition has also produced global rivalries for market share growth. China caught the wave of regulatory demands and incentives by commoditizing production of solar photovoltaic panels and wind turbines to capture global market share. Prices are falling worldwide to the cheers of environmental advocates and customers and the agonizing cries of competing domestic producers bankrupted by low-bid Chinese prices.
GTM Research released its latest study of global solar photovoltaic supply and demand entitled PV Technology, Production and Cost Outlook: 2012-2016 which estimates that there is twice as much global PV supply (59 gigawatts) than demand (30 gigawatts). This is the reason solar PV prices have fallen hard and fast and are likely to continue to do so until the market clears and stabilizes. The GTM analysis says more than 60 gigawatts of wafer, cell and module manufacturing capacity must be shut down by 2015 to rebalance PV supply and demand.
This global imbalance is driven by feed-in-tariffs and other subsidies, renewable portfolio standard procurement regulations and government loan guarantees in the EU and US that stimulated demand, but provoked an unsustainable supply response at a huge cost to taxpayers and ratepayers.
Energy Market Consulting and Analytics is also being Rationalized.
The traditional boom and bust cycle of the energy industry was amplified by the power of the global recession and slow economic recovery. The energy industry is driven by fundamentals across markets. After a nearly ten year build-up and boom stage that ended with the recession in 2008, the fortunes of energy market consultants and analytics services also have radically changed. Many traditional energy market consultants and software vendors were hurt as the market fell. Consolidation saw many of the market leading players bought up.
- ABB bought Ventyx and turned it into its software integration shop.
- SAIC bought RWBeck for its critical infrastructure protection division.
- Siemens acquired Pace Global.
- Deloitte acquired Altos Management’s MarketBuilder software.
- PA Consulting and Navigant shifted scaled back their energy practices.
- WoodMac private equity parent, Charter House, put it on the auction block after buying it in 2008 in a fire sale price now hopes to cash in a flip.
One by one the dominoes have fallen as the traditional energy market consulting leaders during the last boom have morphed hoping to survive the bust. As a result, in 2012 there is a vacuum in the energy market analytics consulting leadership. Smaller regional consultants picked up some of the slack but these players lack the scale to cover the whole global energy competition story. Energy analytics model vendors cut software R&D and many traditional models are aging, data quality is slipping, and the skills needed to run them are harder to find. The door is open for new modeling technologies and fresh ideas as the energy market moves from bust into recovery then build-up on its way to the next boom.
Disruptive Innovation is a good thing except when it happens to you
Tech and Creative Labs (TCLABZ) was born out of the disruptive innovation realization that insight about this energy market volatility could be extracted from the online dynamic interaction of people trying to figure out what is going on, what might happen next, and what if I do “X” instead of “Y”?
We believe disruptive innovation technologies help us see new opportunities among the volatility and risk in the world around us. Spain, Germany, and the US among others have learned the hard way that they cannot adopt feed-in-tariffs, subsidies, RPS standards or industrial policies of picking winners and losers in isolation anymore without also considering the disruptive innovation effect of global energy competition.
Energy fundamental analysis are still important, but disruptive innovation techniques like temporal and semantic text analysis, online collaboration and community-building to extract the wisdom of the crowd provide a fast, efficient, consistent basis for evaluating energy fundamentals, assessing opportunities and risks across alternative views of the global business future that are actionable.
Scenario analysis is a powerful qualitative partner to the quantitative rigor of predictive energy analysis of supply and demand. The energy industry is in the midst of transformational change where technology is turning analytics into an interactive ‘contact’ sport leveraging data with algorithms to quantitatively filter, synthesize and see patterns and trends that provide insight to modify our behavior and target our choices for better results.
By helping us play better defense in our volatile world, disruptive innovation technology can deliver performance in the near term when we need it most. But extracting the strategic benefits of change long term depends upon our ability to use these same technologies to play offense to project our business into adjacent markets at the right time, with the right product features and functionality to adapt to changing needs ahead of the competition.
Disruptive innovation technology is closing the gap between strategy and executive. It is leveraging fundamental analysis of energy supply and demand to forecast prices but then using the results of that analysis with advanced analytics tools to enable artificial market simulation across scenarios to project the analysis forward and drill it down into the details of operations and execution with the full benefits of It/OT convergence.
Energy market transformation is happening now
The biggest challenge for energy analytics software product strategy is not building it but conceptualizing what to build. The energy challenges facing China are vastly different than those in California or Missouri and so are the economics, market rules, and customer expectations. One size rarely fits all, but best practice, advanced technology application, and the expertise and tools to deploy them is what brings customers. Retaining those customers and expanding wallet share of their services spend only happens when the solutions deliver high quality results, consistently, and competitively.
Large organizations are often a confederation of silos loosely organized around a common strategy. After a while the culture of the organization drives it more than its strategic imperatives. Internal competition among business units is as fierce as with competitors.
Collaboration technology is leveling the playing field enabling smaller firms transform themselves from ‘go it alone’ silos into horizontal collaborators working together with other smart, fast, nimble firms using the same data, same tools, and access to the same expertise. Ecosystems grow from the interaction of community of users finding partners to fill gaps in their solution and those who find a sweet spot in the market and quickly assemble a team to produce the revenue and EBITDA to drive the strategy forward. Change is often swift and disruptive in today’s global competitive markets.
The growth challenge for the energy vertical is to collaborate blending good technologies, information products, core competencies, and expertise into integrated end to end adaptive, agile solutions that work in the “sweet spots” of the energy industry across more than one alternative business future.
Speed can be a competitive advantage in a competitive global energy market where rapid response to market changes is essential. When it can take up to a year to spec and procure an enterprise software solution and then another year or two to configure, install and debug it at a cost of services consulting equal to two to five times the software license fee—-the business model is broken. The pace of change in the energy industry demands new solutions, faster response to changing business needs, and a better value or ROI.
The challenge is turning business strategy into action across global markets not by just licensing tools but by creating a continuously improving community of users that harness data, applications and expertise to deliver standardized best practice solutions to serve business needs around the world. Using those standard best practice products relentlessly thousands of times each year will perfect them and make them better. Packaging and offering those solutions and value-added services across a growing community ecosystem for consulting, operations and technology partners and customers completes the circle to scalable growth from recurring revenue sources.
The Search for New Energy Market Consultant Leadership is On!
The door is open for new energy market analytics leadership as the market leaders from the last boom get bought up or scaled down. The fall will be swift as these former market leaders cut back on R&D and run out the clock harvesting their license fee revenue while not investing in improvements to features and functionality that make their software better, easier to use or adaptable to the new market realities.
The question is what will replace these aging giants. The answer is likely to be consultants who can bridge the gap between the last generation of models and tools and the next generation of predictive energy analytics tools that blend the fundamental analytics focus on the long term ‘least cost, best fit’ analysis with the short-term performance analytics and optimization focus on reducing costs, improving ROI and assuring compliance faster, better, cheaper than before. Disruptive innovation tools are producing the benefits of IT/OT convergence and they are using the web-driven powers of collaboration, pattern and trend analysis to extract insight from the dynamic interactive wisdom of the crowd. Big data will not longer be a big problem as easier to use solutions run circles around the lumbering, bloated enterprise software giants with faster, better, cheaper solutions.
The good news is out energy future is looking brighter. More choices, better technology, lower costs except for the regulatory driven industrial policy now waging a fierce battle on the global energy competition stage. But even the most entrenched and political correct energy regulatory policies are being rationalized by the ruthlessly efficient forces of global energy competition as the market clears the way for the next boom.