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ECLP Case Competition 11-01-2013
Leveraging Big Data to Optimize
Power Generation
Experienced Commercial Leadership Program
NE Regional Case Competition
Friday, November 1st 2013
Alexander Boutelle, Ariel Chua, Avner Penchas, Sam Massy
ECLP Case Competition 11-01-2013
Agenda
Introduction
Our Larger Strategy A change moment in GE’s storied history
Our Pitch to Potenza Responding to the client’s questions, and the reasons behind them
Deal Structure and Business Model Creative solutions to win this deal and establish a beachhead
Questions
ECLP Case Competition 11-01-2013
Our A Pivot Point for GE
“This Industrial Internet… is about combining the world’s best technologies to solve our biggest challenges. It’s about
economically and environmentally
sustainable energy… and preparing our infrastructure and cities for the next 100
years.”
-Jeff Immelt, GigaOm (11-28-2012)
Larger Strategy >> Potenza Pitch >> Business Model >> Conclusion >> Questions
ECLP Case Competition 11-01-2013
Opportunities in Utility Analytics
Projected Analytics Market for Utilities2
1 Utilities Analytics Institute 2 GreenTech Media
• 39% increase in utility analytics software by 20161
• $1.5 billion in the US alone by 20202
ECLP Case Competition 11-01-2013
The Challenge of Energy
Share of Total GE revenue 2010-20121
Market in need of solutions • Growing and unpredictable global market
Massive opportunity in the power industry • Net sales of energy 3.75 billion MWh, representing $371 billion revenue
• 1% fuel saving for power generators = $66B savings over 15 years
Growth Market for GE specifically
Year Power and
Water Energy
Management
2012 19.2% 5.0%
2011 17.4% 4.4%
2010 16.6% 3.5%
1 GE Annual Report 2012 2 “Game changers: Five opportunities for US growth
and renewal” - McKinsey Global Institute, 2013
Incremental Annual GDP by 20202
ECLP Case Competition 11-01-2013
Creating dominance in Energy Market
2016 2017 2019 2018 2020 2014 2013 2015
Our strategic approach: Zero-Capital, Gain-share Model
GE revenue:
Predictivity
Power Equipment
$22.5B
$46B
$2.3B
$0.3B
Pitching Potenza
Larger Strategy >> Potenza Pitch >> Business Model >> Conclusion >> Questions
“We cannot suffer any more imbalance charges. We’re leaving money on the table.” -CEO
CEO Responsibilities • Accountable for firm’s sustainable
performance; Optimizing people & assets
• “Seeing around corners” to ensure future stability, profitability and growth;
• Balancing risk: safety, environmental compliance, insurance and regulations
Sales Strategy • First and foremost, demonstrate GE
software’s impact on profitability
• Demonstrate awareness of the diverse risks managed by the CEO, and our product’s role in proactively managing these concerns.
ECLP Case Competition 11-01-2013
ROI: Value Proposition for Potenza
Improving Efficiency Output, GE 7F-5* 216MW
Increased output (Predictivity) 8%
Increased fuel economy 0.2%
Wholesale electricity $50/MWh
Per MWh savings $887.38/MWh
(GE 7F-5)
Annual Savings (GE 7F-5) = $3.1M
Annual Savings (500MW Plant)=$6.6M
Meeting Demand • Remove charges directly impacting
Potenza’s bottom line
• Ripple effects: improved dependability translates into increased demand from Dispatch
GE 7F 5-Series Gas Turbine * GE website
ECLP Case Competition 11-01-2013
ROI: Additional Value Adds
Enhanced performance • Supply demand at full capacity
Maximize Renewable Energy Use • Improved forecasting and weather
data enables real-time integration of wind power; stop “leaving money on the table”
Safety and Predictability • Transforming unpredictable, costly
maintenance emergencies into low-impact, low-cost, low-skill tasks
Increase revenue &
reduce operating
costs
“You’re not software experts. Besides, we already have relationships with IT firms.”
– Asset Manager .
Asset Manager Responsibilities • Managing and optimizing all the
costs associated with an asset over its useful life
• Communicates about the health and maintenance schedule of an asset with the Plant Manager.
Sales Strategy • Highlight the Predictivity™ maintenance
savings and operational improvements
• Recognize that software costs may be incurred on her P/L, but fuel savings will accrue to different cost center.
ECLP Case Competition 11-01-2013
GE vs. Traditional Software Companies
General Electric IT Companies
Experience More than a century in power generation
1 – 20 years in tech
Focus State-of-the-art, holistic
power solutions IT-specific
Timeframe Can commit to decades
of maintenance Survived the last bubble
Capabilities Investment
$1B investment in Industrial Internet
Energy consultant hired
Relationship with Potenza
Helped install half the factory floor
Recently signed a contract
Proactivity Can identify what
must be fixed Can fix what you identify for them
Offices 160 countries Silicon Valley
“What if we can’t fire GE because you have a stranglehold on our data?” - Plant Manager
Plant Manager Responsibilities • Ensures power is generated
safely and reliably, in accordance environmental regulations.
• Responsible for responding to trading and dispatch solicitations at the lowest possible cost.
Sales Strategy • He has the most direct experience with
GE equipment: highlight our history of engineering excellence, safety, and maintenance.
• May be concerned that software will lead to reduced headcount on his team.
ECLP Case Competition 11-01-2013
Data Issues
• Data is yours. • Security is our top priority
• Access performance reports 24/7 with secure, backed-up online data storage
• GE Information Security Center: 100 staff hired over last year, and will double our staff within 2 years
• Why do you need other companies machinery info? • Predictivity will work with both GE and non-GE
equipment; it will help the two perform better
“What kind of guarantees are you willing to make?” - CEO
CEO Responsibilities • En
Sales Strategy • He h
Deal Structure and Business Model
Larger Strategy >> Potenza Pitch >> Business Model >> Conclusion >> Questions
ECLP Case Competition 11-01-2013
The Zero-Capital, Gain-Share Model
• GE: Provides Predictivity (both sensors and
software), analytics and system maintenance
• Potenza: Shares (40%) of gains from fuel savings
and increased energy output
Potenza Savings
Potenza Savings GE Revenue
Both sides to agree upon baselines. GE to manage Measurement and Verification process.
ECLP Case Competition 11-01-2013
Gain-sharing = Win-Win
Value to Potenza •No initial capital requirements
•No-risk Guarantee: Pays GE when efficiency value is realized
•Potenza keeps other value-adds (increased revenue, reduced
maintenance)
Value to GE • Establish strategic
beachhead in this market
• Obtain real-world data, enhance future products
(both software and hardware)
• Turn customer into intra-industry advocate;
let their experience drive business to GE
ECLP Case Competition 11-01-2013
Gain sharing: Contractual service agreements (CSAs):
Future of Predictivity
Outcome-based approach to demonstrate efficacy and create revenue streams
Create a holistic energy solution for our customers
2013 2014 2015 2016 2017 2018 2019 2020
What this means for GE
Larger Strategy >> Potenza Pitch >> Business Model >> Conclusion >> Questions
ECLP Case Competition 11-01-2013
Organizational Change
• Transitioning from selling hardware to providing holistic solutions
• Same GE brand, wider scope
• Culture Transition • Greater collaboration and joint P/L
responsibilities across IT & Hardware Sales team
• Leverage ITLP, San Ramon Software Center of Excellence, EEDP Software track
Questions?
Appendix
ECLP Case Competition 11-01-2013
Revenue Projection for GE
(1) 1% fuel saving = $66bn over 15 years, GE Annual Report
(2) GE website (3) International Atomic Energy Agency, assuming 8% growth in investment per year * Assuming 1% improvement as initial estimate
Global Revenue from Software/Analytics 2013 2014 2015 2016 2017 2018 2019 2020
GE Market Share 25% 25% 25% 25% 25% 25% 25% 25%
Fuel saving for 5% improvement in fuel efficiency ($bn) (1) 4.4* 22 22 22 22 22 22 22
5% increase in energy output ($bn) (2) 1 1 1 1 1 1 1 1
Assume GE sharing 40% of savings/gains ($bn) 0.54 2.3 2.3 2.3 2.3 2.3 2.3 2.3
Assume growth of adoption 15% 20% 25% 40% 60% 80% 100%
0.345 0.46 0.575 0.92 1.38 1.84 2.3
CAGR 37%
Global Revenue from Power Equipment 2013 2014 2015 2016 2017 2018 2019 2020
GE Market Share 25.0% 25.7% 26.4% 27.1% 27.9% 28.6% 29.3% 30.0%
Global Investment in Power Generation ($bn) 90 97 105 113 122 132 143 154
GE Revenue from Global Power Generation Investment ($bn) (3) 22.5 25.0 27.7 30.8 34.1 37.8 41.8 46.3
CAGR 10%
ECLP Case Competition 11-01-2013
Savings Analysis: GE 7F-5 w/ GE Predictivity AGP & OPFlex
Units:
INPUTS:
Output, GE 7F-5 (Simple cycle) 216 MW
Increased output (AGP & OPFlex) 8%
Increased fuel economy (AGP & OPFlex) 0.20%
Average wholesale electricity price (U.S., 2013) $50.00 per MWh
Average Capacity Factor (CCP) 40%
ANALYSIS:
Increased output (AGP & OPFlex) 233.28 MW
Associated cost savings $864.00 per MWh
Fuel efficiency savings (per MWh) $23.33 per MWh
Total Cost Savings (per MWh) $887.33 per MWh
Annual Savings, GE 7F-5 w/ AGP & OPFlex = $3,109,197.31
Extrapolated savings, 500MW plant $6,664,088.89
Savings Analysis