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Case Study Analysis: Poweo

Executive Summary

Poweo, an alternative electricity supplier in France, is faced with several challenges at the same time. First, the company needs to compete for the market share in the conditions of a natural monopoly that has made Electricite de France (EDF) a giant monopolist with 85% market shares. EDF enjoys special support from the French government, and market liberalization in the electricity production industry has been delayed for a long time. First, the French government owns the majority of EDF shares. Second, the recent fall in electricity consumption, because of the economic crisis in Europe, makes the government, EDF management and Verbund’s management (it is the majority stakeholder of Poweo) doubtful about whether the market reform will resolve the problems and whether the economy is ready for increasing production capacities.

The problem that lies in front of Charles Beigbeder, the CEO of Poweo, is the need to make a decision about a new gas production CCGT plant building if it should start now or should be postponed until more favorable market conditions come. The case analysis also included additional actions that Poweo can take to improve its financial condition and win a larger market share.

The analysis has shown that building a new plant will be a better solution for Poweo for several reasons. First, the company has already received the permit for building and it has the additional opportunity to build a 28 km gas transportation system, close to the facility. Second, the need to compete, in case of market liberalization, proves that the production capacity should be increased in order to acquire new customers, both inside and outside of France. Fourth, the financial state of EDF shows the company is in debt and under the risk of bankruptcy because of the great need to modernize. EDF may lose a part of its customers, and this is where Poweo should come in, with its ability to provide electricity to all customers.

Lobbyism activities of the company require special attention. Poweo already has a history of successful lobbyist actions, when the attention of the European Union government has been attracted to the unfair actions of TaRTAM, and the market liberalization steps have been made. EDF already has a powerful team of lobbyists, so Poweo should think either of building a larger team for protecting its interests or uniting with other entry-level market players that are obviously interested in electricity market liberalization to speed up the law approval process.

Finally, Poweo should revise the opportunities in the overseas markets, as competing in the French market is rather challenging, compared to Belgium, Portugal and Czech Republic, where the government does not stand in the way and no regulated end-user tariffs are pressed on the electricity companies.

Chapter 1. Case Study Background, the Statement of the Problem, Research Questions and Aims and Objectives

The problem of risk and crisis management has become especially relevant for top managers after the crisis of 2008-2009. The improvement of operational and financial stability of the business, and the ability to demonstrate the above benchmark performance often indicate successful managers, who are very likely to succeed in the long-term. Almost all market actions are associated with risk and uncertainties from both inside and outside factors (Yaneva 2010). The current environment and the context play a sufficient role in defining how a company will succeed, in spite of the barriers ahead. Meanwhile, traditional risk management tools and solutions do not fit each situation because of the changing history of business development (Gable 1994). The given case describes the problem of choice, set in front of Poweo, a small but promising player in French and European electricity supply market that has to deal with the natural monopoly of a government-supported giant – Electricite de France.

Poweo is a minor electricity production business, founded in 2002 and headed by Charles Beigbeder in 2004. The company struggles to stand the competition against huge companies that were historically supported by the French government. In spite of the fact that government initiatives to liberalize the landscape of the energy market have already been started, many of the implementations are still about to come out. Poweo is facing a choice whether they should build a new factory or plant (which is worth €400 million) to become stronger competitors in the long-term for the newly liberalized market or to wait until market liberalization is complete. There are certain risks, related to each of the options.

The first option implies the risks, connected with the government’s procrastination of the liberalization program, delayed directives and blurred deadlines. There is no guarantee that right after the financial crisis of 2008-2009, the government will take the risk of energy market liberalization because of the uncertainties, related to energy demand dynamics. Right after the crisis, the demand has plummeted down sufficiently, and there is no clear guarantee that it is coming back to the former level. Other market entrants also supply a very small amount of electricity. Poweo mainly concentrates on working with households and small facilities, even in case of market liberalization, it would not have enough capacity to work with large non-residential customers.

The challenging part is that Poweo has to sell the electricity 15-20% cheaper than the original purchase price from Electricite de France (EDF) was. The market liberalization law also implies that until 2025, the smaller market players will have access to a fair-priced resource base from EDF. The company has already taken a range of actions to cope with the economic crisis by cutting on salary bonuses, salary freezes, reduction of employees by 30%, but these actions are not believed to be sufficient for good business growth and development in the market, as the company’s CEO thinks. Meanwhile, the company already has the required permit and finances to expand its facilities and become a stronger player in the electricity market. The major doubts about the plant are associated with the unstable economic situation in Europe after the 2008-2009 crisis.

Research questions:

· What risks will Poweo face in case of building a new plant?

· What risks will Poweo face in case of choosing the optimization and waiting for liberalization policy?

· Will the business stand further salary and compensation cuts?

· What are the possible lobbyist activities that Poweo public representatives can take to speed up the electricity market liberalization?

· Are there any other ways of business optimization, available in the second scenario?

· Is there a way to eliminate the risks behind building a new energy generation capacity?

· Is there a way to eliminate the risks behind the waiting strategy?

· Are there any unseen options that Poweo management can take in the light of the current environment?

Research aims and objectives include the need to evaluate the risks behind the introduction of a new facility for energy generation and waiting strategy with maximum cost optimization. The CEO of the company is more attracted by the first option, which is more proactive, while he should still develop good argumentation for Poweo’s major stakeholder, Verbund, an Austrian electricity company.

The traditional risk evaluation that the major Poweo’s uncertainties are measured with, do not count through the possible future scenarios. It is still not clear when exactly the French government will implement all market liberalization program points, how much time the realization will take, and how other market players will react to the changes. The liberalization will, most likely, favor all other entry-level market players and intensify the competition among them and with Poweo. However, this will be more of fair competition, based on quality, pricing and cost optimization.

The Energy Market in France

Electricite de France has remained a major electricity generation and distribution company in France. Until 2004, it used to be a government-owned company, but now it is now a limited-liability corporation under the private law. The government retains about 85% of all company shares and equity. This is why, to measure the level of subsidy and transparency in the industry, EDF used to be a monopoly in distribution until 1999 when the first electricity market liberalization steps were taken (Gore 2009). EDF is responsible for generating about one-fifth of all European Union power (mostly nuclear and hydroelectric). The thermal and alternative resources generation is very low in volume (about 0,1%). France has the largest share of nuclear production, as compared to any other world country, and it is also one of the major exporters (8th place).

The Market Landscape

Piper Jaffray research has made an assumption that in 2009-2010, the alternative electricity production in France will become more affordable, thanks to the decreasing prices of solar energy generation panels and the sufficient solar energy capacities that French territory has to develop (Yaneva 2010).

The French government and the European Union policies, in general, favor the shift from nuclear resource dependence to renewable energy sources, and the latest mandatory energy targets include 40% of national electricity production to come from alternative sources by 2030 (Patel 2015). Now, this indicator is at 19.5%.

Chapter 2. Description of the Situation

Poweo, an alternative gas and electricity operator in France, is faced with a challenge: the company needs to make a firm decision for further growth. The company’s CEO, Charles Beigbeder, is going to meet the representatives of Verbund, an Austrian electricity company, which is Poweo’s main stakeholder.

Poweo was established in 2002, and until the crisis has hit, the forecasts for the markets had always been promising. The first energy-producing plant was built in 2005, and the same year Poweo received the authorization from the government to intensify its gas activities for power source diversification in France. The company was reorganized into three divisions, including commercial, upstream and sourcing. The sourcing unit is responsible for Poweo’s generated energy marketing and selling any surplus. The commercial division is responsible for offering power supply services, and the upstream division works with a gas processing infrastructure, builds and maintains the required facilities for generating energy from different sources. Personal contacts and the door-to-door sales strategy have created the sales advantage for Poweo in the first years of market liberalization. Poweo management traditionally waits for full market opening before finding new partners.

Since the establishment of Poweo, the company’s revenues reached the level of €565 million, and the base of residential-type customers has witnessed continuous growth. However, the so-called Goliath of the French electric market, Electricite de France, enjoyed almost complete monopoly with 85% of the market shares. EDF has also received unlimited access to supply orders from non-residential objects and facilities (such as businesses, factories, plants and many more), mostly due to its intimate connection with the French government (Houben et al. 1999). The matter of fact, EDF used to be fully owned by the government, and even after it has become a limited liability business, the biggest part of its shares still belongs to the French government. It may be the reason why the government keeps slowing down the electricity market liberalization initiatives, especially in the light of potential risks for the post-crisis economy (Willems & Morbee 2008). The electricity consumption in Europe fell down dramatically, reaching the lowest level, since 2003, and in France, the fall was 2% in 2008.

Poweo itself generated a sudden loss of €94 million in 2009, almost three times the amount it lost in 2008. It was the result of the unfavorable economic environment and the crisis-related decrease in the market demand for electricity. The regulatory part was also no advantage for Poweo, as the French government still delayed the complete electricity market liberalization in the sphere of European market supply. Although the new market entrants were allowed into the energy market, they still could not compete fully with the giant EDF, particularly, in the industrial customer segment. The French energy industry was dominated heavily by EDF with its 94% in energy generation and 96% in retail supply.

Therefore, Poweo has two types of competitors, including the government-supported EDF and a small number of minor market players who worked in energy supply mostly in the non-residential sector. Looking merely at the alternative supply market (excluding EDF), Poweo has 15% of business sites (represented by 108,000 objects) and 22% of the household sites (represented by 303,000 objects). The pace of customer acquisition has also witnessed sufficient slowing down, not only because of the existing unfavorable market structure and the delayed regulatory implementations but also because of the limited production capacity of Poweo. The gas turbine of Poweo stands for 412 MW, while wind energy produced counts up to 85 MW, solar – to 3 MW and hydropower generated is 6 MW. The overall market is about 100 GW of energy, so Poweo, with its 50 MW, is considered a small player by 2009.

The French government is expected to discuss and possibly pass a law which will give access to 120 TWh of nuclear power from EDF on a yearly basis to the small market players at a fair price (the production cost for EDF). At the moment, only 100 TWh is sold to alternative suppliers, and the price is too high. Poweo has to sell electricity 15-17% lower than the price Poweo pays for nuclear electricity from EDF. If the situation would not change, Poweo and other minor market players will have to exit the electricity supply business.

Poweo is now forced to take extra measures to face the challenges of the unfavorable business environment. It started out as a cost optimization program, saving €2 million, the headcount has been reduced by 30%, the bonus payments have been cut and the salary freeze was also tried out. However, these actions may lead to social tension and wide discontent from the employees, and the savings are not sufficient enough to let Poweo cheer up and grow in the French and European electricity markets.

Verbund, Poweo’s major stakeholder, was mainly focused on power generation instead of the downstream side of the industry throughout Verbund’s history. That is why its top management is waiting for an action plan for the following year to get out of the critical business situation. There are two major options: waiting for the French electrical market to get liberalized completely and prepare Poweo for future growth by building an additional energy production capacity – a plant worth €400 million+. Poweo already has the permit for building and the company almost raised the required funding. There are several limitations to both options, and that is why the company’s CEO is uncertain.

The first option implies passive behavior and dependence on governmental decisions. Because of the former law procrastination, it is still not clear when exactly liberalization will start and the access to additional fair priced nuclear energy will become available. Moreover, there is no guarantee that Poweo will compete effectively with the minor market players because its generation capacity would not increase, and the unfavorable financial state has a chance of getting even worse (Parsons 2008).

The second option is more proactive, but it is riskier, at the same time. Even though the permit for building the plant and the required financing is almost there, the cost of the plant almost equals the company’s all-time revenues. Moreover, the company’s CEO is uncertain whether the market will be liberalized by the time the building is over and if the cost risks are worth the effort. The latest post-crisis trends in European electricity demand have been negative. A new plant is likely to help Poweo compete better in the local market and be able to handle oversees electricity orders. It is not clear whether it is the right time for such a big facility to be introduced into production.

Chapter 3. The Statement of the Problems and the Models/Theories /Planning Tools to Be Used to Analyse the Case

Each research question corresponds to a range of problems that Poweo management needs to resolve.

· What risks will Poweo face in case of building a new plant? €400 million is sufficient investment into the development of the business, and any risks are unwanted for the company who has been working on cost optimization for so long. The risks include: 1) inability to cover the original financing; 2) closing the company before ROI can be measured; 3) the lack of demand in the European market; 4) no access to cheap nuclear power from EDF; 5) inability to stand competition with other market players (Liu, Wu & Ni 2006).

· What risks will Poweo face in case of choosing the optimization and waiting for liberalization policy? The risks include the following: 1) lost opportunities for energy sales; 2) inability to compete with those who might be ready to offer more to the market (Lijun, Kaijian & Yingchao 2014); 3) social tension because of the need to optimize costs further and no promising plan; 4) losing good employees who might feel demoralized and lose belief in the company’s success.

· Will the business stand further salary and compensation cuts? It is unclear whether the company’s employees will be able to keep their belief in the company’s success and bright future if their salaries will be frozen again or if they lose their salary bonuses, as financial stability is the indicator of the company’s reliability in the eyes of the team.

· What are the possible lobbyist activities that Poweo public representatives can take to speed up the electricity market liberalization? It looks like Poweo is missing out on its opportunities to use PR and lobbyist activities to protect its interests. For example, the potential harm of the nuclear stations is rather high, while the use of gas, wind and solar energy is more eco-friendly (Liu & Wu 2007). The topic of sustainability and eco-friendliness has already gained enough, following from both European publicity and the government, so stressing the need to develop these sectors, Poweo has more chances of a favorable outcome for the market opening law. Besides, there should be a company representative among the business lobbyists in parliament.

· Are there any other ways of business optimization, available in the second scenario? Apart from the traditional salary freezes and bonus cuts, Poweo management can concentrate more on manufacturing optimization – maybe, there are business operations steps that can be modernized or improved? Besides, working with downstream customers, Poweo can offer additional values, according to their clients’ needs. For example, the maintenance services or the distribution of ergonomic solar panels on individual households can be something Poweo’s clients may be interested in – these additional services should be first brainstormed (according to company’s resources) and researched properly, using the existing customer base.

· Is there a way to eliminate the risks behind building a new energy generation capacity? Lobbyist activities can eliminate the risks of the new law, not being approved, while business processes optimization will drive Poweo more competitive. It is unlikely that the economic crisis of 2008 will remain forever as the period of economic fall, followed by economic blossom (Denga & Oren 2008).

· Is there a way to eliminate the risks behind the waiting strategy? Once again, PR and lobbyist activities are likely to speed up the law approved by the government, and business process optimization and revise the company’s strategic and tactic steps after marketing research will never be useless for the current situation at Poweo.

· Are there any unseen options that Poweo management can take in the light of the current environment? Offering extra services to the existing clients, according to what they need will increase loyalty and may become a factor when individual household electricity providers choose their suppliers from the entry-level market players. For instance, it is also unclear whether Poweo can just acquire customers from EDF and start supplying for them instead. Poweo needs to work not only on energy swaps and plant construction but also on customer connections. Besides, Belgium, Portugal, and the Czech Republic make great choices for Poweo as markets to enter. All of them imply no ministerial involvement (no tariffs like in France), and strong power to regulate the network access, as well as the power to settle disputes.

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Concentrating on two major options – waiting for liberalization without building the plant or investing 400 million into building the plant to get ready for the new market – it is recommended to use SWOT analysis for each of the options (Panagiotou 2003). PEST analysis could also be used, but all the macroeconomic and external factors are included in the SWOT analysis. It was selected because it also gives a better view of the internal business situation (Terrados, Almonacid & Hontoria 2007). The chosen objective is to increase market share and profits of the company to come to the growth level of consolidated revenue by at least 20% over the year 2010. The first quarter of 2010 has already shown 59% growth in consolidated revenue, which is a great tendency.

SWOT Analysis: Building a Plant

Helpful in achieving the objective

Harmful in achieving the objective

Internal factors

Strengths:

1) stable history of business excellence in non-crisis times

2) the experience of success in the launching and loading the first CCGT plant in 2009, along with attracting investment

3) Poweo is one of the two alternative companies that cover all types of sites, including large non-residential, medium non-residential, small non-residential and residential sites

4) Poweo will be able to become not only a strong alternative market player but also an overseas player

5) Poweo will get closer to business stability and growing profits

Weaknesses:

1) customer base that consists of households (downstream business)

2) sufficient losses during the crisis of 2008-2009

3) modest number of lobbyist representatives or activities and untransparent regulation for lobbyism in France

4) almost no revenues from the supply business

5) low gas price

6) owning or operating a nuclear plant is not allowed by Verbund’s constitution

7) the need to attract investment through long-term debt

External factors

Opportunities:

1) eco-friendliness of gas, solar and wind energy

2) high probability of market liberalization and consequent profitability in the supply market

3) financial instability in EDF due to the need to modernize the old nuclear plants and financial losses after the switch to the regulated tariff system and discretionary price cuts to retain its giant market share

4) new generation capacities for power production, which has always been the company’s strong side

5) CCGT plant is the most common power in Europe because of the low gas price

6) RTE can build a 28 km gas connection

Threats:

1) government postponing the market opening

2) the majority of the end users are households and small businesses perceived as potentially vulnerable customers by the government – they will always have the lowest tariffs

3) the fear of market liberalization within French politicians as nuclear power is considered a “sacred cow” of the economy

4) EDF’s strong resistance to any market reforms

5) the need for negotiations with banks and describing the risks’ neutrality

SWOT Analysis: Further Optimization and Waiting

Helpful in achieving the objective

Harmful in achieving the objective

Internal factors

Strengths:

1) no need to cut costs even further to get 400 million for building a plant

2) no need to get into a long-term debt

3) sufficient market share among the alternative energy producers

Weaknesses:

1) a chance to get behind the competition and lose market share if the competitors are more active

2) the production capacities would not be increased

3) total dependence on governmental actions

External factors

Opportunities:

1) eco-friendliness of the gas, solar and wind energy

2) high probability of the market liberalization and consequent profitability in the supply market

3) financial instability in EDF due to the need to modernize the old nuclear plants and the financial losses after the switch to the regulated tariff system and discretionary price cuts to retain its giant market share (Hongquian et al, 2014)

Threats:

1) government postponing the market opening

2) the majority of the end users are households and small businesses perceived as potentially vulnerable customers by the government – they will always have the lowest tariffs

3) fear of market liberalization within French politicians as nuclear power is considered a “sacred cow” of the economy

4) EDF’s strong resistance to any market reforms

 

Chapter 4. Findings from the Analysis (Using the Tools)

In this case, SWOT analysis mainly relied on the opportunities and threats of each option because strengths and weaknesses of Poweo, for the most part, remained the same, regardless of whether the building of the plant will start or not.

The company management should concentrate on the risks that can be influenced from the inside, while the outside risks are too unpredictable. Because of the natural monopoly created historically in the French market, EDF owns such a big market share, and liberalization of the market will lead, at least, to slight instabilities in the first years of program implementation. Electricity has never been handled any other way in the history, so it is useless to make forecasts about whether the government decides to finalize its market opening program or not, and whether Poweo is able to compete with other with this new facility (Kotler, Berger & Bickhoff 2010). The actions from the inside can be measures, and the management can do its best to protect the company’s interests in the eyes of the publicity and the government.

It is obvious that the reason why Poweo experienced losses in 2009 is the overall negative tendency in the energy market, rather than bad operational or management decisions. For example, it is obvious from the balance sheet and cash flow report that the operating and investing activities enjoy positive shifts, since 2008 (from -47,441 in 2008 to +94,458 in 2009), and the cash and cash equivalents have grown by more than 100 thousand in 2009. It makes the company’s equity very liquid and adds to the flexibility, which is not the case with a giant EDF company, fully relying on debts.

The SWOT analysis of both options reveals that although the building of a CCGT plant is associated with multiple risks (financial, in the first place), this option also implies a lot more opportunities for business growth and taking advantage of the newly liberalized market. The speed of market liberalization is almost out of Poweo’s reach (except for a strong lobbyist team that the company should introduce), but extending its production capacities, especially in the light of the granted permission, the financing and the opportunity to have a gas transportation quite close to the plant all make it a very strong point. Gas plants, such as CCGT, is one of the most popular investments in Europe, and gas is an eco-friendly option that can enjoy extra support from the public. Poweo has already managed to influence the market by attracting the European Commission opinion to the unfair operations of TaRTAM. By engaging more professional lobbyists to the problem of market liberalization and natural monopoly in the market, Poweo has greater chances of getting the needed law to be discussed and passed through.

Meanwhile, waiting for the market to become a better place by itself is a weaker position. First, it is passive, and because of the strong competition with other alternative energy producers and suppliers, Poweo runs under the risk of simply getting behind its competitors. Second, increased production capacity would open its doors to the new and less complicated markets than the French one (such as Belgium, Czech Republic, and Portugal).

From the financial statement of the first quarter of 2010, we can see that the company has already started to recover from crisis by growing its consolidated revenue by 59%, since last year and by improving business health, in general (+1500% growth of electricity generation and improvement in all indicators except for energy management). The economic rise and falls also have a historically proven cyclic nature, meaning that each fall is followed by a rise.

That is why Verbund’s concerns about the risky economic environment and the decreasing demand for energy should not be the focus. Economic risks are only temporary, the company starts to revive after the crisis, while the risks associated with the delays of the market liberalization program can be influenced merely by introducing a hobbyist team. Poweo needs to concentrate on what it can change direction, and making a firm decision to build the plant now is one of them. It is obvious that staying in the electricity market and competing with other minor market players implies increasing the production capacity anyway, and Poweo has a history of implementing the same type of plant before with success. Losing time can prevent Poweo from using additional opportunities for business growth that come up with the introduction of a new plant (Kotler et al. 2010).

Meanwhile, EDF is not such an unfeasible giant as it seems. Its main power is in government protection, while the financial situation and the profits of the company are not stable. EDF has led itself to sufficient long-term debt, and the business itself does not look like it can develop anywhere further. Besides, EDF’s nuclear plants require modernization, and the financial losses due to the implementation of regulated end-user tariffs have hit heavily on the company’s revenues. The only problem is that EDF top managers is against any market reform right now, but, once again, Poweo’s lobbyist team can work on a compromise solution that would be beneficial for both EDF and Poweo.

Additionally, the French electricity market is one of the most complicated ones to compete within Europe because of the natural monopoly and the peculiarities of nuclear power development in the country. Another difficulty is that France is one of the few European countries that has regulated end-customer tariffs. This is why any market liberalization is somewhat limited. Meanwhile, other closeby European markets, such as Belgium, Portugal, and the Czech Republic, can come in handy for Poweo, as they are more liberal and have fewer barriers on the way of energy supplier. A new plant, once again, is a more proactive and reasonable solution to come up with to enter these new promising markets. This is especially relevant in the light of high Reseau de Transport de l’Electricite (RTE) charges for causing an imbalance between consumer consumption and the produced energy ejected to the network of the French electricity grid.

Therefore, the opportunities of the new plant include the eco-friendliness of the gas, solar and wind energy, high probability of market liberalization and consequent profitability in the supply market, financial instability in EDF due to the need to modernize the old nuclear plants and the financial losses after the switch to the regulated tariff system and discretionary price cuts to retain its giant market share, new generation capacities for power production, which has always been the company’s strong side, CCGT plant being the most common power in Europe because of the low gas price, and high chances that RTE can build a 28 km gas connection for gas supply.

Chapter 5. Solutions to the Problem and Issues. Recommendations and Business Action Plan

Poweo has faced the following problems, regardless of their decision to build or not to build a plant:

· EDF keeps being a natural monopolist in the French electricity market because of the historical domination of nuclear power in France and the protection from the government. The solution to this problem mostly depends on the French government resolution, and Poweo management can only speed things up by introducing a larger amount of lobbyists to work on protecting the interests of Poweo. It may also be reasonable to unite with other entry-level alternative energy producers and suppliers to launch a committee for discussing these problems in public.

· The financial crisis has hit heavily on the European electricity demand volume (the indicator fell down by 47%), and it is not clear when exactly this level will come back to the pre-crisis period. Due to the cyclic nature of the crisis and according to the positive tendencies of the 1st quarter of 2010, we can see that the crisis digresses, and, in a matter of 1-2 years, the economic growth will follow.

· There is a certain tension from other entry-market competitors, and Poweo has market shares of 15% in energy supply and 22% in energy production. Poweo has several great advantages: it is one of the two companies that cover all types of electricity consumers, so it has the potential to develop a business even more by building a new electricity production facility and interacting with other less tiff and complicated markets than France. Setting foreign markets as a priority will help Poweo get to the point of growing consolidated revenue by 20% in 2011-2012. This is especially relevant because of the former successful experience in launching the CCGT plant, having the peit for building and having almost all the required financing. Negotiating with banks and the management of Verbund about the neutrality of the risks is a challenge, but considering that the plant has to be built anyway, it is important to start as soon as possible.

· It has been challenging for Poweo to protect its interests in the parliament but the company still had several successful lobbyist campaigns (such as TaRTAM initiative that made its contribution to the electricity market liberalization in France), and Poweo needs to balance out the powerful lobbyist team from EDF in order to succeed in the market (CODA Strategies 2014).

· Market liberalization has been delayed for a while, and, once again, lobbyism is the answer. It is difficult to predict the exact time when the law is discussed and approved, but influencing the politicians and the public by attracting the attention to the eco-friendliness and profitability of gas power is crucial.

· Poweo mostly relies on profits, derived from energy production, rather than energy supply. The development of the supply chain mostly depends on negotiations and agreements with EDF. Poweo team needs to ask EDF to provide industrial clients as well or do its best to get this point included to the market liberalization initiative.

· The recent optimization program, salary freezes, and bonus payments cuts cannot foster business development for Poweo. Poweo needs to work on keeping the employees’ trust and loyalty up, as well their belief in sustainable business development. That is why, building a plant is a powerful PR instrument, as a company without perspectives for growth is unlikely to launch such a big project.

· Poweo is in a need for production capacity increase, in order to satisfy not only French consumers but to go overseas with export. That is why, building a new plant is particularly important, as it will open the doors to the new markets. Moreover, as EDF’s nuclear plants are worn out and require modernization, and the financial situation of the company might destabilize it even further. That is why Poweo needs to be ready to take on the opportunities and provide electricity to those customers that EDF might want to give up.

· At the moment, Poweo mostly relies on the downstream business and households as its end users. However, negotiations with EDF and the French government might change the situation, as well as the increased production capacity and economic growth expected in European countries after the crisis.

· Poweo is put under pressure by the regulated end-user tariffs and has to sell electricity 15-20% cheaper than the price level Poweo can actually buy from EDF. Even though Poweo is unlikely to leave the French market, it can improve its business portfolio of markets conquered by moving into other European markets.

· Poweo’s majority stakeholder Verbund does not have good experience in the downstream energy segment. This problem can be resolved by stressing out Poweo’s own experience with end users and the opportunities in the segment of industrial consumers that will open up in the light of market liberalization, weakening EDF and overseas markets.

Action Plan

1) Hiring ten powerful lobbyists, either French or European professionals. If needed, consultations, training and references from the American lobbyists can be used to build a stronger team.

2) Making a plan for PR and lobbyist activities for the next year and a more detailed monthly plan. It should include the issues of nuclear energy, the need to support entry-level electricity market players, attract the public’s attention to the delayed liberalization law, stress out the sustainability of gas production industry and support any market reforms in the French electrical market.

3) Explain the market opportunities Poweo might lose if no plant-building decision is taken, and work on providing good grounds on why Verbund’s management should not worry about the economic crisis in Europe and the domination of EDF in France.

4) Make the required preparations to start building the CCGT plant by hiring the required professionals and developers.

5) Arrange negotiations with the EDF management to discuss the future for both Poweo and EDF, possible swaps in both energy and customers, and fair pricing strategies if Poweo buys energy from EDF.

6) Arrange negotiations with other entry-level market players to power up the communications strategy and speed up the approval of the market liberalization law approval.

7) Revising the financial statement for the first quarter of 2010, and improve the electricity management indicator which is the only weak spot.

8) Arranging a session with top management employees and requesting them to explain the specificities of the situation to their employees, discussing non-financial bonuses for them to compensate for bonus cuts and salary freezes.

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