1. Warwick Business School Professor David Elmes Warwick Business School david.elmes@wbs.ac.uk +44 (0)782 4540 996

2. Warwick Business School Learning Objectives  Two case studies illustrating how companies in the energy industry are developing strategies that, in part, respond to Climate Change.  Each with the following learning objectives: Understand more about each company & their industry context ○ E.On in the Power sector ○ Tesla Motors in the Electric vehicles sector Consider how the companies have developed and implemented their strategies ○ Assess their strategic thinking and implementation capabilities Develop an appreciation for the challenges and opportunities companies face in responding to climate change ○ What would you do in their shoes!

3. Warwick Business School E.On and the European Power sector

4. Warwick Business School What a power company chooses to do is increasingly complex Source: Bain & Company (2012)

5. Warwick Business School A January 2013 view of the European power market:

6. Warwick Business School Europe’s Power Sector is under pressure… from investors “One thing seems sure: a decade from now the sector will look very different from what it does today. We are still far from seeing a ‘workable’ model for generating power across the EU. That makes life challenging for today’s power companies.” Source: Investec Securities (2013) “European Power Utilities– Revolution is in the air” Published 21 January 2013 6

7. Warwick Business School Europe’s Power Sector is under pressure… from advisors & commentators “Essentially, in the newly complex, volatile and costly global energy landscape, both producers and consumers need two fundamental capabilities: a sound strategic outlook and the ability to adapt.” “Conventional power generation, quite frankly, as a business unit, is fighting for its economic survival.” Source: BCG, April 2013 Source: The Economist, Oct 2013 7

8. Warwick Business School The European Power Sector is under pressure… from politicians & the public From 2008: “A more appropriate vision for energy policy today is to see dynamic markets combined with a strategic role for government” To 2013: “So the next Labour government will freeze gas and electricity prices until the start of 2017….The companies won't like it because it will cost them money. But they have been overcharging people for too long because of a market that doesn't work. It is time to reset the market.” Sources: 2008 http://www.decc.gov.uk/en/content/cms/news/rise_fall/rise_fall.aspx 2013: http://www.bbc.co.uk/news/uk-politics-24213366 8

9. Warwick Business School The sector’s challenges are now openly discussed “European energy companies are experiencing difficulties for which there is no precedent: the impairment of their European assets, the early closure of power plants, and a reduction in investments amongst other problems. The entire sector's business situation is under severe pressure.” Gerard Mestrallet, CEO of GDF Suez, Speech to the European Parliament, 10 th September 2013. 9

10. Warwick Business School So the UK’s “Big Six” and others in Europe have been looking for new strategies… 10

11. Warwick Business School Who are E.On today?  E.ON is a major investor-owned energy supplier. Present in Europe, Russia, North America, Brazil & Turkey EUR122.5 billion in sales in 2013. 35 million customers 61 GW generation  A diversified business Renewables, conventional and decentralized power generation, natural gas, energy trading, retail and distribution. “We have an ambitious objective: to make energy cleaner and better wherever we operate.”

12. Warwick Business School Lets look at the sector in 2009 FT Europe Rank 2009 CompanyHQ Country2009 Market Value $M 2009 Turnover $M 2014 Website 14GDF SuezFrance75,289109,859www.gdfsuez.com 16EDFFrance71,45484,523www.edf.com 29E.OnGermany55,553114,075www.eon.com 33RWEGermany39,12662,460www.rwe.com 39IberdrolaSpain35,07033,132www.iberdrola.com 47ENELItaly29,67280,211www.enel.com 75Union FenosaSpain21,8449,453www.gasnaturelfenosa.com 84CEZCzech Republic19,1289,004www.cez.cz 85National GridUK18,64316,716www.nationalgrid.com 89Iberdrola Renovables Spain17,4982,669Now part of Iberdrola 90FortumFinland16,9227,411www.fortum.com 92CentricaUK16,67431,236www.centrica.com 99Scottish & Southern UK14,63122,326www.sse.com Source: FT500 (2009)

13. Warwick Business School E.ON’s Strategic Direction in 2009 – Page 1 E.ON’s key beliefs about sustainable success in the energy business.  Presence along the entire value chain We’re active along the entire value chain in power and gas, with operations upstream (power generation & natural gas production), midstream (energy imports and wholesale), and downstream (end customer supply). This enables us to operate efficiently and to capitalize on our comprehensive market knowledge, in turn creating value across our businesses.  Power and gas convergence Power and gas markets are converging upstream (more gas-fired generation), midstream (cross-commodity energy trading), and downstream (increasing popularity of dual-fuel products). Our superb position in all three segments provides us with synergy and growth potential.  Strong market positions In liberalized markets, scale and strong market positions give us a key competitive edge and create a solid foundation for ensuring security of supply.  Growth In the future, our markets in Northwestern Europe will grow at moderate pace. That’s why we’re seizing opportunities for above average growth in Southern Europe and adjacent regions like Russia.  Value from experience Our extensive expertise in all facets of the energy business is an invaluable competitive advantage, one that we leverage fully by sharing best practices across our organisation.  Market and competition Open competitive markets are the best guarantee for energy security and efficiency. An integrated European energy market offers E.ON the best environment for expanding our market positions and achieving organic growth on new regions.

14. Warwick Business School E.ON’s Strategic Direction in 2009 – Page 2  For all our operations, we focus on selective investments and acquisitions that meet our strict strategic and investment criteria. We believe that you need a clear idea of where you’re going in order to get there.  In line with these beliefs, E.ON persues a clear and focused business model: Power and gas Presence along the entire value chain up-, mid- and downstream Geographic focus on Europe and the US  E.ON’s short- and mid-term focus: E.ON has completed a phase of significant external growth. Consequently, the current priorities lie with performance, portfolio streamlining and an investment plan strongly focused on organic growth. Our group-wide performance project PerformtoWin will deliver up to Euro1.5billion EBIT by 2011. Portfolio streamlining measures are expected to generate at least Euro10billioin of divestment proceeds in 2009-2010. From 2009-2011, Euro30billion investments are foreseen, of which about two thirds are for growth, in particular generation, renewables as well as gas upstream and supply.

15. Warwick Business School In November 2010, E.On announced revised Strategic Priorities We're committed to providing cleaner & better energy. This pair of terms aims to make clear that we're convinced that affordability, supply security, and climate protection are mutually compatible elements of a corporate strategy, even in tougher economic times. We purposely chose the comparative form because this isn't about defining absolute metrics or uniform targets for all parts of the world but rather about continual improvement processes. In this sense, our products and services are cleaner if they substantially improve energy quality in terms of environmental protection and competitiveness. Our energy is better if we only engage in activities in which we can sustain a significant competitive advantage and offer superior products and services to our customers. How will we achieve this? Here, in brief, are the four key elements of our strategy: Europe: Europe will remain our home region. We will focus on competitive businesses and converging markets where we can benefit from scale advantages and leverage synergies within and across regions and businesses. Outside Europe: We intend to expand in regions where we can deploy our superior capabilities. We plan for our businesses outside Europe to deliver 25 percent of our EBITDA by 2015. Performance: We intend to foster and sustain a high-performance corporate culture, while our new organizational setup will enhance efficiency and transparency. Investment: By deploying our expertise and skills more effectively rather than simply relying on our balance sheet, we’ll create more value with less capital. Source: E.On, see herehere

16. Warwick Business School How did E.ON decided to change its strategy in 2010?                

17. Warwick Business School E.On’s plans in 2009 were a significant shift to renewables

18. Warwick Business School E.ON at the start of 2013 & today How did they assess the implementation of their strategy? What is their strategy today? Extracts from E.ON’s Capital Markets Day presentation to investors, 30 th January 2013 See also E.ON’s Capital Markets Story, August 2014

19. Warwick Business School How do they assess the implementation of their strategy?

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23. But E.ON see the environment as continuing to change….

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30. And E.On today?

31. Warwick Business School E.On’s goal of 10GW of renewables in 2009 faces a capital constrained reality in 2014

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33. Learning Objectives & Summary: E.On  Understand more about each company & their industry context The European power sector in 2009 – a cosy club? E.On did see changes coming in 2009  Consider how the companies have developed and implemented their strategies Responding and changing has been tough….  Develop an appreciation for the challenges and opportunities companies face in responding to climate change E.On are trying “to make energy cleaner and better wherever we operate” but are very constrained in how fast they can change

34. Warwick Business School Tesla Motors: electric vehicles and beyond

35. Warwick Business School Understanding and defining the elements of a Business Model Image: McGee et al (2010) “A business model describes the rationale of how an organization creates, delivers and captures value” (Osterwalder and Pigneur, 2010, p.14).

36. Warwick Business School Fad, fashion, or a genuinely new approach towards strategic thinking? “Everyone in the tech world talks about business models. But I’ll bet that if you quizzed a random sample of these people, you’d find that they really don’t know what a business model is.... The reality is that a business model is like the old saying about teenage sex: everyone talks about it all the time; everyone boasts about how well he or she is doing it; everyone thinks everyone else is doing it; almost no one really is; and the few who are are fumbling their way through it incompetently”. (Wadhwa 2011)

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38. Tesla Motors today “TESLA MOTORS was founded in 2003 by a group of Silicon Valley engineers who set out to prove that electric vehicles could be awesome”

39. Warwick Business School What’s happening in the world of personal transport? A view of personal transport from Siemens in 2009

40. Warwick Business School But Tesla is a start-up? Who might it partner with?  Either think or quickly research who Tesla might partner with…

41. Warwick Business School Tesla’s strategy – as viewed by participants on the WBS Global Energy MBA

42. Warwick Business School So where would you place Tesla on this scale? 1. Just another car company 2. …… 3. A car company with a vision of what role they might play in our use of energy 4. …… 5. The company that will revolutionise the world energy industry

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44. Not quite so fast…..

45. Warwick Business School Learning Objectives & Summary: Tesla  Understand more about each company & their industry context Tesla as a new entrant to the transport market Strong leadership (with deep pockets!)  Consider how the companies have developed and implemented their strategies From “awesome” roadster to car company of scale Partnering: dancing with the big gorillas Your car as hub for broader energy use  Develop an appreciation for the challenges and opportunities companies face in responding to climate change Bold steps….. and others have stumbled (Fiskar, Better Place,…)