GE Smart Energy Case Competition - 2013 MIT Sloan Submission
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The ECLP case competition, held on November 1, 2013, focuses on leveraging big data to enhance power generation efficiency and promote General Electric's (GE) strategic initiative in the energy sector. Participants presented a zero-capital, gain-share model to Potenza, emphasizing the benefits of GE's predictive analytics and software in improving operational performance and profitability. The proposal included extensive analysis of potential savings and revenue projections, showcasing an opportunity for GE to establish a strong foothold in the growing utility analytics market.
GE Smart Energy Case Competition - 2013 MIT Sloan Submission
- 1. 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
- 2. 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 Creativesolutions to win this deal and establish a beachhead Questions
- 3. ECLP Case Competition 11-01-2013 OurA 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
- 4. 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
- 5. 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
- 6. ECLP Case Competition 11-01-2013 Creating dominance in Energy Market 2016 2017 20192018 202020142013 2015 Our strategic approach: Zero-Capital, Gain-share Model GE revenue: Predictivity Power Equipment $22.5B $46B $2.3B $0.3B
- 7. Pitching Potenza Larger Strategy >> Potenza Pitch >> Business Model >> Conclusion >> Questions
- 8. “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.
- 9. 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
- 10. 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
- 11. “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.
- 12. 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
- 13. “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.
- 14. 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
- 15. “What kind of guarantees are you willing to make?” - CEO
- 16. Deal Structure and Business Model Larger Strategy >> Potenza Pitch >> Business Model >> Conclusion >> Questions
- 17. 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.
- 18. 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
- 19. 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
- 20. What this means for GE Larger Strategy >> Potenza Pitch >> Business Model >> Conclusion >> Questions
- 21. 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
- 22. Questions?
- 23. Appendix
- 24. 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%
- 25. 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