Navigant Research Blog

NRG Goes All in on Distributed Generation

— September 6, 2014

One of the largest independent power producer (IPPs) in the United States, NRG, provides power for the wholesale power markets with more than 50 GW of conventional installed capacity.  More recently, under outspoken CEO David Crane, the company has made a name for itself in renewables, with approximately 2.5 GW of solar PV, concentrated solar thermal, and wind capacity.  NRG also made headlines recently with a reshuffling of its business units: now NRG Business (focused on conventional wholesale energy including nuclear, coal, and gas power plants) NRG Renew (focused on large-scale renewables), and NRG Home (focused on distributed generation [DG] and energy services for residential customers).

The company has relied on both organic growth as well as a series of acquisitions to fuel its DG offerings, including Dominion Resources and solar PV provider Rooftop Diagnostics,  which expands the company’s customer base – particularly in the Northeast – and its expertise in residential systems.  These acquisitions underscore the growing opportunity presented by DG – systems that provide power onsite or at the distribution level of the grid.

Power In the Wild

What’s more surprising is NRG’s acquisition of Goal Zero, a privately held manufacturer of portable chargers and solar PV consumer products. Based in Utah, Goal Zero supplies unique niches of outdoor/offgrid enthusiasts that need power in the remote, challenging regions in which they travel.  The company effectively markets itself like Red Bull, touting the X-Games: “Zero Apathy, Zero Regrets, and Zero Boundaries is our mission. Goal Zero is our name.”  The company’s numerous ambassadors keep it real by leading expeditions to Kyrgyzstan or photographing surfers in Iceland.  They power their laptops with batteries recharged by the Goal Zero portable charger (the Sherpa Power Pack), and they blog at night with light from the Goal Zero solar lantern.  The portable chargers can be charged via car adapters, a wall outlet, or solar panels provided by Goal Zero.

The company’s products are sold through retail partners such as REI, Cabela’s, other sporting good stores around the country, and online.  And by all measures, to use the vernacular, they appear to be crushing it. With 100 employees, the company ranked #9 on Inc.’s  500 list of fastest growing private companies in 2013, with 3-year sales growth of 16,981%.

This is a big move for NRG and takes distributed generation to a whole new level.  The appeal to NRG goes beyond the extreme adventure lifestyle  to cell phone charging stations (think airports, stadiums, convention centers, malls, etc.) and potentially to off-grid living in the developing world.  I profiled Goal Zero in my Solar Photovoltaic Consumer Products report, along with Oregon’s Grape Solar, which sells similar products.  There I observed that large corporations have been circling the waters to get into the portable power/off-grid lighting niche through acquisition, but I was mostly thinking Panasonic, Schneider, and other consumer electronics companies – not the third-largest U.S. energy IPP.  NRG just went super DG, and we can expect many more to follow suit.

 

Ecova Buy Builds GDF Suez’s Demand-Side Business

— June 6, 2014

On May 30, French energy giant GDF Suez acquired energy management company Ecova for $335 million through its energy services unit, Cofely. Founded in 1995 as WWP Energy Solutions, Ecova started out as a utility bill management company that helped customers better understand their energy bills.  Over time, the company expanded into adjacent businesses such as energy procurement, waste management, and telecom.

As demand for energy management and sustainability tools grew in the late 2000s, the company acquired other specialist firms, such as Ecos Consulting, The Loyalton Group, and Prenova, a building energy management systems (BEMS) company.  This organic growth enabled Ecova to get an early lead in terms of acquiring Fortune 500 customers focused on energy management, such as Shell and Starwood Hotels.

GDF Suez, though perhaps known best as a power supplier with operations primarily in France, Belgium, and the Netherlands, has diversified its portfolio over time and, through its suite of subsidiaries, is now a major energy services provider.  Of its €17 billion ($23.2 billion) in total annual revenue, 6% – or €1.0 billion, is in energy services, including facility construction, operations & maintenance, and energy efficiency retrofit services.  The company is also more international today than in the past, with 25% of its revenue coming from outside Europe.

Blurred Lines

The Ecova acquisition propels GDF Suez forward in its pursuit of broad energy efficiency services.  In addition, Ecova’s intelligent, software-based platform complements Cofely’s more traditional approach to energy efficiency via HVAC, lighting, and building automation system (BAS) retrofits, allowing it to provide enterprise-level energy management for GDF Suez’s global customers.

From a geographical point of view, the acquisition provides GDF Suez a platform for engaging a broader set of energy service customers in North America while accomplishing largely the same for Ecova, as it aims to expand beyond North America.  It also brings GDF Suez in closer competition with French rivals such as Schneider Electric, which acquired a close Ecova competitor, Summit Energy, in 2011.

By bringing more intelligent building capabilities in-house, GDF Suez is positioning itself as a broad energy services provider for buildings, and this acquisition symbolizes the continuing blurring of the lines between the energy and buildings industries.

 

How the GE-Alstom Combination Could Save the Offshore Wind Power Industry

— May 8, 2014

GE’s proposal to acquire French power engineering group Alstom’s power generation business for $13 billion is not a done deal – the French government has said it is conducting a review of the purchase, and Germany’s Siemens has provided a counterbid while it conducts due diligence.  This proposal will, if completed, have major implications for all forms of generation – including wind power.

In truth, the prospective deal raises more questions than it answers regarding how the wind energy businesses of the two companies will merge.  First is how to square GE’s hesitant approach to offshore wind with Alstom’s serious and capable pursuit of the market.  If that happens, this deal could provide a much needed boost to the promising, but struggling, offshore wind sector.

Nothing Further

Alstom has chosen direct-drive turbines for its next-generation offshore turbine, the 6 MW Haliade.  The first prototype was installed in French waters in 2012 and a second in 2013.  The same units are destined for a Rhode Island, Connecticut offshore wind farm.  Alstom also won the right to be the exclusive turbine supplier to the consortium led by EDF Energies that secured three offshore projects with a combined capacity of 1,428 MW in the first French offshore wind tender expected to be commissioned by 2018.

Beyond that, the future for both Alstom and GE offshore is unclear.  At the annual European wind conference in March, GE’s vice president for renewables Anne McEntee said the company was focused on the onshore wind market and questioned if offshore wind makes economic sense due to its high cost and vulnerability to policy volatility.  GE knows from experience.  It installed a 3.6 MW turbine offshore in Ireland in 2003, and since then has been largely quiet on offshore.  GE’s re-entry into offshore seemed imminent in 2009 when it acquired Sweden’s ScanWind, which offered a 4.1 MW direct-drive offshore turbine.  GE installed one in Sweden in 2011, but there’s been no further news.

Bigger Is Better

The future is likely one with fewer but stronger wind turbine vendors than exist today.  In offshore, consolidation is the strategy of choice, with Vestas forming a joint venture with Mitsubishi and Areva forming a joint venture with Gamesa.  If GE plans to use the Alstom acquisition to re-enter the offshore wind market, that furthers the consolidation trend and will help GE in terms of offshore turbine technology and market entry.  Alstom’s offshore turbine is larger and arguably more advanced and robust than GE’s 4.1 MW unit.  Also, GE’s financial strength is exactly what the offshore sector needs right now to increase the confidence of offshore wind investors and, in turn, help find solutions to bring down the cost of offshore wind for the entire industry.

Alstom’s onshore turbines are likely to be phased out as a brand, but the technology will be rolled into GE’s fleet and will augment GE’s 2.5 MW turbine offering with 2.7 MW and 3.0 MW units. Alstom turbines spin in 15 countries, and the company has a nacelle facility in Texas.  Alstom also has a strong presence in Brazil, where it delivered 238 MW in 2013.  Yet, GE took top market share in that country for the first time in 2013.  The merger would result in one less competitor for the limited market and cement GE as the most formidable competitor.

 

In Mergers, Security Risks Arise

— May 6, 2014

While my colleagues analyze a couple of recent big acquisitions – GE’s announced acquisition of much of Alstom and Exelon’s announced acquisition of PEPCO – I’m going to examine mergers and acquisitions (M&As) from a cyber security perspective.  This is one of those rare cases where security has a longer timeline than other disciplines.  Usually we get the call just after the disaster.

An M&A, almost by definition, introduces a great amount of variance into what was once a stable environment.  Two corporate cultures must merge.  Two sets of business processes must merge, frequently with substantial overlap in areas such as back-office processes.  Two sets of operational processes must merge.  Two IT architectures must merge, or at least be made to coexist.

Each of these sub-mergers introduces variation and uncertainty that can create prime targets for cyber attackers.  Sophisticated attackers are aware that stable, day-to-day operations are likely to be best protected.  Exceptional situations, such as system mergers or transitions, can present attack windows where normal protections are not present.

They’re Watching

A key attack point lies in the transition from old to new processes or systems.  Many M&A transactions are justified in part by the reduced operating expenses of the combined entity.  Redundant administrative functions can be eliminated, separate IT systems can be merged, control of operating networks such as SCADA can be centralized to a single control center.  During these mergers, security is often lax because the transitional situation will only endure for a short time period.  There is a temptation to overlook security and gamble that system conversions or migrations will be completed before anyone notices.  But attackers start taking notes when the acquisition is first announced.  When the M&A involves publicly traded companies, the transaction may take months to finalize – and all of this time can be used to plan an attack during the transition period.

Meanwhile, employees unfamiliar with new business processes can be susceptible to social engineering attacks, wherein the attacker may pose as someone performing the transition activities and ask for passwords or other sensitive information in the name of speeding up the conversion.  As with many other social engineering attacks, this one often works because the scenario is plausible.

Watch the Exes

There are many steps to mitigate these risks.  Here are three of the most important:

  1. Build security into all transitions – business processes, IT, control systems, everything.  Think about what kind of protections will disappear when old processes or systems are decommissioned and plan for how those protections will remain present during the transition.
  2. Conduct a thorough employee awareness program to ensure that all employees of both companies understand what transitions are taking place and what their roles are in protecting the resulting merged entity during the transition.  It is especially important to notify employees that no one will call them and ask for passwords or other sensitive data.
  3. Have a backup plan in case something goes wrong during the transition to ensure that the business can continue to operate.  Like most business continuity planning, this is often an arduous but critical activity.

Usually transitions associated with M&As do not all happen at once.  Enterprise IT systems and operations control systems sometimes are not merged until years after the transaction.  Unfortunately, one of the first transaction activities is to terminate the employment of administrative employees made unnecessary by the M&A.  Even in this case, there should be sufficient protection against hostile activities by disgruntled employees.

 

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