- News of strategy consulting
- April 20, 2018
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“The phone is crying. Dixit an energy specialist strategy consultant interviewed this week by Consultor. The acquisition of Direct Energie by Total raises a lot of interest and questions about the future of power generation and distribution, both for professionals and individuals. Is this the end of a duopoly EDF – Engie that ten years after opening to competition remains almost unchanged? What could the distribution of electricity and gas be done in the months and years to come? Consultor asked Boris Imbert, founding partner of Mawenzi and Philippe Angoustures, associate energy and digital economy at PMP . Cross interview.
Why this redemption?
Philippe Angoustures: Total, like others, makes the analysis that electricity is an energy of the future. Because it will be competitive, non-carbon and you can do everything with it, from district heating to transportation. With the acquisition of Direct Energie, Total enters a little more electricity. He also balances his business model. Between upstream, where the group bought in 2011 the Californian solar panel manufacturer SunPower and in 2014, the French manufacturer of batteries Saft. There, with Direct Energie, Total is positioned on the downstream, and distribution. When wholesale prices are high, the upstream is lucrative but downstream suffers. When prices are low, the loss of margin upstream can be offset by better profitability downstream.
Boris Imbert: The electricity and gas markets are still dominated by the two historical players, EDF and Engie, who share the number one and two positions respectively. It was a game of two in which Direct Energie managed to make a place for himself. Total’s change dynamic.
Does Total accelerate its withdrawal from all oil?
Philippe Angoustures: Either Total takes positions in future markets or lets other players take the lead. In India, one of the largest energy markets in the world, if growth is not coal, it could be solar and electric.
Boris Imbert: In the very long term, the place of oil will decline, both for reasons of resource depletion and the environment. Within fifty years, the question of resources will be settled. Total will become more of an energy company than a tanker. In cities, new autonomous and electric mobility will require ever greater electrical capacities. Total does not enter this market by chance.
Two billion euros of valuation, is this the right price?
Philippe Angoustures: It’s expensive. This means 750 euros per customer, which are to be compared to 60 euros annual gross margin that have been released on average in the electricity market in France, at current market conditions. Seven hundred and fifty euros per customer is the price we could pay in the heyday of telecom in a sector where it was possible to count on larger margins.
Boris Imbert: This is not the main asset on which Total puts his hand. The oil group buys time, the one that Direct Energie has laboriously spent since its formation in 2003 to build a customer portfolio of 2.6 million people. And a place in a market with potential profitability and very high development capabilities.
Exactly. Why are EDF and Engie so dominant in markets open to competition since 2007?
Philippe Angoustures: Alternative suppliers remain unknown to the majority of users. Openness to competition is not at all the same in electricity and gas. For electricity, it is structurally limited by the predominance of monopolistic generation means, in the nuclear and large dams, which limit the possibilities of alternative sourcing for suppliers. However, in gas, the opening is much more important and the competition will be accentuated with the end of the regulated tariffs, whose end is announced for 2023.
There are twenty-three alternative electricity suppliers in France. What room for maneuver do they have?
Philippe Angoustures: Reduced margins. Depending on the average temperature in a given year, you can save 50 to 100 euros by becoming a customer at home. But they can not charge much lower rates than EDF and try to differentiate themselves by innovation. Which does not carry crowds. Especially that half of the customers do not know that she can change supplier. Having detailed information about your electricity consumption directly on your phone does not justify the greater number of spending a few more euros per month.
Boris Imbert: A parallel can be made with the telecoms market, which was opened to competition in 1998. Twenty years later, there are four dominant operators. However, Total could be the Free of Energy and an opening to competition could be very beneficial in terms of rates and offers for end-users.
Are we heading towards a game with three EDF, Engie and Total?
Philippe Angoustures: Total now has three million electricity customers in France, representing 10% of the approximately 30 million connected accounts. It starts to do. But three big challenges are facing him: Total arrives with a culture of large oil margins in a company with a culture of agility and cost control. Will the marriage be happy? Secondly, will it happen to make electricity a more profitable activity through new services while for the moment none has found its economic model? Thirdly, once he has stabilized his electricity supplier model, will he succeed in deploying it internationally?
Boris Imbert: In Africa or India, Total will undoubtedly operate through acquisitions as well. France still accounts for 10 to 15% of Total’s sales, but an important challenge will be to replicate this diversification in markets with absolutely huge energy needs.
With 100,000 fewer customers per month for EDF, the erosion of its monopoly is accelerating. How can he react?
Boris Imbert: EDF will be forced to act and move faster. That said, again, the comparison with the telecoms holds: Orange remains leader even though he had to reform. EDF will have to make its revolution, with a particularly heavy nuclear subject.
Interviewed by Benjamin Polle