In recent years, we’ve seen the costs of solar and wind drop rapidly. Declines in technology, installation, and EPC costs, paired with abundant supply have brought power prices to unprecedented lows. While this is great news for lower costs, the power producer’s business model is running into trouble. In a hyper competitive market, where the lowest project bidder wins, their profit margins are being squeezed tighter. The cost of technology, which was the primary source of cost reductions, no longer remains a viable path to profitability, nor a source of sustainable competitive cost advantage.
However, selling, general and administrative expenses (SG&A) are under direct management control and is an area where structural cost advantage can be gained. SG&A includes the people and processes associated with project pipeline development, portfolio and risk management, investment due diligence and go/no-go decisions, as well as resource allocation and project execution. There are tremendous opportunities to improve operational efficiencies and unlock lost capacity associated with these existing sub-optimized mission-critical processes.
Typically, operational processes are disconnected, with information and data in silos, making it difficult for your SG&A to collaborate. This leads to significant lost productivity and impairs executives from the critical real-time data, information and insight needed in order to make rapid accurate resource and capital allocation decisions.
Agility and accuracy are key in today’s’ hyper competitive market. The lack of agility in decision making can result in increased risk of a costly mistake. Moreover, slow decision making makes it difficult to secure the most profitable deals in the market. However, with deal margins squeezing tighter, one small mistake can potentially wipe out all other gains.
These areas can be improved by properly and systematically bridging data silos and automating processes.
Markets leaders have shifted their focus towards unlocking their capacity, and are striving to increase workforce productivity by 10X. It is the single largest opportunity to gain the upper hand on structural cost advantage and improve EBITDA performance. By better connecting the data silos, organizations can collaborate more effectively and executives can enjoy access to real time information to make faster, smarter and more accurate finance and resource allocation decision. All of these benefits enable a sustainable competitive advantage.
Power producers need to start focusing on what they can control. Technology cost curve will continue but that’s available to everyone. Focusing on agility, speed and accuracy in decision making, and dramatically improving organizational efficiency is where the opportunity lies to survive and thrive in the competitive market.