The backdrops of such strategic choices are changing market environments, with many consolidated markets fragmenting and numerous fragmented markets consolidating.

As market dynamics change, so must portfolio strategies Therefore, some firms, with their individual starting points and capabilities, might not be able to successfully “surf the wave,” but rather could find opportunities in “going against the tide,” such as by focusing on the comparatively smaller conventional generation or retail segments. While renewables generation and grid will continue to be the largest EBITDA value pools in the next decade, both areas are also highly competitive, with new players entering the market. Our research suggests that these decisions will be heavily influenced by the company’s perspective on value pools and its current capabilities. “going against the tide,” investing in relatively smaller or low-growth value-chain segments.įor both strategic directions, either traditional or novel approaches can be taken, opening up a chessboard of player-specific moves to choose from.“surfing the wave,” focusing on reallocating resources to the biggest or high-growth segments to.The moves they make depend on their unique exposure to different value-chain segments and stakeholder structure, ranging from: In addition to overcoming common strategic myths, companies will need to make strategic moves. Thus, for incumbents and disrupters alike to be successful in adapting their portfolios for a greener and more competitive world, they must find the right strategy-but it won’t be one size fits all. Similar trends can be observed for specialized companies. The difference between high and low performers as measured by the standard deviations of earnings before interest, taxes, depreciation, and amortization (EBITDA) multiples of integrated utilities has increased from around 1.0 to 1.5 at the beginning of the decade to 2.5 to 4.5 in recent years. At the same time, the upside of “getting it right” has increased consistently. However, “simple truths” often don’t hold-rather, a more nuanced answer is required. Utility incumbents need to respond at pace, find the right value-chain positioning, and build a winning portfolio strategy.

Others bring specific skill sets or capabilities not available to incumbents that enable them to get a foothold in new downstream activities, such as a focus on energy efficiency and data solutions.

Newly entering digital attackers with end-to-end digitized business models and modern IT platforms can, for instance, take over significant market shares from incumbents by leveraging significantly lower cost bases and acting more agile. This article was a collaborative effort by Paul Daume, Dago Diedrich, Nadine Janecke, Thomas Vahlenkamp, Alexander Weiss, and Raffael Winter, representing views from McKinsey’s Electric Power and Natural Gas Practice.Īdditionally, new entrants such as large digital players feature distinctive technological capabilities and customer access, providing them with an edge against retail incumbents.

Power utility companies