The merger voltage (I) is rising on the electric grid, but it remains to be seen which will win out: current (E) policy or resistance (R) to it.
Competition, Convergence...and Cashflow?
are squeezed and where new values may be emerging or expanding. Thus, a comprehensive "Value Map" can be projected over a given planning horizon. Choke Point Analysis reveals how existing regulatory, technological, intellectual capital, cost of capital, and consumer access choke points (which trap and shield value against competition) are being weakened or eliminated because of industry evolution and where new choke points (and, hence, deposits of value) may be strengthened or created.
These techniques are helping the most innovative companies and financial houses create a catalog of dozens of opportunities and concepts to be pursued in the next few years, ranging from potential sites for merchant plants to likely expansion projects to interesting co-investment and acquisition targets.
Pioneering firms know they must have a portfolio of at least two dozen investment ideas to ensure market entry at the right point and commercial success. In contrast, the companies most prone to be disappointed over the next five to 10 years in the new power industry are those that bet on only two or three large development efforts or acquisitions.
In summary, the right combination of liquidity, credit quality, and leading-edge foresight will make the most money (or net value added) in the new power industry. Companies with strong balance sheets and trailing-edge foresight (or leading-edge conventional wisdom) will make nice but not special returns. Investors with cash and conventional wisdom will make, at best, commodity returns. This third group will inherit the new power industry in 20 to 25 years when it becomes the old power industry, on the cusp of yet another transformation. t
Vinod Dar is director in charge of the Worldwide Corporate Strategy Services Group of Hagler Bailly Consulting, an international energy consulting firm, resident in the company's headquarters in Arlington, VA. The author's last article, "The Electric and Gas Industries are Converging: What Does it Mean?," appeared in PUBLIC UTILITIES FORTNIGHTLY, April 1, 1995, p. 21.
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