Siemens Energy: How to Engineer a Green Future?
Green is going from boutique to better, from a choice to a necessity, from a fad to a strategy to win,
from an insoluble problem to a great opportunity
THOMAS FRIEDMAN, HOT, PLAT, AND CROWDED
nk T, Rothaermel
gia Institute of Technology
tt Hoepter
orcia Institute of Tachnology
ETURNING FROM DAVOS, Wolfgang Dehen,
CEO of Siemens Energy, steps off the
plane and stretches. He has just met with
executives of the partner companies of the
Energy Industry Partnership Programme,
Pnsored by the World Economic Forum. At their
ual meeting in Davos, Switzerland, these part
#S and the energy ministers from various counties
Bie and address the leading industry issues for the
pzoming year. Siemens is proud to be recognized as
member of this esteemed group, which includes
Bi companies like Chevion, Exxon, Shell, and Kuwait
jioleum; alternative-energy experts such as Vestas
lin systems; and major eneray suppliers like Duke
Brergy and Tokyo Electric Power. Its always intriguing
Bimect with energy leaders from across the globe,
Hl especially so when Siemens's leading competi
le. g., ABB and GE} are in the same room, talking
ut collaborative ways to improve worldwide energy
jency.!
Energy elfciency has not always been a hot-button
Bpic, least of all in corporate circles. Awareness of
feed to reduce nations’ economic dependence on
Bssi fuels first came to the forefront during the oil
Iss of the 1970s. As the OPEC countries? reduced
py. ol prices quadrupled, effectively shutting down
stem economies, at least temporarily, Then, as oil
bes decreased and vast new ol fields were discov-
i around the world, public and industry interest in
Bigy conservation waned. As long as oils cheap and
Bundant, the public remains unwiling to pay premium
fees for their energy needs, and there is no financial
ntve to invest in alternative energy.
However, the price of oll has been trending upward
in recent decades in a dramatic rolle-coaster fashion
(see Exhibit 1). When crude oll prices spiked at an all
time high of $145.15 per barrel on July 3, 2008 (up from
‘$50 only 18 months eatlien, the news sent a shock
wave throughout the eneray sector, Combined with
a gtowing global awareness of the impact of green
house gases on climate change as well as increased
concems regarding energy security, energy issues are
Now receiving renewed interest from governments
and corporations alke.?
(One thing the Davos meeting participants have
agreed on is that innovation will be essential to increas:
ing energy efficiency.’ Both continuous. improve-
ments in existing technologies and new breakthrough
‘epproaches to energy generation and distribution are
Necessary if major economies like the United States,
China, Russia, and the European Union are to meat
their respective energy targets over the next few
years. For an eneray company like Siemens, this pres-
tents both » challenge and an opportunity to carve out
8 leadership position in the naw energy economy. A
‘group of 20 CEOs captured this sentiment eloquently
in theit 2008 Climate Policy Recommendations to GB
Leaders:
A paradigm shift 10 a low-carbon economy by 2050
has the potential to crive forward the next chapter
af technological innovation it will require @ third
this time 6 greer—incustrial revolution. To realize
this potential, the new framework must harness the
ower ofthe market to deliveran the environmental
biectve.®
However, a host of nevi, alternative-energy tech
nologies are vying to replace carbon-based fossil fuels,
e281282 CASE 20
EXHIBIT 1
ude Ol Price per Bar
and it is hard to figure out what to do first and where
to place the greatest emphasis. Wind and solar have
levels of technology readiness and are
relatively mature compared to other renewable-energy
sources. Better materials have enabled ize
companies to build everlarger wind turbines, thus
increasing efficiencies and reducing costs of win:
energy, Large wind farms have been installed in several
countries, and offshore wind parks have been erected
reached h
to harvest the more constant and abundant winds over
the oceans. Betting on wind as an alternative energy
source, former oll man T. Boone Pickens announced in
2007 his plans to build the worle’s largest wind farm in
the Texas Panhandle. (He later changed locations due
to a lack of transmission-ine transport the
energy to either West or East Coast population cen.
ters.!° Meanwhile, solar panels have reached a pro-
duction cost of less than $1 per KW (kilowatt) output
And these ere only two options out of a portolio of
technologies that range ‘rom usefulyetuntested to
plain science fiction. Some other candidates, such as
eathermal energy and hydropower (water and wave
nuclear
exploitation), not to mention next-generat
reactors, have evolved quite rapidly in
application
First thing tomoron, Wollgang Dehen plans 195
stegy team and charge thern
ble task: to formulate @ stategy on how to best pl
joba neva
mensin th gy market The
‘are igh, and the recent financial turmoil and credit
do not make the decision
through Deher’s mind are as diverse as they reco
easier The questions
= Should Siemens make its best guess on the
nd invest deeply in a limited number of oi
fr cast a wider net and hedge its bets on il
forms of alternat
If Siemens is to focus on a narrower field, HO
ative energy will
leading technology in the future? Can anew
identity whic
tive innovation be foreseen and capitalized
Or can Siemens pick an alternative technol
help make it the winner
How should Siemens Eneray compete in th
elds)? Should it goit alone, developing roa