The engagement began with a series of strategic analyses of major stakeholders including:

• Customer analysis – Sophisticated retail and wholesale customers are demanding transparent and efficient retail prices based on observable market prices. They are willing to take only limited market risks to achieve efficient prices.
• Internal analysis – Pass-through suppliers are trapped in a low value-added, low margin business by strong generation players and demanding customers. Few barriers exist to stop larger players from selling power directly to retail customers. The strongest asset, customer relationships, will erode over time if prices are not aligned with the market.
• Competitor analysis – Large incumbents are choosing a strategy to slow down deregulation, preferring the status quo. Cannibalization may result if the retail arm of integrated players offers competitive market services, which reduce total supplied volume.

The stakeholder analysis validated the concern of the client about its strategic positioning and indicated an opportunity for action. The opportunity would take advantage of existing customer relationships and the chosen strategy of larger players to build new market based services in cooperation with sophisticated customers. The stakeholder analysis was complemented with a scenario analysis. Analyzed future scenarios include:

• Large integrated players directly dominate the industry after successive rounds of consolidation eliminating independent suppliers and retailers.
• Large integrated players indirectly dominate the industry by controlling supply and forging tight relationships with local distribution companies, marginalizing intermediaries. The value chain in this scenario is similar to the regulated value chain.
• Intermediaries consolidate their position in the value chain by creating market based services that leverage their customer relationships and credible independence.

The scenario analysis strengthens the stakeholder conclusions. Market based services would directly add value to shareholders in the first and third scenarios while reducing the likelihood of the second scenario.

We worked in close collaboration with key customers to specify a set of portfolio management services aligned with the risk preferences of the client. We developed a business and service model that would satisfy regional customers and offer opportunities for future growth.