Focus on integration and regulation during first year of Elia Chair

Vlerick Business School and Elia Group haven’t waited for the official signature to get started with the business of discussing the issues facing the energy business. So it was with interest that we heard from both Nils Engelke, responsible for the Elia Group’s Strategy and Innovation, and Professor Leonardo Meeus, director of the Vlerick Energy Centre, how the collaboration is proceeding.

“There are,” says Nils Engelke, “two main focus areas for this year. The first is a good understanding of M&A experiences in the power grid business, and the second is the evolution of the regulatory landscape. However, what we at Elia particularly enjoy is the combination of the academically rigorous approach of the professors and the more pragmatic approach we have within the company. It really does make for a highly fruitful and insightful discussion. Already we see the benefits of working with experts from outside the industry, for even though we know what’s written in the press, we don’t have the intimate knowledge and contacts that Vlerick professors have.”

Multi-disciplinary approach

Professor Leonardo Meeus confirms this approach: “The school works with one sector expert and a wide range of multi-disciplinary professors with extensive business expertise. It means that the School can generate a varied selection of interesting and relevant cases to Elia. The topic of M&A for example – of considerable relevance to Elia after their merger with 50 Hertz Transmission 4 years ago – happens to be a particular area of expertise of our Dean, Philippe Haspeslagh. He and I therefore are working closely together besides two researchers, that we’ve been able to finance, thanks to the Chair.”

50 Hertz: a classic tale of M&A

Already, one interesting aspect of the Chair has been the creation of a teaching case around how Elia bought the company 50 Hertz, based in Berlin. As it was the first transmission system operator (TSO) to go beyond its borders, the story is not just interesting from a Vlerick Energy Centre point of view, but a classic tale of M&A in general. The story will be presented with learning points in Vlerick’s Future Power Grid Managers Programme and it will be of interest to all the participants, including those from Elia and 50 Hertz, to see just how the merger took place. “It’s an opportunity for Elia to show one of its success stories to both its own colleagues, and others in the power grid business, especially as they were first movers in a sector than has been traditionally national. It’s also an opportunity however for Elia/50 Hertz managers to hear comments and learn from other top professionals in the sector,” comments Professor Meeus.

Future consolidation of TSOs

“The post M&A work is not only about looking at past experiences,” adds Nils Engelke, “what we’re looking at is the future consolidation wave of TSOs. How can we participate in that? And what are the moves that would be good, and what are the M&A opportunities where one should actually think twice.”

“There is clearly a link between this topic, regulation and the future of the industry,” adds Professor Meeus. “If we look at the current landscape of 41 TSOs in Europe and more than 2500 DSOs (DSO = distribution system operator), we have to ask ourselves if this is a situation that is going to last, or whether there will be further consolidation. There is in effect a demand for this type of study, as it is clear fewer more efficient actors in the market is also better for the consumer.”

Value for the European industry and consumers

Professor Meeus continues: “The whole big picture of Europe already exists within our cooperation, as the Chair contributes to the development of the management programme, and this programme is already fully European. We have a platform here for the whole sector to exchange best practices and move this industry forward, and this in many areas like finance, strategy, business model innovation and multi-cultural group work. Each one a topic of importance to regulators, for it is important that the investments made by the industry are done in an efficient a way as possible, so there is real value created in the industry as a whole.”

Regulation

“Regulation,” Professor Meeus goes on to say, “is one of the topics we’ll be working on in the context of this Chair, and already things are moving fast. We’ve had a regulation change moving from cost+ to incentives in Europe, just like the UK. But now that most of Europe is finally following the UK model, the UK has changed again. What’s important now, it seems, is not to simply squeeze the assets, and make companies do what they were doing in a more efficient way. The world is changing, which means that the TSOs need a new kind of regulatory framework, with new incentives and investments. So even though the UK has tended to lead the way, the question is: what should Europe do now? And what will be the best TSO framework for the future?”

First report in June 2015

With the Chair working in annual cycles, the first findings will be made public in June 2015. There’ll be a joint announcement, most probably at the closing session of the Management Programme, and all the findings and sector research will be made available for public consumption and discussion.

 

About the Elia Group

With its two transmission system operators, Elia Transmission in Belgium and 50Hertz Transmission, one of four German transmission system operators active in the northern and eastern part of the country, the Elia group is exemplary among European system operators in terms of its independence, its dynamic contribution to the development of the European market, its commitment to securing the supply of electricity and also its efforts to integrate more renewable energy into its systems.