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The right move? Centrica's business strategies and where an acquisition of a CHP business might fit in

Recently Centrica announced that it has acquired ENER-G Cogen International [a supplier of combined heat and power (CHP) solutions] from ENER-G Holdings PLC.

I am genuinely excited about this development – and not just because Delta-ee provided sell side support as the Market Consultant*. However, it does beg the questions: what’s the strategic logic for Centrica? Are other utilities on the prowl for similar acquisitions?

The Strategic Logic For Centrica – It Stacks Up

The key themes of Centrica’s business strategies over the years have involved:

  1. Vertical Integration
  2. Product Diversification
  3. Geographical Diversification

Figure: Some of Centrica’s acquisitions between 2000-2016

 

Centrica

Following its strategy review in 2015, Centrica’s strategic direction involves less reliance on upstream, and more investment in downstream.  A key aim is now to grow its international revenues, and to diversify its downstream business outside the UK and Ireland as well.  Energ-G fits directly into this strategy.

Delta-ee’s Distributed Power Research Service shows that distributed power is a global growth area. ENER-G Cogen has over 30 years’ experience and a strong track record in delivering end-to-end CHP solutions for industrial and commercial customers, and has around 1,400 units totalling over 500MW under contract with a growing customer book. The business operates predominantly in the UK, but also has operations in the United States, Hungary, Italy, the Netherlands and Romania and has a strong, diverse customer base across private and public sectors. It also participates in Australia, Ireland, Japan, Canada and Turkey through sales partnerships with local entities.

It’ll be interesting to see how Centrica ensures proper integration of ENER-G into their business to extract as much value as possible, and coordinate synergies between other divisions. For example, Centrica recently purchased Neas Energy as well, one of Europe’s leading providers of energy management and revenue optimisation services for decentralised third-party owned assets. 

I think it’s a good move for Centrica and the strategic logic stacks up.

Are Other Utilities On The Prowl?

Firstly, it’s worth noting that this isn’t the first deal in this space - Cogenco, a CHP packager and servicing specialist was acquired by Veolia, a major water / waste management and energy service provider. E.ON acquired Heat & Power, a leading energy service and CHP-based onsite generation firm in Italy [incidentally, E.ON also purchased Matrix, an energy management and B2B energy efficiency services firm enabling E.ON to tap into Matrix’s portfolio of existing clients which include blue-chip corporates in the retail, telecommunications and finance sectors as well as public-sector institutions (eg. Virgin, BT, Oracle, Marks &Spencer, and Tesco)].

It’s clear that energy utility strategies are changing, and their offerings are diversifying.  Many of the major energy providers in Europe have had B2B energy services operations for years, but there is a new emphasis for growth from them. 

The B2B energy services and distributed energy space is not only growing, but becoming more competitive, dynamic and crowded … with new market entrants, acquisitions and mergers occurring within the sector. To defend their position, utilities must adapt and strengthen their offerings or else they’ll be left behind.

It’s true that there’s not huge numbers of buyers or sellers in this market, but I don’t expect this to be the only deal between a utility and a CHP player. So watch this space over the next year or so!

To have a friendly discussion on the above or enquire about Delta-ee’s in-depth research, market and transaction support capabilities in global CHP and B2B energy services market, please contact [email protected]

*Delta-ee provided vendor-side commercial due diligence advice to ENER-G Holdings PLC. 

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