Stern MBAs Aim to Develop a Path to the Utility Business Model of the Future

A low-carbon future will require a rapid adoption and deployment of renewable power generation. Incentivizing utilities to meet that goal will require creative solutions, and the Natural Resources Defense Council (NRDC) is at the forefront of developing them. A team of Stern MBAs, via a new Stern Signature Project (SSP), aimed to develop a path for the NRDC to approach that challenge.

The first step of the project aimed to understand the utility business model of the future. Will utilities be able to survive in an age of large-scale deployment of solar, storage, and wind? Will they have to adapt their model to become “platform providers”, something more along the lines of an operating system, just controlling the poles and wires that bring power to customers? Will they be able to retain their status as natural monopolies? What will the utility “end state” look like?

These are not easy questions to answer, and they’re made more complicated by the fact that there’s no one-size-fits-all model for utilities: some are vertically-integrated, some horizontally, some operate in restructured markets and some don’t, some are owned by a holding company while others remain independent firms. The SSP team spent some time trying to find a metric by which all utilities types could be assessed. In close consultation with the NRDC, and ably guided by Tensie Whelan and Kevin Eckerle of the NYU Stern Center for Sustainable Business (Stern CSB), they worked diligently to create a rigorous template by which to segment states where utilities operate into three major archetypes. Maziar Daee, a part-time MBA working at Goldman Sachs in the commodities trading business, outlined the three archetypes: “1) States with ambitious renewable portfolio standards (RPS), with short-term deadlines and supportive regulatory frameworks; 2) states with low RPS goals, but high availability of renewable energy resources; and 3) states with no RPS and low resource availability.”

This segmentation enabled them to present concrete recommendations for each archetype to the NRDC. Utilities with large footprints in Archetype 1 states need to invest in renewable generation and grid optimization today in order to achieve their RPS goals. The transition for utilities occupying Archetype 2 states will depend on a balance between the cost of new renewable generation and electricity prices. Finally, we expect utilities in Archetype 3 states to be the last to transition and will need to import renewable energy from neighboring states in the near-term.

The team hailed from a wide variety of backgrounds: In addition to Maziar (mentioned earlier), Tom Zingale had worked in wealth management at Bank of America Merrill Lynch; Ijeamaka Obasi, a JD/MBA student, had worked in power & renewables banking at Credit Suisse and major projects at Baker McKenzie (where she will begin practicing after graduation); Andrew Smith had a masters in Civil & Environmental Engineering; and Gideon Banner had been an actor, primarily with Blue Man Group. The diversity of experiences and perspectives proved to be a prime asset in moving the project forward.

Their reasons for joining the team were varied. Tom was “attracted by the opportunity to work with and learn from our experienced advisors at the Stern CSB and the NRDC, and many of my clients will be the same utilities we studied.” Ijeamaka had “an interest in infrastructure finance and nontraditional social impact, and I felt this project would provide a unique learning experience, pursuing the goal of reducing climate change.” And as he heads to the Energy and Industrial Goods practices at BCG, Andrew said, “I will be armed with the findings from this project, and be in a better position to advise future clients.”

The team concluded its work with a final presentation to the clients at the NRDC at their headquarters in Manhattan, who assured them that the framework they had developed would be vital in helping them strategize methods to guide utilities toward and through an uncertain, but more sustainable, future. As Vignesh Gowrishankar, the team’s client at the NRDC, and a Stern professor himself, said,

“Working with a team this talented, driven and experientially diverse was both fun and productive. It enabled us to take a fresh, deep look at utility investment in renewables, and we are already using the findings to inform our strategic priorities.”