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, e281282 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