If you’ve been in renewables for any length of time, you’ve probably heard of BayWa r.e. They’re no small fish. They’ve built nearly 3 GW of operating capacity worldwide, and they manage more than 7 GW. With operations in Europe, North America, and Asia-Pacific, their perspective on the renewable energy industry is uniquely global. Recent forays into technology and digitalization have helped them envision a brighter future for the renewable energy industry.
This fall, I sat down for a conversation with Dr. Virgil Cazacu, BayWa r.e.’s Head of Digital Transformation focusing on the Services area, and Max Methe, Head of Finance of the Business Entity Services, to talk about the future of the industry, and the technology and processes pushing BayWa r.e. forward. But before we begin, what is digitalization anyways?
To directly quote BayWa r.e. themselves (and their recently-released white paper on the topic):
“Digitalization is transforming the renewable energy sector and is the focus of countless seminars and conferences. But to understand its benefits, we must first recognize that digitalization in this field is not just about technology. At its simplest, it is about how we are interacting with renewable energy whether as part of the supply chain, the customer or the end user/consumer. It is about everyone involved in the energy value chain and the services that support the different stages within it.”
Tell me about how BayWa r.e. began to recognize the need for digital transformation?
Virgil: I was hired as part of the result of this realization. Our services areas need to have a strategy that unites BayWa r.e. in general with BayWa r.e.’s service teams in particular. In services, we’re interfacing with asset owners more directly, and over a longer term than the rest of the company, the development side in particular. I believe the market is starting to shift expectations not just from construction but also as pertains to service, because the subsidies are no longer there. That means asset owners need to be better, and run their plants as a business, in a more efficient way. They know they need to have the highest production possible and the best availability. They need services providers that cannot just maintain the renewable energy plants, but also provide the right information at the right time.
Max: I think from my side if you make the distinction between the service business and the other parts of the renewable energy value chain, the service business really differs from development. It’s a low-margin business with recurring stable revenues, different from typical project development. And I think the need for digitalization is driven by the need to build up an efficient and streamlined business. The portfolio’s getting bigger, and more complex, and to handle this appropriately, you need digitalization.
BayWa r.e.’s portfolio is complex – spanning continents and countries – how do you manage such complex and varied customer requirements?
Max: I think in all cases, without any exception, with a strong local management, a local management structure, and a local team on the ground. It’s not that we, the Munich-based BayWa r.e. team, want to do business in Italy ourselves, we’re doing business in Italy with 3 local offices, local management, and local people. So to adapt to local rules, you need to have boots on the ground in that country, and a strong management in place.
Technology can help you for communication, but can never really replace the personal relationships, and the experience of the cultural differences that are there and should be embraced.
Virgil: In this case, of course, technology supports the local service entities tremendously, and our approach is to implemented it locally within these entities. There might be centralized solutions in BayWa r.e., which nevertheless must be customized at the local level. This kind of approach cannot be done always remotely, as you really have to be in the “mud” (sometimes literally), and work with local people in their own environment. This is crucial as they know how the plant is built, and what the local standards and requirements are as to operation.
What does digitalization look like for BayWa r.e. in the future?
Virgil: I think we have to define digitalization first. It’s not just about technology-related buzzwords. It’s the way that we at BayWa r.e. services are interacting with the inside and outside world, with our employees and customers, with the industry’s partners. And it applies across the whole energy value chain. It helps us translate all this experience that we have into continuously improving services for our customers. It’s not just about technology, but also processes. It’s in the way we’re working to streamline internally the efforts to serve our customers better, to bring enhanced customer experience and provide new services.
I think that lots of companies think technology will just magically solve all their problems and forget about everything else.
Virgil: I can tell you so many stories which I have witnessed in this regard. Actually, technology should be the last component of a transformation initiative. It should be first People (including the culture of the company), Processes, and Technology as an underlying function.
Let’s talk about pitfalls – what do you think companies just starting out in the digitalization process should keep in mind?
Max: It’s an ever-changing industry. Since inception so many things have changed in our service business, and the bottom line is that if you’re in an ever changing, ever evolving industry, mistakes are going to be made, and you just need be able to quickly spot and address them. I think if you have digitalization in place, then you can identify and address mistakes quicker.
What do you think are the biggest challenges that renewable energy will face going forward? How do you think we as an industry can surmount them?
Max: I think it depends on the market you’re looking at. I personally think that the death of the tariff schemes is a chance for the renewable energy industry. Costs have come down significantly, and ultimately, it has to be a business which can stand on its own two feet. And this is a goal that everyone should try to accomplish. That’s a challenge, standing on our own as an industry, but it’s a challenge that has to be there, and this should be the industry’s ultimate goal.
Virgil: Max has really expressed the business point of view well. Digitalization is starting to support this business approach, to move the focus from reactive to proactive actions. Today, the customers request various types of reports, mostly about past events and of course we are producing these reports. With this new paradigm in place, we can however tend towards more proactive actions. We are gaining more abilities to predict events and have a good understanding of what’s likely to happen in the future in the customers’ renewable assets. That could mean for instance one, three or seven day forecasts, relating to energy prices, or even longer for services that are needed on site. Based on the predictive data, action plans can devise for the future. Otherwise, you can’t be really effective in running your business without support from digital tools, specific knowledge and processes.
How can we r.e.think digitalization? Asset Management?
Virgil: So I will start. There are couple of ways that BayWa r.e. is looking to shift or enhance the market. One of those ways is through our venture capital company, which is investing with purpose in startups acting into the energy industry. We’ve invested in three different startups so far. They’re ranging from digital circuit makers, so, more or less, intelligent hardware, up to an AI company in solar that predicts and detects faults onsite without installing external hardware, and a company which is helping to intelligently trade solar components. So that’s one side of it. Another way we’re doing this is through creating and working with digital companies, small and large, in order to come up with new services or new business models for and with our customers. That’s why PowerHub is also in our ecosystem, to contribute to the enhancement of the energy value chain in constellation with the other partners.
Brace yourself; I’m going to make a bold statement. Without digitalization, the renewable energy industry will fail to adapt to changing market conditions, and won’t be able to compete well. This is wholly the opinion of the author, but I think we can all agree that the impetus to adapt and to change the way you’re doing business is there. So don’t get left behind.