A market entry strategy of Metso for the biomass-based power generation solutions market in South Africa
Thesis (MBA)--Stellenbosch University, 2011.
The global energy industry is actively moving toward renewable energy sources in order to meet the ever-increasing demand for energy in a sustainable manner. The South African government, however, has only recently begun creating an environment which is truly conducive to investment into the renewable energy industry. Metso, a Finnish multi-national corporation, has a strong global position in the field of biomass-based power generation for heat, power or combined heat and power applications. The corporation has developed a modular biomass-based power generation solution for power generation in the 3MW to 10MW range, which is highly automated and can essentially operate without the need for extensive human intervention and is known as the Metso Bio-energy Solution. Considering the current state of the South African energy environment, Metso management requested the researcher to investigate the opportunities that exist in the South African market for Metso’s Bio-energy Solution, and to propose a market entry strategy which Metso should follow in order to enter the South African market. In the findings, the researcher observed that South Africa has a clear potential for the development of a bio-energy industry for power generation, although the limited availability of biomass in certain regions and the various harvesting methods in industries such as the forestry and sugar industries do restrict the access to this resource. The municipal solid waste industry appears to be an area of interest as well, although very little information exists regarding the volumes of waste available and sorting practices, which may be required in order to access these resources. Interviews were held with experts in the field of energy, renewable energy and energy policy in order to obtain opinions on the market potential for Metso’s Bio-energy Solution. The general perception of all interviewees was that the technology has its place within the South African energy mix. The interviewees, however, did confirm that there currently appears to be a major focus on wind and solar energy in the country, although biomass technology may well be a better solution due to its baseload capabilities. It was found that the local policy environment, the lack of government initiative on renewable energy licensing and unclear tariff structures have all inhibited the proliferation of the renewable energy industry. In many cases, frustration with power outages and policy delays has caused companies to invest in biomass co-firing facilities for their own consumption. The factors for success for biomass-based technologies in the South African market would appear to be directly linked to job creation potential, access to reliable and sustainable biomass resources and access to investment capital, from both private equity and the state. It is the recommendation of the researcher that Metso enters into a joint venture with a large international environmental finance company, which would base their business model on the technology provided by Metso, whilst securing the political and financial support for projects of this nature in the country.