Background and challenge
A private equity firm was interested in a potential investment in the renewables software space, with the ultimate goal of creating a renewable-energy asset management software (AMS) platform. It had developed an investment thesis that the U.S. solar and wind AMS market still had considerable runway and would therefore offer attractive returns. But the firm wanted to stress-test its thesis and gain a deeper understanding of the market before wading in. The firm engaged L.E.K. Consulting to conduct a comprehensive market analysis that would help it refine its thesis. In particular, the client wanted more insight into AMS use cases, user penetration, potential buying opportunities for AMS solutions, and key vendors in the space.
Approach and recommendations
We divided the project into three primary workstreams:
- Defining market size and sales opportunities: We quantified the potential sales opportunities in the U.S. solar and wind markets and reviewed opportunities in the EU. This analysis covered the solar and wind installed base, estimations of third-party AMS adoption rates, and estimates of potential request for proposal (RFP) opportunities.
- Outlining customer behaviors: We described customer dynamics, including selection criteria, switching behaviors, trends driving adoption of third-party AMS solutions and additional market feedback on reducing barriers to adoption.
- Assessing the AMS vendor competitive landscape: We defined the competitive landscape in terms of dimensions such as asset classes served (i.e., solar vs. wind) as well as the level of functionality for each vendor. Market participant feedback on leading AMS vendors was also included.
We made several recommendations to the client regarding focus areas for investment:
- Performance analysis, financial reporting, contract management and maintenance planning are critical AMS modules that enable a renewables asset to operate efficiently. Our research revealed that performance monitoring and analysis solutions showed particular promise.
- A combined technical (performance) and nontechnical (maintenance and contracts management) value proposition is what customers value most.
- Finally, we suggested that the client consider only a shortlist of targets, given that many customers had already settled on vendors and switching vendors tends to be rare.
As a result of our research and analysis, the private equity firm was able to refine its investment thesis and had a set of actionable intelligence that it could tap into as it progressed into the transaction process. In addition, our early red flags review and deep due diligence provided the firm with a competitive edge over competing bidders.