Course Number 1105
Professor Forest Reinhardt
Baker Foundation Professor Richard H.K. Vietor
Spring; Q3; 1.5 credits
The course will benefit students who intend to participate, as managers, capital providers, or consultants, in companies involved in supplying energy services to households, firms, and other customers. It will also benefit students who may work for firms in energy-intensive or energy-related industries, including transportation companies, vehicle manufacturers, and suppliers to producers of oil, gas, and electricity. More broadly, students interested in questions of international political economy and in the economics of strategic competition will benefit from the course.
Without the heat, light, and mobility provided by suppliers of energy, firms, governments, and individuals could not function. Energy prices are often highly volatile, and energy firms are subject to pervasive government intervention, especially when the energy value chain crosses international borders. In the course, we try to understand the (interrelated) reasons for price volatility and government intervention, and the strategic implications of each.
We will examine both the supply side and the demand side of energy markets, with an emphasis on supply: of transportation fuels, and of electricity and electricity inputs (gas, coal, nuclear, hydro, wind). We will include entrenched incumbents, new entrants, and would-be disruptors. Geographic coverage will be global, with half the cases set outside the US.
Two technical aspects of the energy business - the high sunk costs of hydrocarbon and nuclear, and the fact that electricity cannot (yet) be economically stored on a large scale - create unique contracting problems for energy businesses. Public and private players have in turn created institutions to solve the unique problems created by the fundamental economics of the industry, but those institutions shape the strategies available to later entrants.
The course applies ideas on industry structure, competitive positioning, competitive dynamics, and corporate strategy from the basic Strategy course. It applies ideas from BGIE on the rationales for government intervention, the political factors that influence policymakers, and the ways in which firms manage risk.
Students will leave the course with a broad exposure to the kinds of strategic and risk management problems that confront firms in the energy industries, a set of analytic approaches to make sense of those problems, and an enhanced ability to devise and implement strategies that take economic and political considerations into account.
Course Content and Organization
The course consists of several extremely short modules, listed below with representative cases:
Geopolitics and upstream supply: Pemex; Shenhua Energy
Midstream value creation and value capture: Nord Stream; Laredo Petroleum, Shale Revolution, Keystone
Environmental externalities and the renewables "revolution": Cape Wind, Carbon capture and sequestration
The demand side: Nissan in China
Synthesis and conclusions: Duke Energy