Innovating in Energy
Course Number 1164
Senior Fellow Joseph B. Lassiter
Professor Forest L. Reinhardt
Baker Foundation Professor Richard H.K. Vietor
Fall; Q1Q2; 3.0 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. The cases in the course cover both traditional energy sources (oil, gas, coal, and hydro) and new "clean" energy sources like solar energy, bioenergy, and wind.
Without the heat, light, and mobility provided by suppliers of energy, the modern economy simply could not function. But energy prices are often highly volatile, and energy firms are subject to pervasive government intervention, especially when value chains cross international borders. Climate externalities are now increasing in prominence, further complicating the strategic choices both of incumbent firms and of would-be disruptors.
In the course, we analyze the ways in which the relative costs of various supplies, as affected by government intervention, shape the competitive landscape of the firms. We pay specialy attention to national security externalities and externalities involving climate change, along with the private costs of supply.
We will examine both the supply side and the demand side of energy markets, with an emphasis on supply. We will look both at transportation fuels and at 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, corporate strategy, and risk management from the basic Strategy course. It applies ideas from BGIE on the rationales for government intervention and the political factors that influence policymakers. And it applies numerous concepts from the School's entrepreneurship curriculum, including those involving staged investment, experimentation, and scalability.
Students will leave the course with an exposure to the strategic and risk management problems that confront traditional and new 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 short modules, listed below with representative cases:
- Introduction Husk Power; The physics of radiation; Basic energy demand and supply
- Innovation among incumbents: upstream supply and midstream logistics Keystone Pipeline; Shenhua Energy
- Innovation among incumbents: downstream value creation and value capture Laredo Petroleum; Duke Energy
- Innovation in new firms: the new energy capital supply chain Khosla Ventures; 1366
- Systems Innovation : working with the rules and rulemakers Energy policy in Europe; Carbon engineering in California
While most of our classes will be case-based, we will also invite a number of guest lecturers from other Harvard schools and from business, government, and journalism.