The Power to Adapt: Building One of the World’s Largest Renewables Power Producers

Christian Rynning-Tønnesen, President and CEO of Statkraft

In just two decades Statkraft has grown from a state-owned, Norwegian-focused power supplier to one of the world’s largest renewables power producers. Statkraft now generates 57 Terawatt hours per year. That’s more energy than what is available from the world capacity of installed photovoltaics. Today, 90% of Statkraft’s energy supply comes from 233 hydropower plants scattered across the globe.

Statkraft is led by Christian Rynning-Tønnesen, who rejoined the firm as President and CEO last year after spending five years as CFO and CEO of Norske Skog, one the world’s largest producers of paper for magazines and newspapers. Rynning-Tønnesen was employed by Statkraft from 1992 to 2005, holding various executive vice president positions from 1994.

In June 2011 – before Norway was shaken by a bombing and mass shooting in July 2011 – Michael S. Hopkins of MIT Sloan Management Review and Boston Consulting Group partner Knut Haanaes had an opportunity to sit down with Rynning-Tønnesen in Oslo to discuss Statkaft’s evolution.

Hopkins: How has your thinking about sustainability changed in the last couple of years?

Almost twenty years ago, Statkraft made a strategic decision to enlarge its portfolio in several renewable technologies — plus the most efficient gas-fired plants — because a mix of production technologies is necessary to produce continuous power. It was a risky strategy, since all the other north European companies were going to neighboring countries to acquire customers, products, or the production sites of all kinds of energy, including nuclear, coal, gas, and hydro.

Hopkins: What drove you to make that decision?

At that time, we were a hydropower company and hydropower was not considered by everyone to be very environmentally friendly. There were protests because of all the dams. We thought that with all the focus on renewable energy, attitudes toward hydro would change. We also saw an opportunity in several areas of the world to construct more hydropower, which was doing more of what we knew how to do. Finally, as a state-owned company, we had to have an appealing business concept that we could communicate to our owner in order to get capital. We were a bit bold in thinking that green and global would be an appealing story.

But it is a long way from sitting in your own office and saying “this is the strategy” to actually being one of the leading developers of hydro power worldwide. In the beginning, sustainability was more of a concept, a directional story on which way to go. We started out with hydropower construction projects in Nepal and Laos. Then we asked, “How can we create an organization that can develop in this direction?”

Reinsfors dam in Norway, one of Statkraft’s 233 hydropower plants.

Image courtesy of Flickr user Statkraft.

First, we had to understand the markets that we wanted to operate in. To establish Statkraft in Continental Europe, we set up offices in the Netherlands and in Germany before we had any assets there. We knew that if we wanted to be a significant company in Germany in twenty years in renewables, we needed to understand the politics and economics behind that market. We created analytic departments with a mandate to look at the political economy of energy markets globally to help us understand, for example, what might happen in CO2 trading policies.

We also used our market understanding on the Continent to start building assets at home. In Holland, we sold green certificates from windmills, since we did not have such certificates in Norway. That enabled us to finance three windmill plants in Norway with green certificates from Holland.

Gradually we filled our ambitions with organizational structures that helped us create both projects and profits.

Hopkins: So you’re describing a path that looks in retrospect very smooth and steady.

Of course, not everything worked out as we imagined. In the mid to late 1990s, we started to buy shares in Sydkraft, a Swedish company, which was into renewables and nuclear and a lot of other things. Another company came and bought shares in the same company. That did not work out quite as we thought, but it did become very successful since we did get 84 power plants out of it. We started to go into energy sales, selling green energy to customers, but that didn’t work out either. We also thought we could supply modern two-way communication to communicate with customers but that turned into a technical disappointment. We were able to cut our losses, perhaps not early enough, but before it became a financial disaster.

Haanaes: How much was the choice to move the company in different energy directions driven by considerations related to the megatrend of sustainability?

We were looking for a strategy where we could build on our already established skill base in hydropower. Some of the same skills are useful for wind power, for osmosis power where you make electricity from the mixture of salt and fresh water, and for other types of energy projects. The hydro is still core to our company, and we have chosen consciously among all the types of technologies that can be used to create electricity.

Other energy companies have gone into broadband or nuclear and oil. I don’t think it was ever natural for Statkraft to move into nuclear, but back then most companies went to neighboring countries and said, “We need customers. We need a broader base of technology, and we need to kind of be more dominant in the market where we are.” We said that we wanted to be a niche player in sustainable electricity production globally.

Hopkins: Has anyone else adopted that same strategic position?

Not to the extent we have, but there are elements of it in some Spanish and French companies. They are also expanding globally, especially in South America hydropower. There are also large hydro companies in Canada and in Brazil and in China, but they are mainly domestic. We have the largest renewable production in Europe and is one of the leading renewable companies globally.

Haanaes: What kind of advantages does that give you in gaining access to governments?

We get access to political decision makers in all countries that want green development, which today includes most countries. Since I restarted at Statkraft a year ago I have met energy ministers from several European countries. Many countries want to go green, and consult with “the biggest green energy company in Europe.” The same thing happens in Asia and India.

Haanaes: What can you accomplish with a sustainability profile that you wouldn’t be able to do if you were also an oil company?

I think all companies need to have a distinct profile. If we were to be merged with other companies doing different things, our profile would be blurred. That would make the company less attractive. But it doesn’t really have to do with the sustainability profile. I think if all the people working day and night to develop all these projects knew they were part of a company that was doing something they considered to be less than morally impelling, their motivation and engagement levels would drop.

Hopkins: What other sustainability-related considerations do you think about in your role at the top of the company?

Management style, how you treat people. In companies that have a culture of blaming or management by fear, people don’t tell you what is wrong because they are too afraid of the consequences. That is a big risk. The world is moving too quickly. The best way to identify the dangers and catch problems early is when you hear about them from your own people. If you don’t get that information, if you sit in a glass tower at the top of a big company, you can feel good for a while, but then reality crashes in.

You have to act early and fast and have short communication lines to the people who are really in the markets, with the new technology, with the customers, with the policy-makers. To adapt quickly, you need to get the right information.

I have had the unpleasant experience of getting rid of some managers, not because of their qualifications, but because of their behavior. Being skilled is not enough. When you have people who are not treating others correctly, you have to get them out of the way. It is very difficult to reset someone’s values, so when they are managing others, you need to replace them quickly.

Haanaes: Is it possible to have a sustainable platform as a company if this is not in place?

Sustainability in what dimensions? You could have a green profile but the wrong management. On the other hand, if you have good leaders, you can do very well, even if the business is not the best for the world. The best is of course a combination of good purpose and a good sustainable set of management values. If I were forced to choose, I would rather have the right management and refocus the business purpose, than the other way around.

Hopkins: If you compare your experience with the businesses that you compete with, have others caught up? Are they thinking the way you are?

We are not alone in our renewables profile or in our approach to business development. We have to constantly push ourselves to develop, and also to be good at what we are doing now. There’s a lot of room in our industry to go green and to go for renewables. If we don’t run fast, we will not be the biggest company in renewable energy in Europe in five to ten years.

Haanaes: Is it fair to say that ten years ago politics and regulations were driving business, but today they are not?

In the energy business, regulations and policies are extremely important. I don’t think that has changed. In Europe, if anything it has become more important to understand early on what directions politics are going. In other parts of the world, I think it has gone the other way. It’s more liberalized in South America and Asia and Russia. But Europe and the United States are becoming more regulated.

Hopkins: What other characteristics or processes do you think about cultivating inside your organization?

Ten years ago, I thought that strategy and finance were the most important elements to bring the company forward. Today, I think it is strategy in a kind of a directional setting way, plus communication and HR. I will especially highlight management selection and rotating people in order to spread the right motivation and values.

I think the way to stay ahead of competitors is to be extremely focused on these elements, where top management can most influence how fast the company moves forward. If I have a good strategy, good communication and good managers, I can get the capital needed. Today, you cannot have the capital first and the story afterwards. The investor story is all important. If it is good enough, you get the capital.

Haanaes: Say a little bit more about how you think about strategy differently.

Strategy at a big company begins with an open process in which you have a big discussion. From that you end up with selections, and you make choices based partly on objective criteria and partly on management specific criteria. Those two in combination make a strategy. You then need a few years to implement the strategy in order to accomplish what you decided on; to ensure that the organization follows this plan. You cannot adjust strategy all the time. So it goes in contractions. That was so before; it’s the same now, but the cycles are shorter today.

We also need to get feedback because not everything will work. Cutting off the branches that don’t work quickly enough and speeding up those that work the best are critical. We speed up the cycles of observing, stopping and supporting.

The world is moving more quickly than before. Before, companies differentiated themselves with their ability to implement. That is still the case, but in addition you need to add new skill sets all the time. What is new is that survival of the fittest is not survival of the biggest or the smartest. It’s survival of those who adapt, adjust, and course correct the quickest.

Hopkins: So the way you think about it now is that the cycles are compressed, and even as you are beginning to implement a set of strategic decisions, you’re also immediately inventing the next strategic steps?

Yes, but engaging with just a few people. With the mainstream, it’s having them follow the strategy we just made.

Hopkins: How is communication different now as a consequence of the way the world is competing?

Today good communication attracts capital and people. Three decades ago, there was limited capital. Now capital is more or less unlimited, so what you need is the best story. Also, because the whole company is much more open, we need to be sure that what we say internally is the same as externally and that we have the same story everywhere.

Technology makes that even more important. What the company does is quickly on all electronic news channels all over the world. When you search for a company, it’s very easy to compare what the company says and what it does. Our ability to develop, communicate and implement strategy is what differentiates us.

It has become more important to have a good purpose and to ensure that your internal values are reflecting a high morale. Sustainability has become more important because you need a good purpose to communicate.