strategy+business is published by PwC Strategy& LLC.
or, sign in with:
strategy and business
 / Summer 2013 / Issue 71(originally published by Booz & Company)


Innovating for Energy’s Future

The key to clean, reliable, and affordable energy, says Southern Company CEO Tom Fanning, is a bold and balanced approach to R&D.

Southern Company is one of the largest utilities in the United States. It is also one of just a small number of electric power companies with a reputation for cutting-edge innovation and robust, proprietary R&D. Under chairman and CEO Thomas A. (Tom) Fanning, the company has been deeply committed to a wide range of R&D efforts designed to employ a diverse mix of fuel resources.

Southern Company’s four operating companies—Georgia Power, Alabama Power, Gulf Power (operating in northwest Florida), and Mississippi Power—all combine power generation, transmission, distribution, and customer engagement. Rather than stifling innovation, Fanning says, the company’s integrated business model enables it to make these broad investments in energy innovation. And in doing so, it can better serve its customers and shareholders.

S+B: What drives Southern Company’s R&D strategy?
Energy innovation represents an enormous advantage for Southern Company. Our efforts have simple goals: to preserve fuel flexibility and increase the value of energy to our customers. We are essentially fuel agnostic. We don’t know which fuels are or will be in vogue, and we don’t bet on them. We need to invest in “all the arrows in the quiver”—the full portfolio of energy resources. About five years ago, approximately 70 percent of our energy came from coal and approximately 11 percent from natural gas. Now it’s about 45 percent natural gas and about 36 percent coal. We don’t profit more off one fuel over another. We just want to use the cheapest fuel available for the benefit of our customers. Because Southern Company is so integrated, we can follow this strategy. The problem with separating generation from distribution and delivery is that it sends the wrong economic signals to the industry’s participants [by prioritizing profits over optimized costs], without serving the interests of customers. And if the interests of your customers conflict with the interests of your shareholders, you’ve got a major problem.

Besides cost and effectiveness, we also prioritize environmental and regulatory R&D. In fact, since the 1970s, we’ve had a proprietary R&D group working on developing real-world ways to manage environmental issues involving coal. Our initial R&D involved coal liquefaction—taking coal and turning it into an oil derivative, essentially.

S+B: So much has changed since the 1970s: the advent of renewables and now the new sources of shale oil and natural gas. How does that affect your innovation bets?
One of our most interesting efforts today involves the gasification of coal—transforming low-grade coal into synthetic gas that can be used to generate electricity, with resulting carbon emissions comparable to [those of] a similarly sized natural gas plant. We’re building a clean coal plant in Kemper County, Miss., that uses the gasification technology we developed in a joint venture with KBR Inc. under the sponsorship of the U.S. Department of Energy, and we recently announced an alliance to market this 21st-century coal technology to power companies worldwide.

In another project, a joint venture with the Japanese engineering firm Chiyoda, we’ve developed scrubbers for removing sulfur dioxide from the emissions from our coal-fired plants. And we created our own technology for selective catalytic reduction—a chemical process used to remove nitrates from coal-fired boiler emissions. We have already spent [US]$8 billion on implementing these new technologies, and plan to invest even more in the coming years.

Such efforts have given us prowess and proficiency. We’ve been able to deploy these environmental control technologies 10 to 20 percent cheaper than the competition, depending on the plant and the technology involved. We can also remove up to 98 percent of certain emissions, significantly more than the average.

Follow Us 
Facebook Twitter LinkedIn Google Plus YouTube RSS strategy+business Digital and Mobile products App Store


Sign up to receive s+b newsletters and get a FREE Strategy eBook

You will initially receive up to two newsletters/week. You can unsubscribe from any newsletter by using the link found in each newsletter.