Domenico De Luca is a member of the management team at Axpo, Switzerland’s largest producer of renewable energy and a growing force in international energy trading. A key figure in the company’s globalisation strategy, here he talks to Damian Stewart, Managing Partner EMEA & Asia at Human Capital, about Axpo’s position in the market and how it must continue to evolve in order to maintain its competitive edge.
A Swiss-Italian, Domenico De Luca speaks five languages and sits at the heart of the cross-border expansion strategy for Axpo Group, one of Switzerland’s largest utilities. A company of 5,000 people, Axpo operates more than 100 power plants and produces a climate-friendly electricity mix for Switzerland that consists of hydropower, biomass and nuclear energy. It is the largest producer of renewable power in Switzerland, supplying its customers with up to 3,200 MW of capacity via a 2,200km distribution network, and has a presence in 30 countries internationally, trading energy on all the major exchanges across Europe.
Increasingly ambitious globally, Axpo focuses on solar and wind investments abroad, with a wind farm portfolio that stretches across France, Spain, Italy and Northern Europe. It holds an interest in the Global Tech I offshore wind farm in the German North Sea and is involved in the construction of wind farms and across the entire solar energy value chain.
For his part, Domenico was Managing Director of subsidiary EGL España from 2001 to 2007, before spending two years as CEO of EGL Italia. In 2009, he took responsibility for International Trading and Origination in Axpo Trading, and became a member of its executive team, before moving in 2014 to become Head of Trading and Sales and a member of the group-wide Executive Board. The majority of Axpo’s growing international footprint sits within the trading and sales part of the business that Domenico is responsible for, which comprises around 1,000 people, only a quarter of whom are based in Switzerland. “We are unique in a sense,” says Domenico, “because we have several trading floors and we have our originators disseminated across a number of countries, not just in Switzerland. We want to be really local and integrate into the local business, being as close to our customers as we can.”
There is no doubt that globalisation is at the heart of the company’s strategy. “Definitely international growth for us is fundamental,” he says, “because there would be no growth otherwise. Switzerland is a very tight market, so we will focus increasingly internationally.”
It was Domenico that pioneered the company’s model for cross-border growth, originally setting up the activities in Spain and hiring in that market, before rolling that approach out to other countries. “The energy trading business was born really decentralised,” he says, “and that has been in the DNA of the company from the very beginning. We tried something in one country; it worked, so we replicated it. The idea was always the same…you need strong local people, who are very engaged, with a really entrepreneurial model so they can really try and build their own company.”
Of course, there needs to be strong links to the group company, he says, but independence and entrepreneurialism at a local level is critical, as is speaking the local language and living in the local market.
“We have established trading floors in four of our major hubs,” says Domenico. “It can be difficult to bring talented traders to Switzerland. Switzerland is an attractive place, but some people prefer to live in their own countries. So, from a talent perspective, it has been important for me/us to attract the best people and retain them for the long term. Most of our managers are people who developed within the organisation.”
The approach has paid off: “I’m very proud we’ve been able to maintain a stable management structure for 15 years. Most of the people that started the energy trading business in their own countries are still driving those businesses and growing them today,” he says. “We gave them something they wanted, which they couldn’t find by relocating to London or New York, or elsewhere.”
Though the strategy has worked, growth has often been being in the right place at the right time, Domenico admits. “Trading is very opportunistic. Our strategy has always been based on the view that in the mature markets of the US and Europe, you can find niches if you fight hard enough to find them. But those niches don’t stay forever, because competitors will come in, sooner or later, to take a piece of that profitability. If your plan is too rigid without flexibility to move quickly, it’s risky..”
That requires an agile mindset and the flexibility to move the organisation one way or another at pace. “We want to predict the future, and of course we have many employees working on that analysis, which is very important, and I don’t want to downplay that at all,” he says. “But when you move to long-term strategy you have got to be humble about your ability to predict what’s going to happen, be conscious of human deficiency, and adapt your strategy in such a way that you will never lose your business and will, for the most part, always be successful in your niche areas. That is what I love about working in a trading organisation.”
If you cannot predict the future, one way to hedge is through diversification. When Domenico joined the business, it was only in Switzerland, and it is now in 30 countries, having expanded from Europe into the United States four years ago. Next will be Asia, where the focus will be on LNG.
Axpo prides itself on its three pillars of sustainability, reliability and innovation: “Axpo is a very established utility, with more than 100 years’ of history, and we have always kept our promises to our customers and our counterparties over all these years,” says Domenico. “Reliability is an important part of our message, not only at Group level, but also in trading and sales.”
He says innovation, for him, means finding niches that incumbents are not exploiting or have not identified and bringing something to customers that others cannot bring. That has been at the heart of the business since it first began its expansion to markets outside Switzerland 20 years ago, and remains so today.
Now there is also technology to contend with, I’m curious about the rate of disruption and digitisation taking place at Axpo. Domenico says: “At the moment, I don’t think we can say that digitisation has truly come to the trading world, at least not in the energy space. There are still a lot of companies like us making good profits without deploying super-sophisticated digital trading strategies. But the future will be different.”
He concedes there is no more natural a place to embrace artificial intelligence than in trading, adding that “machine learning is nothing more than brilliant statistics applied by superfast machines in a better, more consistent way”. Axpo has a project on data governance underway and stands ready to make the big investment in data science that is needed, but it is taking a thoughtful approach.
“It will not be difficult for us to embrace digitization,” says Domenico. “We already have a lot of use cases working now across the organisation, where we are experimenting a lot. But we are also building the backbone so that we can leverage good solutions from one country to another, which is important in our decentralised organisation. We need a common structure, and it is my task to encourage people to work together on that and share this knowledge.”
How would he describe his leadership style? “I am open to new ideas and I like people to do their jobs and feel that they can express themselves openly” says Domenico. “I think it’s important when you are working with very experienced, very intellectual people, to be humble and recognise that you cannot know everything.”
He is also clearly passionate about what he does: “I love the business from a personal perspective, for the engagement with people, and for the intellectual challenge. I always tell new recruits that there are few industries where you will find the same level of complexity, where you are covering everything from statistics to machine learning and energy transition, and you are at the centre.”
Of course, coronavirus has not made for an easy 2020, but Axpo’s trading business has coped well. Already the executive management is looking at what the ‘new normal’ will look like, with a general expectation across the business that working patterns will change. Some traders are desperate to get back to the trading floor and away from their home offices, but not all. “It is difficult to generalise,” says Domenico. “You have to calibrate this for different departments with different requirements. We have quant teams who say they are happy to work from home where they are not disturbed, and originators who hate it because they cannot engage with prospective customers in the same way. We have to adapt and see what the optimal organisation for the future will be, using trial and error.”
For a business that prides itself on agility and innovation, Domenico is all too aware of the importance of the diversity agenda. “I would not confine that discussion to gender,” he says, “I think that’s too reductive. What we need for our organisation in the future is cognitive diversity, bringing in people from different backgrounds, cultures and nationalities. That is what brings richness to the business and different points of view. It is also a matter of sustainability – how can you sustain a business long term if you are not diverse in your management and throughout your organisation?”
Avoiding group thinking is critical, he says: “We are full of biases in our way of thinking, though we are not aware of it of course. With a more diversified population, these biases cannot be so dominant. As a management team it is important we have diversity, because the decisions are taken by management, but you will only have true diversity in management when you have diversity throughout your organisation.”
Axpo’s talent strategy is based on creating centres of excellence across its global network, not hiring everyone into Zurich. It is building a data science team in Madrid, for example, while also recognising the merits of putting data experts alongside the traders so that they can work closely together on a decentralised basis. “I know it is difficult, and some of these data scientists might prefer to work for Google, but don’t underestimate trading as a phenomenal place to work,” says Domenico. “The intellectual challenge that this industry offers, and ability to incentivise and pay people for what they are producing, that’s powerful.”
Domenico is not only passionate but also clearly optimistic about the industry’s ability to hire the best going forward.