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The Future of Large German Utilities: It’s Already Here

Large German utilities are facing a situation that is very similar to what happened in the telephone business, which started like electric utilities, with central stations that connect to customers with wires. It was also a monopolistic industry that was regulated by localities and governments — it was a regulated, stable and profitable business. The emerging cell (mobile) phones, which are wireless and can be used anywhere in the world, became a fast-growing, unregulated business where profit is limited only by competitors.

Telephone companies realized these advantages during the nascent stage of the cell phone revolution. They had the vision to overcome their “corporate culture” of the wired phone business. They established independent corporate structures for their unregulated cell phone business and put their money into it. Many even unloaded the wired telephone business. As a matter of fact, Verizon, one of the largest U.S. telephone companies, lost 45 percent of its wired customers in the past five years, and sold its wired telephone business in 12 states to Frontier Communications Corporation in 2009.

Facing similar changes in the energy market, major German electric utilities RWE, E.ON, EnBW and Vattenfall have also opened their eyes. They have realized that PV, the technical curiosity they ignored and even hindered for so many years, has become one of the major electricity sources in Germany, and even threatens their survival. Perhaps they learned from the telephone industry, but they seem to have decided to follow the old saying: “if you cannot beat them, join them.”

If I would have written this paper two years ago and included the following, I would have called it utopia. Nobody would have believed it. But this unbelievable story actually happened. These four large German utilities decided to become “green.” This can be seen from their recent advertisements, which show that all of the four major German utilities are “solarized.”

Branching Out

All four utilities have branched out into the unregulated decentralized solar electric business, offering to install PV systems 20-year guarantees. The utilities themselves are not investing money, and funding comes from the owners of the houses, farms or investors.

The utilities have realized that instead of fighting PV, they can sell decentralized PV systems and also develop a maintenance business. They all offer their customers the possibility to install a PV system on their property and connect them to the grid. They also offer a 20-year guarantee and insurance. They can be successful in selling PV systems, because they can say: “we (the utilities) will be here 20 years from now to honor our guarantee, but one cannot be sure that our competitors will be around.” With this, they will be able to develop a truly “win-win solution.”

Utilities benefit by designing and installing rooftop PV systems, but RWE has already gone one step further. Since the spring of 2012 RWE offers “RWE HomePower solar,“a sophisticated home energy storage system that is now also promoted and subsidized by the German government. All of this constitutes a new business for them. By making homes energy independent, RWE may lose electricity customers, a regulated business, but they will gain system maintenance customers — an unregulated business. If the customers have surplus electricity they can sell to the utility and if they need electricity they can buy from it.

The PV industry and home owners will win also. The utilities will become one of the major customers for the PV industry, and will be less likely to cause interconnection issues. Homeowners will be happy to wind up with an uninterrupted electricity source and an assurance that they will pay the same amount for electricity for 20 years. They will not be affected by fuel cost fluctuations and will be much less likely to face blackouts.

Transformation Has Begun — No Investment Required

The RWE Solar web site declares: “Switch now to smart energy. Make your roof a profit center;” E.ON Solar: “You should be your own electricity producer;” EnBW Solar: “Innovative all-round-carefree-package for Photovoltaic customers;” Vattenfall Solar: “Without moving parts, noise and emission-free, thousands of plants in this country provide electric power.” (Note: The quotations are translations from the German web sites of each company.)

It is hard to believe, but they are all talking about PV.

So, while at one level they are still discussing how to change their business model, in practice they have already started a change. “We would rather leverage our skill set by taking a ‘capital-light’ approach,” RWE declared in its Strategic Review, “Based on funds sourced largely from third parties, we will position ourselves as a project enabler, operator and system integrator of renewables.” They also started the next step to make small regulated customers independent from the utilities.

This does not mean that they will simply discard their old business model — they will keep that intact. They are also not planning to invest their own money to add any meaningful PV systems to their existing generating capacity.

This approach is quite understandable. By making homes and farms independent the utilities are losing many small customers, but they are able to feed large quantities of PV electricity into the grid at profitable peak power times when the sun is shining. Utilities are not investing money in PV systems themselves because they already have enough capacity for peak power.

In other words, the utilities have started a change without investing a penny. It seems the German companies selected a possible solution to the problem caused by the decentralized PV systems and simultaneously entered that business.

Of course success is not guaranteed. The decentralized nature of PV may seriously hurt the utilities’ bottom line, making it necessary for them to restructure their old business model after all. RWE’s stock has lost over half of its value over the last three years, and though it has bounced back somewhat in recent months, it is by no means back at its old level.

This article was originally published in www.energypost.euand was republished with permission of © Peter F. Varadi. All rights reserved.

Lead image: Transmission via Shutterstock

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