German energy crisis favours the fleet
BERLIN (Reuters) - Germany's half-a-trillion-euro energy overhaul is forcing sector players to turn around their business models fast, giving smaller groups a head start on the country's ponderous utilities.
Europe's largest economy has seen its energy sector slide into crisis following its decision to abandon nuclear power by 2022, as a subsidised boom in solar power has dealt a heavy blow to traditional utilities, forcing them to close plants generating thousands of megawatts.
The transition, which is expected to cost 550 billion euros (472 billion pounds) by 2050, has prompted millions of households to install solar panels on their roofs, fragmenting the country's energy landscape and throwing into doubt the business models of the large utilities, which are based on big plants and economies of scale.
That is leaving the field to smaller energy companies that are agile enough to re-shape their business fast, offering customers new relationships with suppliers and new ways to save on bills.
"Utilities are coming from a world of big cash flows and high profits. But those days are over," said Kim Petrick, partner at consulting firm Bain & Company. "Now it's all about customer focus. And so far small companies are faster and more successful than big utilities."
For decades, Germany's utilities have enjoyed the comfort of a de-facto oligopoly, but the sudden shift to renewables has caught them on the hop.
Renewable energy accounted for about 23 percent of Germany's power generation in 2012, up from 15 percent in 2008, hurting conventional power plants as power from solar and wind parks takes priority over conventional energy sources when being fed into the grid.
In terms of installed capacity, renewables account for 75 gigawatt (GW), or 42 percent of the German total. The big four utilities in Germany, E.ON (EONGn.DE), RWE (RWEG.DE), EnBW (EBKG.DE) and Vattenfall VATN.UL, own just 12 percent of that.
"It's certainly more difficult to turn around the ship for the big utilities. But it also requires the will to leave behind old ways and be open for a new way of thinking," said Felix Goedhart, chief executive of Capital Stage (HWAG.DE).
Under his leadership, the group turned from a small investment holding company into a renewable energy utility, a move triggered by the financial crisis.
BRAND NEW TOY
It took the group, which employs roughly 65 staff, about a year to complete the transition, much faster than super-sized utilities such as E.ON and RWE, whose combined workforce is 135,000, more than the entire German solar industry.
The effort has paid off.
Capital Stage earlier this month said its operating profit more than doubled to 20 million euros in the first half of the year, showing that there is serious business to be made from renewable energy.
Bain & Company estimates that profits from large conventional power plants - also called centralised power - will fall by a third to about 5 billion euros in Germany by 2020.
In turn, profits from decentralised power - small generation units such as solar installations - could rise by up to 60 percent to 4 billion euros.
Apart from the numerous private households that own solar panels as well as small utilities such as Capital Stage, other mid-sized firms active in energy management and service are also adapting fast.
U.S.-based investor Kawa last month struck a deal to buy most of the global sales operations of insolvent German solar group Conergy CGYGk.DE, and a change in strategy could come soon after ownership has changed.
"We would start to adopt the strategy which has been in place very successfully in the U.S. whereby you can offer to the rooftop owner: 'Let's put solar on your roof, you don't have to pay for it, we'll pay for it. You enter into a lease with us or a power purchase agreement and we'll offer electricity to you at a discount to what you would get from the grid," said Andrew de Pass, partner at Kawa.
Peer SMA Solar (S92G.DE), Germany's top solar group and the world's largest maker of solar inverters, is another example of how companies are changing.
The group is increasingly working on gadgets to help manage energy use and cut power bills for private households, slowly turning from a pure maker of equipment into a technology company.
Germany's utilities, in turn, are facing the deepest structural crisis in their history, with some alleging they waited too long before embracing renewable energy as a business model.
"By taking away nuclear plants, utilities lost something like their favourite toy. There has been much resistance, much effort to block this, but in the end you need to look for a new toy, or business," said Capital Stage's Goedhart.
(Additional reporting by Arno Schuetze; Editing by Will Waterman)
- Tweet this
- Share this
- Digg this
DAVOS, Switzerland - Central banks have done their best to rescue the world economy by printing money and politicians must now act fast to enact structural reforms and pro-investment policies to boost growth, central bankers said on Saturday.