* Big utilities must link up with start-ups
* Future energy markets are carved up anew
* Small firms have new knowledge, need mass markets
* Big players risk being left behind
By Christoph Steitz and Vera Eckert
FRANKFURT, Jan 19 After a year of major
restructurings, Germany's big utility companies are under
pressure to either buy up or cooperate with small and nimble
players that are eating away at their core business, industry
consultants and analysts say.
"No energy supplier can meet the upcoming challenges alone,"
said Jan-Philipp Sauthoff, partner and head of energy
transactions at PwC in Germany, adding he expected "a wave of
transactions and new cooperations".
Analysts at Goldman Sachs even anticipate "large,
game-changing M&A moves" this year for German utilities.
However, Innogy, Germany's largest energy group by
market value, has said it is only open to small selective deals,
while Innogy's parent RWE said last week it had no
plans to merge with Uniper, its rival conventional
generating firm floated off by E.ON last year.
Analysts pointed to the similarity of their remaining
businesses, which also includes energy trading, as a reason for
why a tie-up would make sense for RWE and Uniper.
Reeling from years of falling wholesale power prices and a
surge in solar and wind capacity, E.ON and RWE broke up their
businesses in 2016, separating ailing thermal power generation
and trading assets from promising distribution networks and
Meanwhile small but confident independents like solar power
storage systems maker sonnen GmbH are making inroads into the
German electricity market with business models which encourage
consumers to tap their home-produced power, becoming "prosumers"
who no longer need external supply.
In a sign that competition in the retail market is heating
up, millions of households switch supplier each year to find
better deals, with 42 percent of Germany's 40 million having
done so between 2005 and third quarter 2016, PwC figures showed.
Utilities have therefore started to enter into small and
selective partnerships to adapt to the industry's changes and
harness specialist know-how, including E.ON, which last year
struck a distribution deal with battery maker Solarwatt
Innogy, which comprises the renewable and network assets of
RWE, followed up by buying Belectric Solar & Battery to boost
its position in energy storage and photovoltaics.
"If the big utilities don't count on partnerships, parties
from outside the industry will come in and take away market
share," said Metin Fidan, partner at Ernst & Young, pointing to
email portal web.de and petrol station operator Shell,
which both have started to sell retail electricity.
Renewables now supply nearly a third of electricity consumed
in Germany and account for nearly half of the country's total
installed generating capacity, according to most recent
statistics from the German network watchdog.
Less than 10 percent of renewable installations are owned by
big established utility companies, with the bulk held by
individuals, project firms, investors, industry and farmers.
(Editing by Greg Mahlich)