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Under Threat, German Utility Says It Will Create a New ‘Prosumer Business Model’

Under Threat, German Utility Says It Will Create a New ‘Prosumer Business Model’ thumbnail

We may be about to witness one of the most profound transitions ever to occur in the utility industry.

Challenged by the surge in distributed renewables and a strong decline in revenues, one of Europe’s largest largest utilities, RWE, is reportedly planning to completely transform itself from a traditional electricity provider into a renewable energy service provider.

The utility’s new philosophy: either adapt — or wither away and die.

“The massive erosion of wholesale prices caused by the growth of German photovoltaics constitutes a serious problem for RWE which may even threaten the company’s survival,” wrote the utility in a recent strategy paper.

The strategy documents were initially outlined by the European energy website Energy Post. The site reported that the strategy was agreed upon by RWE’s board last month and will be evaluated within the entire company at the end of October.

Greentech Media has not been able to get the full report, but RWE confirmed that the strategy has been discussed within the company and with investors.

According to the documents, RWE wants to move away from simply being a developer and owner of centralized power plants and instead help use its expertise to help manage and integrate renewables into the grid.

“The guiding principle is ‘from volume to value’ with technologies ranging from large-scale offshore wind and hydro to onshore wind or photovoltaic. But we will no longer pursue volume or percentage targets in renewables. We will rather leverage our skill set by taking a ‘capital-light’ approach. Based on funds sourced largely from third parties, we will position ourselves as a project enabler and operator, and [as a] system integrator of renewables,” read the documents published by Energy Post.

Instead of simply transmitting electricity and selling kilowatt-hours, RWE wants to think of itself as a conduit for renewable energy projects — helping manage risk without making dramatic new capital investments.

Citing a “prosumer” business strategy, the documents read as if they were written by a consumer electronics company, not a legacy utility.

“Developing an innovative and profitable prosumer business model is a challenge we also need to address successfully, as we see a billion-euro market emerging alongside our traditional value chain.”

This is not a small, progressive-minded municipal utility calling for a shift to renewables. RWE provides electricity and gas for 24 million customers throughout Europe and is one of the biggest emitters of carbon in the region. The company operates a portfolio worth 50,000 megawatts of capacity that includes large coal, natural gas and oil-fired power stations.

RWE has been forced into a tough spot by the surge in distributed generation, particularly in Germany, where more than half of renewables are owned by customers. Major utilities like RWE directly own only a small portion of renewables in the country.

This surge in renewables has lowered wholesale prices and has even periodically caused prices to go negative during peak hours, forcing utilities to ramp down production from fossil-fuel plants and lose revenue. The situation has been exacerbated by the over-build of centralized fossil fuel plants in the last decade. Utilities expected Europe’s electricity demand to grow. Instead, it has declined in the post-recession era.

As The Economist reported earlier this month, RWE’s share price has lost one-third of its value over the last three years due to the new market reality. Rather than let these difficulties shrink RWE’s revenue further, executives appear willing to embrace an entirely new model to manage the shift.

“We have to manage innovation more creatively and professionally in the future. We need to establish a culture, structures, and processes that allow us to develop new business models which go beyond incremental improvement of the existing value chain. In a highly uncertain and volatile business environment, we need to transform ourselves from a ‘risk mitigation’ to an ‘uncertainty management’ company,” wrote the utility.

These changes are arguably more transformative for the utility business model than deregulation, which shook up some vertically integrated utilities in Europe and the U.S. throughout the 1990s and 2000s.

European countries are more advanced in the integration of renewables, so it’s natural that this kind of planned shakeup at a large utility is happening there first. But the conversation around the future of utilities is also becoming more sophisticated in the U.S.

In a landmark report this summer, the Edison Electric Institute, a group representing America’s investor-owned utilities, warned that distributed generation is a looming danger to revenue and customer engagement.

“The threat of disruptive forces (i.e., new products/markets that replace existing products/markets) impacting the utility industry is increasing and is adding to the effects of other types of disruptive forces like declining sales and end-use efficiency,” wrote author Peter Kind. “Recent business history has provided many examples of companies and whole industries that either failed or were slow to respond to disruptive forces and suffered as a result.”

Assuming the planned strategy eventually translates into real change at RWE, the utility may provide a model for American power providers facing similar challenges on the horizon.

green tech media

12 Comments on "Under Threat, German Utility Says It Will Create a New ‘Prosumer Business Model’"

  1. rollin on Sat, 26th Oct 2013 1:07 pm 

    Looks like RWE might be attempting to integrate itself into the new electricity production model. If they would develop storage technology as well as management technology I would be mildly impressed. However, they seem to be taking a baby step instead of a visionary approach. The future may hold an interlinked European power grid, with ties to solar in northern Africa and wind plus solar in Europe. They will need more storage and on-demand capability.

    Their approach now is to idle their gas plants due to low profit forecasts.

  2. Arthur on Sat, 26th Oct 2013 5:19 pm 

    The ET business will be bigger than IT ever was, for the simple reason that for an average household the energy bills (heating, electricity, transport) are much higher than the cost of a new computer, every three year. And the possibilities in the energy field are endless. RWE has understood the future and could make a business of being an energy middle man, coordinating all the millions of small energy streams. And as every businessman knows, the middlemen make the most money, provided they can’t be circumvented (like real estate agents with the internet). But RWE is going to BE the new energy internet. The Shell’s and BP’s of this world are going to bite the dust in the face of new emerging energy multinationals of the next two decades. Again, there is no energy problem, there is a race against the time.

  3. J-Gav on Sat, 26th Oct 2013 6:34 pm 

    Rollin – “They will need more storage and on-demand capability.” Correct.

    But I don’t expect “ties to solar in northern Africa” to play a role. That project is too expensive and fraught with geopolitical uncertainties (see the present situation in Libya).

  4. Arthur on Sat, 26th Oct 2013 6:49 pm 

    Indeed J-Gav, DesertTec is out, Norway mass hydrostorage is all the rage.
    “Desertec abandons Sahara solar power export dream”

    tinyurl . com/qj44hm8
    “Renewable Energy Ambitions: Norway Wants to Become Europe’s Battery”

  5. rollin on Sat, 26th Oct 2013 6:55 pm 

    J-Gav, did you ever expect the iron curtain to fall or the US to be dependent upon China as the big industrial power? Things change in rather short order sometimes. I would not expect northern African countries to stay the same, once the big carrot of energy supply is hanging out there.

  6. rollin on Sat, 26th Oct 2013 7:10 pm 

    Wind energy supplies about 6 percent of the total renewable energy in Europe while solar is less than 3 percent of renewable energy. Wind and solar together amount to about 1 percent of euro total power consumption. Total renewables add up to about 9 percent of the total energy consumption.
    So when they are talking about renewables, they are talking mostly about wood, palm oil and bio-mass waste with hydro following.

    Basically, the power companies are not handling the surges from solar and wind and need to design for the future. It’s not like they are a huge factor yet.
    When a company uses the word renewables, the forests and jungles of the world shake in fear.

  7. DC on Sun, 27th Oct 2013 12:55 am 

    I fail to see how leasing the desert from arabs will bring any material improvement in overpopulated regions wracked by constant US meddling and wars. The oil industry is by far, the more profitable enterprise in human history (thank subsidies.) And what has that brought the ME? Constant wars, courtesy of the United states of Israel, and a lots of poverty despite massive oil ‘wealth’. Exported solar power, while it would no doubt be useful, will not generate anywhere NEAR as much revenue for the corrupt and overpopulated regimes in the ME the uS likes to shower so much military hardware on. Unless of course, the cost of the that exported electricity were priced to match the current revenue streams ME nations need to merely continue to exist as viable nation-states. That of course would make it prohibitively expensive electricity to both industry AND end-users, thus, kind of defeating the point of building it in the first place.

    In short, not only will renewables NOT improve the averages North Africans material well-being if desertech ever came about, they might not allow the EU to carry on with BAU either. A lose\lose proposition if your goal is to extend BAU build around cheap endless energy into infinity.

  8. BillT on Sun, 27th Oct 2013 1:57 am 

    “Solar and wind need gas/oil/coal/nuclear backup. They will never produce more than 20% of the energy needs of Europe. The other 80% will have to come from standby sources, either hydrocarbon or nuclear. All of these dreams and plans are BS!

    Not a mention of the soon-to-come crash of the Euro and the eventual breaking up of the EU. Or the other money problems hanging over the world which are too many to count, just like the never-to-be-paid debts.

    But then, it is a techie porn site.

  9. BillT on Sun, 27th Oct 2013 3:56 am 

    BTW: If you think ‘renewables’ don’t need outside help…consider this article with references:

    ‘A Small Fan”

    Check out the references and then come back and we will discuss ‘renewables’ again.

  10. Arthur on Sun, 27th Oct 2013 9:41 am 

    Eh Bill, the latest ‘i-crap’ gadgets don’t use fans. Mining is around for centuries and will continue to exist and will certainly be able to generate the minuscule quantities of raw materials required to at least build a tablet. The 1200 kg car, yes that is probably going to disappear, but not the 0.5 kg latest model of the i-pad. It is all a matter of proportions.

  11. BillT on Sun, 27th Oct 2013 1:25 pm 

    Arthur, you can say what you want, but most everything electrical takes copper, pure copper. And in the quantities it takes to make economy of scale, it takes many thousands of tons annually.

    You dance around my comment by using fans as the point, but the point is all of the electrical parts in the total system. The copper is needed in the machines that make the parts for those i-toys. In the vehicle electrical systems that transport those items and raw materials, etc.

    The system that makes an I-pad possible is composed of millions of interacting parts and if even one does not happen the I-pad does not see the store shelves.

  12. Arthur on Sun, 27th Oct 2013 1:49 pm 

    World copper production is 14 million ton/year. This does not include recycling of old:

    Weight latest iPad model: 500 gram. Maybe a few gram of copper max per tablet.

    Here an overview of what goes into an ipad (‘old’ 2010 1000 gram model):

    tinyurl . com/my3vgl6

    Mostly glass, aluminimum, silicium, all available in abundance.

    1 billion iPads and assuming 5 gram copper/iPad –> 5,000 ton copper. Peanuts for a device that, comes push to the shove, can replace to a large extent the car, public transport, television, libraries.

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