Ageing Business Models Cost Billions

Few utilities are willing to adapt despite the impact of ageing business models and the impact of renewables.
Published: Mon 10 Mar 2014

Europe's 10 largest utilities have gone from generating 100% of Europe’s power to just over 58%. An increasing number of consumers have become prosumers, generating their own power. Cheap solar technology and installations, as well as governmental support of renewables, has driven the growth of self generation. Of this 58%, only 4% is derived from renewable generation such as solar and wind. This is according to a report from campaign group Greenpeace which says that these green energy sources have the ability to revive utility profits.

Ageing business models are not profitable

Major utility companies across the European Union have seen their profits drop dramatically as the region shifts towards renewable power. This movement has created the prosumer who is opting to go off-grid and produce his or her own power in order to avoid utility price hikes. Self-generation promises a decrease in utility bills, reliable power and a form of income since they can sell their power back to the grid. Feed-in tariffs are a major source of attraction for the prosumer, as is the low cost of solar technology and its installation. These low costs are covered in our article, Cheaper Solar Installations – Watershed Moment for Distributed Generation and Renewables”. As energy storage technologies develop further and become that much cheaper,an increasing number of prosumers will leave the grid altogether.

While the development in renewables has been largely spurred by EU policy and subsidies, the top 10 utilities continue to adhere to outdated business models. Some companies are paying the price severely. Sweden’s Vattenfall and Germany’s RWE have lost billions of dollars as a result of unwaivering adherence to conventional business models. See our article, “No time for utilities to look back”.

Fossil fuels must be phased out

Meanwhile, European investments in coal and natural gas are on the increase. European energy firms have added 85GW of fossil fuel capacity over the last ten years. This is despite the lowering demand for it.

Analysts estimate that utilities need to close down about 50GW of fossil fuel capacity by 2017 if they want to maintain even their diminished 2012 profit levels. "Utilities have invested large amounts," the report said. "But instead of using these resources to fund a genuine change of business model, they have done the opposite."

The report shows that since 2008, the European Union's 20 biggest utilities have lost more than half a trillion Euros in share value, while their small investments in green energy performed relatively well. Iberdrola, E.ON and Enel made a total of 4-to-5 billion Euros in annual income from their renewables investments.

The utilities say generation from natural gas or coal is needed to provide reliable baseload to complement intermittent renewables and they have called for state help to maintain it.

While we agree that fossil fuels play a large part in many country’s energy mixes, it is also critical that a definite move is made towards the development of renewable energy business models. This is especially true for those countries that are forced to import costly fossil fuels since this is not a sustainable solution.