Utilities Still Have a Place in e-Street

RWE’s transformation from a traditional power provider into a renewable energy service provider could be the tipping point that the energy industry has been waiting for.
Published: Thu 31 Oct 2013

Struggling against the surge in distributed generation, RWE, a major EU utility, realized it could no longer operate using the traditional business model. The company found itself competing and losing to German prosumers who own over 50% of renewables. The saturation of renewables on the grid forces wholesale energy prices to plummet, causing havoc for utilities who were expecting an increase in Europe’s electricity power demand. Instead, utilities are losing income as their customers are generating (and re-selling) their own power.

As a result, consumers no longer rely that heavily on the utility for power. Decreasing solar power technology prices, the ability to make money by reselling excess power, cheaper electricity, and energy independence have definitely encouraged this growth.

This new market reality is enough to make any utility weak at the knees. But, RWE decided to embrace the inevitable change and adapt. They have moved away from the role of developer and owner of centralized power plants and now, drawing on its vast industry expertise, aims to assist with the management and integration of renewables on to the grid. RWE should be applauded for this strategic move as recent business history provides numerous examples of companies and industries that either failed or were too slow to respond to disruptive forces such as this. The result? Closure.

A Prosumer, Consumer, Aggregator, Utility Partnership

So, has the time come for whole streets and suburbs to turn away from the utility altogether? Is it time for the so-called e-street or e-neighborhood to become self-reliant power producers? According to Dr Ole Langniss, Renewable Energies & Environment, Fichter GmbH & Co, the answer is ‘no’. In a panel discussion, held at the recent European Utility Week, he says that we would lose all the benefits of the large grid. For instance, the grid provides backup capacity. The demand for reliable capacity still exists and probably won’t disappear any time soon. Viable energy storage solutions will eventually eliminate grid reliance.

Dr Langniss explains that “larger grids supply larger security” and it is for this reason that prosumers and utilities should form a partnership. Wolfgang Hass, Principal Expert of Infrastructure & Cities, Building, Siemens Switzerland, Ltd, who also joined the Engerati panel, agrees with the formation of this new relationship which sees the traditional consumer becoming a power producer and seller but, also partly dependent on the utility for power security. Dr Langniss also suggests that prosumers draw from the utility’s expertise in order to enjoy being a prosumer long-term.

Mr Hass suggests that prosumers could also hand the management of their power production to a ‘club’ for an annual fee for instance. Power producers and energy storers would join this club, thus creating a sustainable energy management system. Large real estate companies would benefit as the club provides its members with a platform of transparency and trust. Mr Hass suggests a balanced relationship between prosumers, utilities, clubs/aggregators and consumers.

Inertia the death of the utility

So why aren’t more utilities recognizing the shift in the energy market? Dr Langniss points out that a monopolistic attitude still exists amongst utilities. These utilities need to understand that the consumer is no longer just a consumer. They should be viewed as prosumers, and therefore potential business partners and serious competitors. “Inertia prevents utilities from recognizing the potential business partnership with the consumer,” explains Dr Langniss.

The figures speak for themselves. Within five years, the top 20 European utilities have seen their value drop by more than half. Since September 2008, utilities have been the worst-performing sector in the Morgan Stanley index of global share prices.

Clearly, it’s time for utilities in the EU and around the world to take a leaf out of RWE’s book. This shift in the market is affecting everyone-even the big guns. With 24 million customers and operating over 50 000MW of capacity, RWE began to feel the pinch three years back already. Plummeting stock prices, the move towards an increasingly distributed grid, a decrease in electricity demand and, energy policies that forced RWE to change its traditional business model are all it took for the company to change its strategy and embrace the shift in order to survive.

Engerati Analysis

Conventional power generation, as a business unit, is losing the battle to the escalation in distributed generation. While utilities need to recognize this and alter their business strategies in order to thrive, it’s also important that prosumers, consumers and aggregators join forces with the utility and draw from its expertise.

Further Sources

The Economist-How to lose half a trillion euros
The Energy Collective-Under Threat, German Utility Says It Will Create a New ‘Prosumer Business Model’
Utility Dive-How Germany’s second-biggest utility is radically changing its business model