E.ON to Focus on Renewables

E.ON to Focus on Renewables
E.ON to Focus on Renewables

Germany’s biggest utility E.ON — long a pillar of the country’s fossil fuel and nuclear industry — dropped a bombshell on Europe’s business world with the announcement that the multinational was exiting the conventional energy market in favor of a new business model based on renewables, intelligent grid systems, energy management and other services. Indeed, the company seems finally to have drawn the logical consequences from the Energiewende, Germany’s renewable energy transition, after years of resisting the ambitious transformation of the nation’s energy supply, Bloomberg reported.

“This is part of a transformation that almost all of Europe’s major utilities are currently undergoing in response to fundamental changes in their energy markets,” says Toby Couture, director of the Berlin-based consulting firm E3 Analytics. “They’re endorsing different adaption strategies. E.ON’s seems to be the boldest, the most far-reaching so far.”

Actually, the surprise isn’t that one of Germany’s “Big Four,” the four giant utilities that dominated Germany’s conventional energy production and distribution until the 00s, is switching to a strategy based on green energy products, but rather that it took so long to do so.  The four — E.ON, RWE, Vattenfall and EnBW — own just 4.9 percent of non-hydro renewable capacity in Germany, a result of their stubborn resistance to the Energiewende.

This year alone, E.ON reported that its net income for the first three quarters of 2014 declined 25 percent from 2013. (The company has 62,000 employees and a turnover of $146 billion.) Last year its business was off 14 percent. The company, which is struggling under a $38 billion debt, has been shutting down coal and gas-fired plants as lower priced renewables force them out of the market. E.ON has shed roughly 10,000 jobs over the last five years, about 6,000 of them in Germany.

Germany began phasing out of nuclear power in 2000. E.ON and its peers, however, refused to give up on nuclear waiting for a center-right government to come to power in 2009, which had promised extensions of the life spans of Germany’s reactors. This happened in 2010 but then was reversed by German Chancellor Angela Merkel in 2011 in the aftermath of the Fukushima nuclear disaster in Japan. Merkel shut down seven reactors in one swoop, a third of Germany’s fleet, and accelerated the phase out of all of Germany’s reactors by 2022.

Moreover, Germany’s rapid expansion of renewables — in particular solar PV and onshore wind — has both pushed down the wholesale price of electricity (25 percent since 2013 alone) and forced the higher priced fossil fuels, mostly gas, out of the market. Germany could produce as much as 30% of its power in 2014 with renewables.

Germany has pledged to turn 80% of its final energy green by 2050, the conventional utilities can only fight a losing, rear-guard battle with their current business models.

Adding fuel to the fire, the utilities received yet another piece of bad news this week. In view of Germany’s effort to hit its own national climate target for 2030 (a 40% reduction compared to 1990), the German government is ordering them to reduce their CO2 emissions by an additional 22 million tons. This could mean shutting down lignite-fired plants, reducing coal generation in favor of gas, or employing energy-saving measures in their production processes.

German utilities are already successfully branching out beyond Europe by winning contracts for major energy infrastructures in the Middle East, South America and Asia. “German utilities are in a good position to take on these kinds of big projects,” he says.

“Spinning off coal, gas and oil from the core business is a smart strategy for a future-oriented company,” said Patrick Graichen, head of the think tank Agora Energiewende, told Bloomberg. “I’m sure additional utilities will follow suit — not just in Germany, but worldwide.”