Major German utility rethinks business model, bets on renewables

solar panels in germany photo
CC BY-SA 2.0 Thomas Kohler

The rapid march of renewables in Germany has been both dramatic and disruptive.

So disruptive, in fact, that citizen ownership of energy production is now commonplace, and utilities are beginning to rethink some fundamental assumptions about their role in the marketplace.

Energy Post reports that one major German utility, RWE, is so concerned about disruption to the traditional utility business model that they are rethinking their positioning, pretty much from the ground up.

Citing a new strategy, approved last month by the company's board, it seems RWE is planning for a future where decentralized energy is here to stay, and where utilities are as much about connecting, enabling and empowering energy producers and consumers to trade with each other, as they are about generating electricity themselves:

“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”, states the Strategic Roadmap.

At the same time, RWE’s management has decided that the company will not be able to play a leading role in the new growth sector of decentralized, subsidized power production, which it says will remain “the only growth segment in the European power generation market” for the foreseeable future. “In a low-interest environment, it will not be possible for RWE to generate sufficient return within this subsidised industry. Our cost of capital will not be competitive against funding from private and institutional equity investors”, says the strategic document.

What this means for RWE exactly, or for the future of German energy, remains to be seen. But it's a profound reminder that established paradigms can be overturned at short notice as soon as the market conditions that created them are no longer relevant.

With Microsoft buying up the energy from a 110MW wind farm, and Google betting heavy on the future of renewables, it seems clear that utilities can either choose to fight the wave of change, or they can adapt to their role in an emerging new market.

Who would have thought, only a decade ago, that land lines would become essentially obsolete? That future is rapidly coming to pass. Utility companies would do well to heed its lessons.

Tags: Alternative Energy | Electricity | Renewable Energy | Wind Power

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