Every new solar panel installed on European rooftops chips away at power utilities’ centralised production model. Unless they reinvent themselves soon, these giants risk becoming the dinosaurs of the energy market.
The industry faces drastic change as renewable energy turns consumers into producers and hollows out the dominance of utilities. With their stocks at decade lows and a millstone of debt around their necks, Europe’s utilities have little margin for error.
In Germany, where 22 per cent of its electricity came from renewable sources in 2012, the big four utilities – E.ON , RWE, EnBW and Vattenfall Europe – are nearly absent in this new sector.
Of the 71 gigawatts of renewable energy capacity installed at the end of 2011, the four owned just seven per cent, environment ministry data show. A gigawatt roughly corresponds to the capacity of one nuclear plant.
Individuals owned 40 per cent of renewables capacity, energy niche players 14 per cent, farmers 11 per cent, various energy-intensive industrial companies nine per cent, and financial companies 11 per cent. Small regional utilities and international utilities owned another seven per cent.
In the solar industry the big four are even more marginal, having ceded 97 per cent to investors from outside the power industry, Lueneburg University researcher Mario Richter said.
“Utilities produce electricity, and here’s a new technology for producing electricity, and they are not in there. They have completely missed the opportunity,” Richter said.
Richter, who has interviewed 20 German utilities managers about the impact of renewables on their firms, said it has taken them years to acknowledge the potential of solar and wind.
In Bavaria alone, 200,000 of the 2.3 million electricity users have their own solar panels, turning 8.5 per cent of electricity consumers there into independent producers.
In Italy and Spain, where solar also contributes around three per cent of total power, the situation is similar to Germany.
In countries like France and the UK, with solar at just 0.4 and 0.1 per cent of generation, centralised production still reigns supreme, but decentralised production by corporations and municipalities – with biomass and windmills – is eating into utilities’ market share.
Peter Terium, CEO of RWE, acknowledges that the move from large conventional power stations towards decentralised plants and renewables is a fundamental change that is hurting the economic viability of RWE’s power plant fleet.
“We have to adjust to the fact that, in the longer term, earning capacity in conventional electricity generation will be markedly below what we’ve seen in recent years,” he said, adding that this put strains on RWE’s business model.
The renewables wave could not have come at a worse time.
The liberalisation of Europe’s energy markets has sparked a rush for consolidation among utilities, leaving the continent with about a dozen big but highly indebted behemoths.
Worse, electricity demand, already hit by the drive for energy efficiency, has shrunk since the eurozone crisis began.
If utilities are the losers in this game, the winners are solar panel and windmill makers, the hundreds of small firms that install solar systems, and the thousands of consumers who have turned their roofs into mini-power plants.