This month began with some exciting news for renewables in Germany.
E.On, one of the largest utilities in Europe, announced a corporate split. The company will divide into (1) traditional generation (coal, nuclear, natural gas), and (2) the rest of the company -- including renewables and both electric and gas distribution. E.On's announcement was lauded by investors and analysts. No doubt the investors are focused on E.On's 5.2 billion Euro of write-downs this year, mostly for the now "risky" generating assets, and are delighted to see a separation into a "good" business of stable, low risk cash flows and a "bad" business of risky, mostly fossil fuel generation.
Interestingly, it is the traditional generation business that is seen as extremely risky. As renewables cut into demand, who is to say whether a new coal plant will ever pay back its cost? As nuclear is regulated out of existence in Germany, it will become a pure decommissioning operation. E.On and other utilities say that their traditional business models no longer work.
How long before Japan gets to this point? Will the "internal" separations of generation and distribution businesses now being mapped out for Japan get anywhere close to this? ... when the businesses remain under holding companies? How long will these changes be held at bay?
Why are there plans being announced for massive investments into coal-fired generation in Japan? Yes, the economics are different in Japan than Europe, but as these plans go forward it will put enormous pressure on regulators over future decades to sustain traditional business models.
Showing posts with label Germany. Show all posts
Showing posts with label Germany. Show all posts
Wednesday, December 24, 2014
Monday, September 15, 2014
Leaving Utilities Behind
A New York Times article on September 13, 2014, points to a trend we have mentioned before: the increasing competitive strength of solar and wind power are now an existential threat to the legacy utilities and their business models.
Electric utility executives all over the world are watching nervously as technologies they once dismissed as irrelevant begin to threaten their long-established business plans.
On the impact of Germany's Feed-in-Tariff:
By creating huge demand for wind turbines and especially for solar panels, it has helped lure big Chinese manufacturers into the market, and that combination is driving down costs faster than almost anyone thought possible just a few years ago.
The transition creates new businesses, not only in renewable generation. It requires huge new investments in the power grid ... to be funded how? It requires highly sophisticated demand response programs, supported by flexible regulation and IT investments. It requires on grid storage and suppliers of balancing power.
The "energy transition" creates disruption and problems. The utilities hate it. Big business dislikes it. The politicians in Germany now are listening to the utilities and big business ... and want to slow down what they have started.
But the public likes it. The public is willing to pay a renewable surcharge (some of the cost of which is offset by LOWER wholesale peak electricity prices, for which, sadly, there is no visible "discount" on electricity bills).
The transition is here. And those who ignore it will eventually find themselves left behind. In some countries, these left-behind players will swiftly be acquired, restructure, or file for bankruptcy protection; creditors will take their lumps, debt be restructured, assets mothballed, and things will move on. In Japan? If not handled with extreme care, we may see decades of a "zombie" electric power sector. We already seem to have a "zombie" electric power sector.
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Update: Interestingly, but Citigroup and UBS have recently issued research to their clients that highlights the trends mentioned above, and the issues they present for existing electric utilities. UBS actually sees the changes as a "net positive" for the well-positioned utilities that know how to deal with end-customers and have good distribution systems and plans for how to cope with the new realities. For generation-heavy utilities ... not so positive.
Electric utility executives all over the world are watching nervously as technologies they once dismissed as irrelevant begin to threaten their long-established business plans.
On the impact of Germany's Feed-in-Tariff:
By creating huge demand for wind turbines and especially for solar panels, it has helped lure big Chinese manufacturers into the market, and that combination is driving down costs faster than almost anyone thought possible just a few years ago.
The transition creates new businesses, not only in renewable generation. It requires huge new investments in the power grid ... to be funded how? It requires highly sophisticated demand response programs, supported by flexible regulation and IT investments. It requires on grid storage and suppliers of balancing power.
The "energy transition" creates disruption and problems. The utilities hate it. Big business dislikes it. The politicians in Germany now are listening to the utilities and big business ... and want to slow down what they have started.
But the public likes it. The public is willing to pay a renewable surcharge (some of the cost of which is offset by LOWER wholesale peak electricity prices, for which, sadly, there is no visible "discount" on electricity bills).
The transition is here. And those who ignore it will eventually find themselves left behind. In some countries, these left-behind players will swiftly be acquired, restructure, or file for bankruptcy protection; creditors will take their lumps, debt be restructured, assets mothballed, and things will move on. In Japan? If not handled with extreme care, we may see decades of a "zombie" electric power sector. We already seem to have a "zombie" electric power sector.
----
Update: Interestingly, but Citigroup and UBS have recently issued research to their clients that highlights the trends mentioned above, and the issues they present for existing electric utilities. UBS actually sees the changes as a "net positive" for the well-positioned utilities that know how to deal with end-customers and have good distribution systems and plans for how to cope with the new realities. For generation-heavy utilities ... not so positive.
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