The Other Death Spiral: Centralized Utilities Now Germany’s Walking Dead

March 8, 2014



German energy giant RWE has taken a massive loss of €2.8 billion – it’s first loss in 60 years – after admitting it got its strategy wrong, and should have focused more on renewable and distributed energy rather than conventional fossil fuels.

RWE, like other major German utilities, has spent much of the past decade fighting against the country’s “energiewende”, the energy transition that is seeing it dump nuclear energy and transform the electricity system of Europe’s biggest manufacturing economy to one dominated by renewables.

Last night, Peter Terium, who has been CEO for less than two years, conceded that the company had got it wrong. He admitted that the change in electricity markets, which has seen earnings from conventional generation gutted by the impact of solar and wind energy, was “unstoppable”. It was now time to change strategy, and focus on what the electricity market will look like in the future.

“I grant that we have made mistakes,” Terium said in a prepared speech to a media conference accompanying his result. “We were late entering into the renewables market – possibly too late.”

Analysts have been pointing this out for years. Indeed, the big three German utilities have accounted for just 7 per cent of the renewable energy installations that now account for more than one quarter of the country’s generation, and which have transformed the market. Most renewable capacity has been installed by home and industrial consumers, and smaller and smarter energy companies.

Instead, RWE ploughed on with coal and gas. Now, Terium says, it is making  less and less money from its conventional power stations, and it is closing nearly 7GW of capacity. “This trend will continue in the next few years and it is irreversible,” he says.

Conventional power stations are being driven out by solar PV, particularly during peak load, and the huge expansion of renewables has pushed the market price of electricity to less than €37 per megawatt-hour, where it is virtually impossible to operate conventional power stations economically.

The question is what to do now. Terium says it is not all bad news, because much of the new plant that has been installed is highly flexible; designed to fit in and around a renewables-dominated grid. For instance, he said, the entire 10,000MW capacity of power stations in the Rhenish region can be reduced and increased again by about 5,000 megawatts within 30 minutes. (Interestingly, RWE cut its Co2 emissions from generation by 9% in the last year).

However, to secure its future, RWE – as was revealed in this insightful piece by Energy Post’s Karel Beckman – is going to focus more on future technologies: renewable energy, distributed generation and smart, enabling systems.

Terium says centralised generation is losing its primacy and the decentralised energy world needs an ‘integrated energy manager’.

“In other words, someone to coordinate the many activities of the individual market players: someone to look after networking the various individual initiatives involved in the transformation of the energy system at a technical and economic level – to bring them all together as a single, integrated unit.”

Terium intends to try to join the “little pieces to form the bigger picture.”

This includes products such as the RWE SmartHome, which can manage and adjust domestic energy use such as heater controls; a “smartcompany” product to do the same with commercial and industrial users; a web-based trading scheme to allow corporate customers, regional energy providers and municipal utilities to participate in energy trading.

And it is looking at “decentralised energy bundles” for small and medium-sized municipal utilities and sees electric vehicles as a core element of the energy system, because of their ability to serve as decentralised energy storage units.

It is rolling out heat pumps to consumers, and it is offering solar PV systems and wind turbines to allow local energy communities.

Terium is betting the house – well, actually he has no choice – on the assumption that it is only large utilities like his that can manage such a transformation.

“This is something that only major energy utilities can manage. They are the only ones that bring all the necessary skills together under one roof. We have some new public participation models in mind in this regard.”

The tribulations of RWE are a lesson for the Australian utilities, who have been following on the same path to centralised fossil fuel generation, and pushing back against renewables. They are now suffering the same consequences as their German counterparts – losing money and being forced to close capacity. And this is being distorted by the absence of a meaningful carbon price signal and the high cost of gas.

Possibly the only difference in Australia is that the Australian government does not have the same resolve as Germany’s. As CCA chairman Bernie Fraser suggested in 2012, it is more likely to be influenced by vested interests.

But the lesson is that even the Australian government can’t stand in the way of global technology trends and consumer choice.

Terium, meanwhile, is still pushing the German government for regulatory changes – particularly the introduction of “capacity” markets, to guarantee the future of the fossil fuel generation that will be required over at least the medium term.

But at least he has given up trying to stop the unstoppable. “Despite the difficulties that we face, our focus is on the future. We are, and will remain, the partner for the transformation of the energy system, and are orienting our operational business accordingly.”

21 Responses to “The Other Death Spiral: Centralized Utilities Now Germany’s Walking Dead”

  1. Negative pricing would sure make grid scale storage numbers look rosier.

  2. redskylite Says:

    Illinois Powers 91 Communities With 100 Percent Clean Energy: –

    • rayduray Says:

      While Illinois charges ahead, San Francisco becomes mired in old century politics in its efforts to switch to CCA power:

      Blurb: “CleanPowerSF initially called for investing over a billion dollars in energy efficiency upgrades and publicly-owned renewable energy assets at thousands of sites in San Francisco. The plan’s huge public popularity and technical authority have not protected it from attack and subversion.”

    • Here’s what the article actually says:

      In Illinois, the 91 communities stipulated that all electricity is offset by renewable energy credits

      They’re not actually powered by “clean energy”.  That would require that said energy be generated at the time and in the quantities required, and delivered to them.  Instead, some amount of energy qualifying for Renewable Energy Credits (a different thing) is generated somewhere, sometime, and the communities pay a premium to claim to be using it.

      The collateral effects of the “clean energy”, such as reduced efficiency in the fossil-fired plants (meaning, higher carbon emissions) which compensate for their variability (which is, at its essence, unreliability), are not counted against the “renewable” credits.  This fools the regulators, and the buyers.  However, Nature cannot be fooled.

      PS:  if you’re waiting for a reply from me on another thread, I’m recovering from a computer failure and still haven’t managed to get my bookmarks imported on the backup machine.

  3. uknowispeaksense Says:

    Peter, if there is an award for understatement of the year it has to go to the Renew Economy author above for this absolute cracker…

    “Possibly the only difference in Australia is that the Australian government does not have the same resolve as Germany’s.”

    My government is actively dismantling anything and everything to do with climate change and renewable energy. I won’t list them here because it is endless but the major ones are….

    – policy to abandon the carbon tax
    – removal of renewable energy target
    – removal of all grants for renewable start ups
    – removal of feedin tarriffs
    – removal of consumer solar subsidies
    – abolition of climate change commission
    – proposed interference in Australian Research Council grant approval process for climate change related projects
    – abolition of environmental safeguards for mining operations
    – removal of “green tape” for mining proposals
    – delisting of National Parks

    WORST GOVERNMENT IN OUR HISTORY. Any Aussies reading this, please consider the March in March in a week’s time. Go to the March in March Aus facebook page for details on where your local march is.

    • Your partial list is mind boggling. I’m beginning to think that the world is experiencing the result of Founders Syndrome – in this case a centuries past genetic mutation in the British Islands.

  4. MorinMoss Says:

    A utility CEO who FINALLY gets it. What’s with these guys?
    The roots of the Energiewende date back to 1980 and the current format is about 10 years old.
    On the upside, this should force the other big players to shift their attitudes as well, which is a good thing.

  5. ClimateState Says:

    More energy news

    The Ukraine Crisis An Opportunity To Switch From Fossil To Clean Energy

  6. […] Centralized Utilities Now Germany’s Walking Dead Tim Cook is right: Why profits-first policies are bad for the planet (and business) China Declares ‘War On Smog,’ May Deploy Pollution-Fighting Drones A Majority Of Americans Want The Government To Tell Businesses What To Do On Climate Change […]

  7. Finally. A utility exec who admits they should follow the trend of renewables and conservation to success. No kidding.

  8. redskylite Says:

    “Predictions suggest a prolonged period of low sun activity over the next few decades, but any associated natural temperature changes will be much smaller than those created by human carbon dioxide emissions, say researchers.”

    Again this excerpt emphasizes the enormity of what mankind has done in it’s march of the industrial revolution, we have made a greater impact on our climate that even solar variations – time to swap to clean energy is long overdue.

  9. climatebob Says:

    Unlike our neighbours the Australians we in New Zealand not only believe that climate change is real but we already produce 85% of our electricity from hydro, geothermal and wind. As a matter of interest my last electricity bill was $0.74. and thats without any subsidies but I still don’t think our power companies have a proper strategy for the future. They should be converting our transport to electric to use home grown clean energy and reduce our oil import bill.

    • uknowispeaksense Says:

      I think that given the number of your countrymen we have living over here, I think it’s only fair that we send you Tony Abbott, Bob. If you won’t take Abbott willingly, I will have him mounted on the Bledisloe Cup and he’ll be there next time the All Blacks play the Wallabies.

  10. Either join the future or be relegated to the dustbin of the past. Here is what people are saying. Commenter on another blog v Deregulated and regulated utility-

    Sure, they are both in trouble. Look at Georgia Power (building the new Nuclear plant) vs. Constellation in Maryland (part of Exelon). They are both hurt by:

    1) wholesale prices coming down due to zero cost resources in front of them on the merit order. Even 5% wind/solar screws them to the tuen of a 20% reduction in wholesale prices

    2) customer empowerment. Everyone wants to blame solar, but the reality is that solar is just the beginning. Energy efficiency often follows solar, as does electric vehicles, combined heat and power, demand response, load control and other innovation. These could all be an opportunity for utilities, but they choose to think of it as a threat instead.

    3) utilities are not loved by their customers leaving them vulnerable to the pitch form companies that are offering alternatives:… ” utilities score a paltry 625 on a 1,000-point scale. That puts them nearly 100 points behind banks, insurers, and other historically unloved industries. To be lagging so far behind banks four years into an economic downturn is a particularly telling stat

    • redskylite Says:

      Something in your sentence has set a song playing in my head Homer Simpson style, my first single 45 purchase and favourite all time by far:

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