No doubt about it: solar power has given German utilities a lashing. They cut wholesale electricity prices, which cuts into utility profits, and they also reduce electricity demand, further cutting into utility profits. Unfortunately (for utilities), they didn’t see it coming. They were caught in the same position many other companies have been caught when a disruptive technology came along — flat on their feat, complacent, and overconfident in their reigning power (no pun intended).
RWE, a German utility founded in 1898, has been one of the hardest hit. With a German policy move away from nuclear, RWE started burning even more coal (52% of its electricity supply in 2013 compared to 45% in 2011). It got only 6.4% of its energy from renewables in 2013. It didn’t think, “let’s get into this solar future now.” Largely as a result, in 2013, RWE posted its first annual loss since World War II. Since 1998, it has dropped 30,000 employees (net). (Note: RWE wasn’t the only European utility to get hit by the move towards renewables. While the broader stock market has grown 60% in the past 5 years, European utility stocks have fallen 12%.)
The Bloomberg story where I’ve found these facts doesn’t quite catch something else, however. Coal use has recently grown a bit as nuclear power plants have been shut down (and as planned power plants have finally been completed). Renewables have grown, but not yet enough to replace nuclear, natural gas, and coal. Nuclear has in many cases been shut down due to societal demand. Natural gas, unlike in the US, is often more expensive than coal in Europe. So, natural gas is being cut out of the equation to a larger and larger degree as renewables are growing. But next to go bust is coal.
In a merit-order pricing tier, once renewable energy grows a bit more, coal is going to be dead. Renewable energy’s market share of the German electricity sector last year was 24%, but what about when that rises up to 50% and 60%? Utilities relying on coal generation are going to be in a heap of trouble.
Peter Terium, RWE’s CEO, now says that the company should have invested in solar sooner. “We were late entering into the renewables market — possibly too late,” Terium said at a press conference in March. Not exactly something an investor wants to hear. But awareness is the first step to self-revival. RWE is now planning to invest more in renewables, in the electricity distribution grid, and in its retail business. It has also been selling off some of its fossil fuel (oil and gas) assets.
However, that’s not to say RWE isn’t still making coal-focused mistakes. “Still, RWE has no plans to back away from lignite,” Bloomberg writes. “The company is pressing ahead with plans to build a 1,100-megawatt plant at Niederaussem, near Germany’s border with Belgium. Planned to start operation in 2018, if it gets the final go-ahead it will cost cash-strapped RWE 1.5 billion euros ($2.1 billion) to build.” It’s very hard to see how that is considered an intelligent financial move for the company.
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