Executives from E.ON, Germany's biggest utility, announced plans today to leave the centralized power business in order to focus exclusively on distributed energy and "empowering customers."
In a strategy approved by the utility's advisory board yesterday, E.ON is preparing to split into two separate companies sometime next year. The new (as-yet-unnamed) company will take on the company's coal, gas and nuclear assets, as well as its trading business and hydropower plants.
Once the spinoff is complete in 2016, E.ON will focus exclusively on renewable energy, energy efficiency, digitizing the distribution network and enabling customer-sited energy sources like storage paired with solar. The reformed utility will be active in Europe, North America and Turkey.
"We’ve now come to the conclusion that it will become increasingly difficult for a company with a broad portfolio to be successful and to grow in both the new and the conventional energy world," said Johannes Teyssen, E.ON's CEO and board chairman, during a press conference this morning.
E.ON's dramatic move comes one year after Germany's second-biggest utility, RWE, announced plans to completely transform its power delivery business in favor of a "prosumer" business model.
The new spinoff company will own significant upstream oil, gas and coal operations around the world, as well as 51,000 megawatts of fossil fuel power plants in Europe and Russia. The transformed E.ON will have 33 million customers, more than 600,000 kilometers of distribution wires and 15,000 megawatts of renewables.
In his presentation to investors and reporters this morning, Teyssen described how the "new energy world" is forcing E.ON to change:
Until not too long ago, the structure of the energy business was relatively straightforward and linear. The value chain extended from the drill hole, gas field, and power station to transmission lines, the wholesale market, and end customers. The entire business was understood and managed from the perspective of big production facilities. This is the conventional energy world familiar to all of us. It consists of big assets, integrated systems, bulk trading, and large sales volume. Its technologies are mature and proven.
This world still exists and will remain indispensable. In the last few years, however, a new world has grown up alongside it, a world characterized above all by technological innovation and individualized customer expectations. The increasing technological maturity and cost-efficiency and thus the growth of renewables constitute a key driver of this trend. More money is invested in renewables than in any other generation technology. Far from diminishing, this trend will actually increase.
At the same time, the costs of some renewables technologies -- such as onshore wind farms -- have sunk to parity with, or below, those of conventional generation technologies. We expect that other renewables technologies could become economic in the foreseeable future.
Renewables aren’t just revolutionizing power generation. Together with other technological innovations, they’re changing the role of customers, who can already use solar panels to produce a portion of their energy. As energy storage devices become more prevalent, customers will be able to make themselves largely independent of the conventional power and gas supply network.
The proportion of customers that want to play a more active role in designing their energy supply is growing steadily. Above all, they want clean, sustainable energy that they can use efficiently and in a way that conserves resources.
E.ON will lose $5.5 billion this year, largely due to financial troubles with its conventional power business. RWE lost $3.8 billion last year for the same reason. Because of German laws that give solar and other distributed renewables legal priority on the grid, wholesale prices for coal and gas have spiraled downward and decimated the value of centralized power plants. Falling consumption is also hurting sales in Germany and throughout Europe.
Peter Terium, the CEO of RWE, described it as "the worst structural crisis in the history of energy supply."
In his speech this morning, Teyssen recognized those challenges. But he also framed E.ON's shift in a positive way.
"We’re already experiencing how difficult it is to combine these two very different cultures in a single organization. And we have to assume that the new energy world will become even more dynamic and diverse than we can imagine today," he said.
E.ON executives say the company will not shed any jobs in the transition. The future E.ON will still retain 40,000 employees, while the remaining 20,000 will work in the conventional power business.
Shareholders of the new company are expected to get a 50-euro-cent dividend, which is about one-third of the total amount of the dividends paid out between 2008-2010.