German utility RWE is a victim of the so-called “utility death spiral,” with its central-power-plant-reliant business losing billions of dollars in Germany’s renewables-rich energy market. But distributed energy technologies and business models could help turn its fortunes around -- whether they’re homegrown, or out of Silicon Valley.

Andreas Breuer, vice president of new technologies and projects, described some of the ways that RWE is building a new business around distributed energy at last week's Grid Edge Live conference.

The Essen-based utility is fielding about a dozen pilot projects across Europe that combine large-scale renewable energy, customer-sited energy resources and local control systems in order to find cheaper and more reliable ways to integrate green energy into its operations, said Breuer.

At the same time, “we have a team in San Francisco that wants to learn about your markets, and also teach [others] about our solutions,” he said. While he didn’t go into details on which companies they’ve been talking to, I spoke with two entrepreneurs who mentioned meeting with Breuer and his team in the past month.

The common focus of these efforts is to carry out a radical transformation of RWE’s business model, as laid out by an internal RWE document revealed two years ago. According to that document, RWE plans to transform its business from dependence on large-scale power generation to a capital-light, distributed energy model.

“Based on funds sourced largely from third parties, we will position ourselves as a project enabler and operator, and [as a] system integrator of renewables," according to the document obtained by European website Energy Post and verified by RWE.

As Breuer put it last week, “We are not building new technologies -- we are screening technologies and deciding which could be implemented for our retail business.”

From virtual power plants to SPIDER boxes and smart operators

These include virtual power plants like the one RWE built with Siemens, which ties together combined heat-and-power systems, backup generators and small-scale hydropower resources to sell their combined energy and flexibility into the country’s grid markets. That system has been up and running since 2012, and is “making money right now,” he said.

It also includes more cutting-edge developments on an even smaller scale, Breuer said. For example, RWE has developed a “Smart Operator” system, which autonomously regulates energy flows and grid conditions on a local level, using a shoebox-sized control box that links individual homes to a local substation. About 250 homes have been testing the system over the past year or so, with in-home devices hooked up to reduce power use when local grids are under stress -- or, in a twist particular to grids with lots of distributed renewables, increase power use when solar or wind power is being generated in excess of local demand.

RWE’s smart operator sounds a bit like the Open Field Message Bus (OpenFMB) distributed grid control system being developed for U.S. markets by a consortium including utilities Duke Energy and CPS Energy and two dozen grid equipment and technology companies. Because changes on the distribution grid happen too quickly for central control systems to manage, RWE’s system was built to maintain local data links and allow systems to act independently, Breuer said.

Utilities can’t just go around installing these kinds of systems without ensuring that they’re secure from being tampered with, of course. In Germany’s case, these security requirements are quite extensive. The Bundesamt für Sicherheit in der Informationstechnik (BSI), Germany’s information security office, is overseeing privacy and security aspects of utility systems being installed in homes and businesses, providing a level of country-wide oversight that to date has been lacking in the United States.

To meet these requirements, RWE has joined the SPIDER consortium, a group including utility Vattenfall and several European technology companies, which has developed an in-home controller with networking that meets BSI’s security specifications. This “SPIDER box” is a core piece of the Smart Operator infrastructure, and RWE is "now looking at ways to incorporate this across our infrastructure,” he said.

Unfortunately for RWE’s aspirations to connect its customers, Germany is among the few European countries that has taken a go-slow approach to smart-meter rollouts. Only about 15 percent of Germany’s residential customers use enough energy to require a smart meter under the country’s current regulations, he noted. And like the U.K. and other deregulated markets, Germany requires utilities to provide two devices for each customer -- an in-home metering unit under the control of the customer’s chosen retail energy provider and a communications hub under the control of the distribution system operator.

The breakdown of the traditional utility business model

All of these technology developments are taking place in the midst of some dark financial times for German utilities. RWE has lost billions of euros and seen its stock price collapse in the past few years. Its natural-gas- and coal-fired power plants, unable to compete with Germany’s influx of solar and wind power, are losing money and being mothballed. Its nuclear power plants are facing closure under government decree.

And its renewable energy investments are being characterized as “too little, too late,” compared to the more radical steps being taken by rival utility E.ON. Last year, E.ON announced a radical plan to spin off its traditional energy business units into a separate company and refocus its core efforts on renewable energy and distributed customer-facing project development.

RWE has been making investments into wind and biomass generation projects, has invested in and formed a rooftop solar partnership with German solar developer Conergy, and is white-labeling Sonnenbatterie’s behind-the-meter battery systems for solar-equipped German homes. Even so, RWE only generates about 4.8 percent of its electricity from renewable resources, about half of E.ON’s share, and has cut its annual renewable investments through 2017 to shore up its finances, Bloomberg reported last week.

RWE’s woes -- and opportunities for transformation -- were summed up by Breuer in the example he gave of “Farmer Hoffmann,” a hypothetical RWE customer who has installed so much solar, wind and biogas energy-generation equipment on his farm that he is now making “more money out of his energy production than his commercial farm business.”

That’s not unusual for German farms, which tend to generate three to four times the amount of energy they consume, he said. Germany’s Energiewende policies have instituted generous feed-in tariffs for self-generated renewable energy, and they require distribution system operators like RWE to “connect them without any cost share,” he said.

For Farmer Hoffmann, that meant building a new 20-kilovolt power line to his farm, or installing specialty voltage regulation equipment on site. RWE chose the latter, spending about 1 million euros on a system from New Zealand built for industrial customers that need to maintain voltage quality to keep sensitive production lines running, he said.  

These kinds of pressures are only mounting as Germany continues to push policies meant to supply nearly half of the country’s power from carbon-free (and non-nuclear) generation sources by 2025. “For the time being, they are roughly 30 percent of renewables in our grid,” he said. “How can we optimize our infrastructure with this kind of volatility in our system, without building lines and cables?”