Solar disrupts utilities out of their comfort zone

When the Solarpraxis Forum (SPX Forum) began 15 years ago a few would have thought, let alone believed, that large energy utilities would participate in future events. Yet, there they were on day one of the 15th SPX Forum in Berlin, with representatives from E.ON and RWE discussing how classical utility companies now envisage the future energy market.

Prior to the discussion in which the two utilities were so vocal, the session commenced with the day’s keynote speech by Prof. Klaus Töpfer of the Institute for Advanced Sustainability Studies (IASS), who argued that the great expansion of renewable energy has grabbed a large chunk of the energy sector from traditional utilities. But this is not a process that occurs without struggle, Topfer argued. On the contrary, a dispute of interests has emerged between the traditional and new technologies.

Until recently, energy markets were defined by the technologies’ marginal costs. Renewable technologies, however, are investment-cost only technologies, and their expansion has led policy-makers to question the future structure of the energy market. Do we need capacity markets or energy-only models that can guarantee security of supply? What, for instance, are the best policies for new storage technologies? And how is the market going to look when grid parity is achieved? Solar needs to reach for innovation in order to answer such questions, added Topfer.

Utilities need to innovate from within

Public policy innovation is one thing, and business innovation is another. Traditional power utilities have millions of customers, for example, and reaching out to them while offering innovative renewable energy solutions should be relatively easy. However, this has not always been the case, remarked E.ON´s Franco Gola at the Forum. Gola´s small team promotes solar solutions from within E.ON, but the biggest problem he revealed is the task of motivating senior E.ON management to invest more time and money in the green sector.

"In doing so, we are moving away from our core business," Gola said, adding that the case is clear: "Either invest in future sectors or miss out on business opportunities. Often, it is the customers themselves who contact us to ask whether we offer solar power solutions. If we can only provide them with a negative answer, that can be perceived as a lack of adequate customer focus.

"Still, while my group communicates these points to upper E.ON management, business innovation rarely comes quickly," said Gola.

Lothar Stanka of the RWE added that until recently, PV was largely considered an irrelevance to the company´s business strategy. Nobody from within the company thought RWE would ever enter the PV market. Eventually, what triggered RWE towards the green sector was solar power´s dynamic potential, specifically in the rooftop sector, Stanka said.

Rooftop solar offers RWE new ways to work directly with its customers, and this collaboration, he added, will only enhance further as battery storage and smart grids technologies progress. There are around six million roofs suitable for PV in Germany, so the potential is enormous, Stanka pointed out. "Of course this doesn’t come without challenges, particularly with regards to dealing with the power management on site and advising our customers on the most efficient and economically viable solutions, but we made it successfully with the large plants and we can do so with the smaller plants too."

What is required now is an overhaul of RWE’s business strategy in order to identify areas of future action, he suggested.

Innovative ideas will not come from traditional power incumbents, Ernst and Young consultant Dr Helmut Edelmann told the SPX Forum. That few utilities are investing in the green sector, leaving their comfort zones or pushing against resistence in favor of a capacity market energy model is an indication of that such innovation remains mistrusted. The opposite needs to happen, suggested Edelmann, who argued that energy markets assisted by intelligent networks and smart solutions is the way forward.

The session finally touched on the role of municipal energy utilities, suggesting that they play a significant role in business innovation models due to their nature of working closely with citizens at the grass root level. Municipal utilities, said Dr Alfred Kruse of Germany´s municipal energy company Stadwerke Burg, have understood that they can make profit from solar PV but will be unable to generate all renewable energy by themselves. Instead, they will need to collaborate with local stakeholders, and this type of third-party participation in energy generation creates new opportunities. Nevertheless, said Kruse, municipal utilities also need to develop their own targets and strategies.

pv magazine will run an extensive coverage of the impact solar PV and other renewable energy technologies will have on utility business models in the forthcoming January 2015 issue.