June 25, 2015 / 2:31 PM / 4 years ago

German utilities shed old skin as new technology dictates change

* German utilities see tech players as future competitors

* Apple, Google, Tesla already active in energy

* E.ON, RWE invest in start-ups in hope to back right horse

By Christoph Steitz and Vera Eckert

FRANKFURT, June 25 (Reuters) - Germany’s utilities are preparing for their next battle. While fighting to turn a profit as energy policy hammers their businesses, energy groups now fear technology companies disrupting what has been seen as a safe if worthy sector.

Amazon revolutionised retail, Apple is shaking up the music industry and RWE sees it as only a matter of time before large technology groups start eroding market share in power, where customers would jump at the opportunity to cut their bills and increase efficiency.

New businesses such as renewables, demand management and storage — all outside the traditional comfort zone of German utilities — could generate 26 billion euros ($29 billion) in additional profits for the European power sector by 2020, consultancy McKinsey reckons.

Most of it will go to new market entrants, while the incumbent utilities will take just 15 percent — maybe more if they cut costs and re-allocate money to new areas like grids, it said in a report.

“We’re not that afraid of other energy companies,” said Thomas Birr, head of strategy at RWE, Germany’s second-biggest utility. “In the future, we’ll be competing in a whole different arena, in which technology firms will play a greater role. That’s the playground we have to prepare for.”


Sitting on increasingly worthless fossil fuel-generating plants, Germany’s utilities are growing nervous that tech giants will interrupt the prized customer relationships that are one of their last remaining valuable assets.

The threat is not yet quantifiable and the exact direction from which it will come is unclear — as evidenced by the bewildering variety of technology projects from robot software to security cameras at which the utilities are throwing money.

What is clear is that the tech giants see huge potential in smart homes that the big utilities have been unable to tap.

Google last year bought Nest, a smart thermostat maker, for $3.2 billion, aiming to lead the way on how household devices link to each other and to electricity grids.

And the apps that customers will use to control such smart homes will often be installed on smartphones, in which Apple and Google have a combined global user base of over a billion - dwarfing the 56 million customers that receive electricity and gas from RWE and larger rival E.ON.

In energy storage, where RWE and E.ON also hope to make a move, electric car maker Tesla has emerged as a formidable foe after it recently unveiled Tesla Energy, storage systems or batteries for homes and companies.

More worryingly, Google and Apple have begun to spend hundreds of millions of dollars to fund solar energy projects, mostly in the United States so far, ranging from larger plants to panels for residential homes.

This raises concerns that future moves could hit closer to Germany.

“For the first time in a 120 years, consumers have a choice about where they go for their power,” said Alex Laskey, president and founder of U.S.-based Opower, whose flashy billing software tracks how much power is consumed by households, when and at what costs.


Opower is one of several technology groups E.ON has invested in, hoping it will gain access to technological advancements that may at some point transform the industry.

As a result, it has also bought into California-based QBotix, which builds robots that travel on rails through solar parks and adjust panels so that they constantly get most of the sunshine, saving costs by up to a fifth.

E.ON declined to say how much it had invested so far in new technology companies, only saying it spends about 100 million euros ($112 million) a year on technology and innovation.

RWE said it also spends a low triple-digit million euro amount on innovation and research and development, a fraction of its 2.5-3 billion in estimate capex for 2015. Birr said the focus was now shifting more heavily towards innovation.

“You know what they say with disruptive technologies: it takes 10 times longer (to develop) than anticipated but the effect will be 10 times bigger,” said Susana Quintana Plaza, senior vice president for technology and innovation at E.ON.

The utilities won’t say how much money they expect to make from new technologies, not least because any business generated from technology is a drop in the ocean compared to the hit to profit from Germany’s policy of shutting down nuclear plants and phasing out coal and gas-fired generation.

Winning over customers is one thing but doing the same with shareholders is going to be a completely different ball game.

“If you ask the German utilities what exactly this business will look like, you don’t get any concrete information,” said Susana Penarrubia, portfolio manager at Deutsche Bank’s asset management arm DWS. “On the other hand, they don’t have a choice but to look for growth in this area.” ($1 = 0.8929 euros) (Additional reporting by Tom Kaeckenhoff in Duesseldorf and Eric Auchard in Frankfurt; Editing by Keith Weir)

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below