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Energy transition

Screenshot from Reuters

Over the past few weeks, there has been a noticeable uptick in the number of articles about how established utilities increasingly (and correctly) perceive renewable power as a challenge to their current business models – and the reports are not limited to Germany.

 - Screenshot from Reuters
Screenshot from Reuters

A few weeks ago, a headline above a well researched, and well argued article at Reuters showed that the mainstream press is finally moving beyond claims that renewables are far too expensive and will never get the job done anyway and presenting renewables for what they are: a threat to the established energy sector. The title of the article says it all (see screenshot above).

At the same time, however, the Reuters article also shows that were not completely there yet, for instance in passages like this:

But the longer renewables are subsidized, said Redgwell, allowing them to obtain critical mass and become cheaper, the greater the possibility that their price will rival retail electricity prices, in a classic threat of substitution.

Of course, wind power has practically always been cheaper than the retail rate – but I discussed the double standard for solar & grid parity years ago. It is important to note today that renewables are not "subsidized" more than the oil and gas sector, which does not by any means only benefit from subsidies available to all businesses. What's more, we continue to be excited about grid parity and wonder when it will happen without taking note of the situation in Germany, the world's solar leader – where the retail rate is now 27 cents, but the most you can get for solar from your rooftop is less than 16 cents for systems installed in April (the rates drop every month in Germany).

A few days after that Reuters report, the Boston Consulting Group wondered whether Germany might be showing other countries what the future of energy supply looks like, including the impact of renewables on conventional business models. In Germany, Eon has probably been hit the hardest because it banked so much on nuclear and natural gas; its rival RWE, which has more coal plants, stands to do better in the midterm.

 - Proponents of renewables have known all along that renewable power is a threat to the conventional energy sector, as this chart of myth-busting talking points from 1997 shows.
Proponents of renewables have known all along that renewable power is a threat to the conventional energy sector, as this chart of myth-busting talking points from 1997 shows.

Indeed, the rise of renewables in Germany is even threatening power producers in neighboring countries – not only Switzerland, but also in the Netherlands, where inexpensive power imported from Germany is making the Maasvlakte coal plant unprofitable.

But the problem is not only limited to Germany. The US has installed so much wind power capacity that Bloomberg now wonders whether the nuclear industry has any future there. Likewise, Bloomberg reports that Duke Energy, the largest utility in the US, sees residential solar as a threat. And again, all of these reports are from this year.

It comes as no surprise to those of us who have been campaigning for renewables all along. On Facebook, a German graphic with content from a solar newsletter from 1997 (back when newsletters were actually printed) is now making the rounds. For those of you who cannot read German, the main take-away is that all of the criticism of renewables – it's just something for the rich, we still need more research, it's too expensive, what will we do when the sun doesn't shine, etc. – are all just smoke & mirrors to distract from the real issue: renewables will reduce demand for conventional power, thereby making large power providers less profitable. (Craig Morris)

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1 Comment on "Renewables threaten conventional utility business "

  1. James Wimberley - 03.04.2013, 14:05 Uhr (Report comment)

    I suggest that for utilities there's a long-term distinction between wind, biogas, and geothermal on the one hand, and solar on the other. The former require lumpy investments in plants in that individually are much smaller than traditional power stations - 1 to 50 MW against 500 to 2000 MW - but are still far larger than the demand of the great majority of points of final consumptionm, lik ehouses, factories, shops, and schools. (There are some exceptions in wind and biogas.) So these technologies fit in to the centralised generation and grid distribution paradigm. The shift is a big technical change for the the utilities, but still lies within their traditional busines model. The disruptive change is residential solar. In Germany this has turned 1.2 million households from nice passive consumers into stroppy and politically active producers of electricity. A similar dynamic is at work in other areas where residential solar has taken off, such as Australia and California. Spanish utilities sare doing their best (and so far succeeding) in preventing any parallel revolution in Spain. It's harder to reach a new political equilibrium than to solve the engineering grid management issues.

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