The radical change in the European energy market and its effect on the sector’s major players was highlighted this month by the news from German power giant E.ON that it is to spin off its fossil fuel and nuclear businesses and concentrate on renewables.
Chief executive Johannes Teyssen said: “We are convinced that it’s necessary to respond to dramatically altered global energy markets, technical innovation, and more diverse customer expectations with a bold new beginning.” He added that E.ON’s existing broad business model “can no longer properly address these new challenges. Therefore, we want to set up our business significantly different. E.ON will tap the growth potential created by the transformation of the energy world.”
A key driver of this transformation in Europe is the German government’s Energiewende, a decision to ditch nuclear and focus on a drive for more renewables. This has pushed down wholesale prices, which has damaged profits at E.ON and several other German energy companies.
However, Teyssen said that the main factor for the company’s decision is not politics but technology. “In the end technology breaks the value chain in two pieces, and not fundamentally politics or regulation. The main driver is technology and customers.”
He also said the emergence in the market of non-traditional players such as Google, which has been buying up manufacturers of power equipment and has invested over $1.4bn in wind and solar, is a warning sign to established companies in the sector.
“Just the fact that companies like Google are looking and investing shows that you had better prepare yourself for a new kind of competition.”
Teyssen said that he expected other energy companies to follow E.ON’s example, and I am sure he will be proved right. The shift to renewables is not a trend – it’s a business strategy that is sweeping the world and has gained more traction in Europe than anywhere else.
In this issue of PEi, Adnan Z Amin, director-general of the International Renewable Energy Agency, writes on p4 that while the switch to renewables is well underway, “what remains unclear is how long this transition will take, and how well policymakers will handle the change”.
He says that after years of renewables relying on subsidies, “private finance is increasingly ready to step in. Institutional investors are also starting to get interested. They are increasingly taking into account the risk attached to fossil fuels, and new long-term, low-risk instruments are being created to encourage them to invest in renewables.”
He says these and other trends “require a different way of thinking about energy, shifting from a system dominated by a few centralized utilities to a diverse, distributed system, where consumers are also producers, with far more control over how and when they use energy”.
However, Maria van der Hoeven, executive director of the International Energy Agency, this month sounded a warning regarding Europe’s bid to become the global powerhouse of the renewables sector.
She said this ambition “seems to be a bit unrealistic”, since renewables are deployed more rapidly in emerging and developing economies.
She said the EU is “on a learning curve” in relation to renewables deployment and, in some Member States, capacity growth has been faster than grid development, which is “nowhere on track”.
The IEA, in its annual World Energy Outlook published last month, also addresses nuclear power and stresses that the technology “is one of the few options available at scale to reduce carbon dioxide emissions while providing or displacing other forms of baseload generation”.
Nuclear in Europe needs a flagship, on-time-and-on-budget project to restore faith in the sector, which has taken a hit both from the Energiewende and from newbuild sites that have been dogged by delays. That project looks likely to be Hinkley Point C, which EDF wants to build in the UK. On p24 I examine the background to the European Commission’s recent approval for the plant and also assess what it will mean for the nuclear industry in the UK, Europe and worldwide.
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