German public utilities, or stadtwerke, are struggling with digitalization and the switch to renewable energy, which has swept in, as a result of the German government’s Energiewende policy.

The issues facing the modern stadtwerke were discussed in some detail at POWER-GEN Europe in Cologne last week, with some resistance evident to the prospect of necessary change. This week, that need for change came up once again.
Hannover stadtwerke, Chief executive Susanna Zapreva
The head of Hannover stadtwerke, Chief executive Susanna Zapreva, has told the company’s supervisory board that it was struggling with the new paradigm.

Zapreva took the top post earlier this year and is trying to prepare the utility for the future by capitalizing on the major trends transforming the energy sector: decentralization, digitalization and decarbonization.

Handelsblatt business daily reports that local utilities throughout Germany have been slow to adapt to the emergence of wind and solar power and are now faced with the necessity of reinvention, with Hannover a typical example.

Coal-fired power accounts for 77 per cent of the electricity Hannover supplies, compared to just 14 per cent from renewable energy sources. Just 24 per cent of electricity contracts are made online — with Enercity, the utility’s in-house brand — compared to 60 per cent nationwide. The utility is all but absent from new growth markets like electric mobility and intelligent household automation.

With close to €2bn ($2.27bn) in revenue, Stadtwerke Hannover is one of Germany’s largest public utilities. Many of the country’s other 900 or so local utilities face similar challenges.

Subsidized renewables, low wholesale power prices, and the shift to a more intelligent, decentralized system mean municipal utilities and regional energy suppliers are coming under pressure as analysis by Euler Hermes Rating shows. The independent European rating agency predicts financial indicators for two-thirds of Germany’s public utilities will “deteriorate considerably” by 2020.

The average margin on earnings before interest, tax, depreciation and amortization will drop from 10.8 percent last year, to 8.4 percent in 2019. The return on capital employed (ROCE) will decline from 8.2 to 2.5 percent over the same period. Conversely, leverage will increase from 53.3 to 61 percent, while equity capital shrinks throughout the industry. This is likely to significantly reduce the creditworthiness of public utilities.

Some municipalites are handling the new energy system better than others.

Michael Solić , press spokesperson for Stadtwerke Munich (SWM) says his organisation has positioned itself well in response to the demands of the transition.

He told Power Engineering International, “We have been working on that topic since 2008 and will soon – with the inauguration of Sandbank offshore wind farm in July – have a generation capacity of 3.9 billion kilowatt hours of green electricity – a figure that already corresponds with more than 50 per cent of Munich’s electricity requirements.”

The Munich municipality has recently released a document outlining its renewable energy expansion strategies for green energy and heating.

By 2025, SWM is aiming to produce as much green electricity at its own plants as required to power the entire city of Munich. This would make Munich the first city worldwide with over a million residents to have achieved this target.

SWM also aims to make Munich the first German city to use district heating generated exclusively from renewable sources by 2040.

“In addition, we are extending our district cooling network (M-Fernkälte) in Munich. We use groundwater and underground ditches (medieval moats). Thanks to our natural enhanced system, we can help customers to save up to 70 per cent energy compared to conventional air-conditioning systems.  That is why district cooling in Munich is increasingly helping to replace conventional systems. “

Bianca Bartels, press spokesperson for EnerCity, brand name of Stadtwerke Hannover, says the city is responding to the challenge.

“From a conservative and conventional provider of classical energy, Enercity is currently transforming into a service and novelty oriented customer solutions company, with the main focus on offering the best and most up to date solutions for our clientele.”

The city has identified aspects of decentralized generation and the shared energy economy that will suit the city’s resurgence in the energy field. They are also evaluating their potential for electromobility and aim to double their number of customers throughout Germany.

“By strongly focusing and promoting our five new business areas – decentralized generation, electro mobility, energy efficiency, smart technologies and energy network services – we will be able to increase our earning up to 70 million Euros,” Bartels predicts.

“Please note that our company’s supervisory board passed our corporate strategy on April, 26th. So we have just started with implementing our new strategy.”