E.ON follows people`s movement

E.ON CEO Johannes Teyssen at press conference

E.ON CEO Johannes Teyssen at press conference

Germany’s largest utility company announced its break up yesterday: In order to focus wholly on renewable energy, E.ON is spinning off its fossil fuel power plants into a separate company.  With the largest market share in the country, power supplier E.ON plans to create a new publicly listed company that would specialize in coal, gas and nuclear power generation, global energy trading, exploration and production. That leaves the company E.ON SE to concentrate on renewable generation, distribution network and providing customer solutions.

This decision marks a milestone in the German Energiewende. For the first time, one of the four major utilities is radically changing its business model in response to “dramatically altered global energy markets, technical innovation, and more diverse customer expectations”. As the CEO of E.ON SE Johannes Teyssen explained, “EON’s existing broad business model can no longer properly address these new challenges.” In the press conference on Monday, Teyssen explicitly expounded on how renewable energy does not only “revolutionize the electricity production but actually changes the role of the consumer.” With its new structure, the utility intends to better serve the needs of customers and sees itself better equipped for this growing market.

The true transformation

With this historic move, E.ON is finally following the people`s movement that has transformed Germany’s energy market in the past decade. It proves what renewable energy proponents have always said: Renewables do not simply substitute fossil resources; they require a new energy market.

Converting our energy system is about more than replacing fossil fuel with sun and wind as new energy sources. The true transformation starts in the fundamental way our energy system is structured. And with it comes a battle, as power and profits shift hands from the few to the many. Our current fossil fuel-based energy system is characterized by complex centralized infrastructures where:

a) Fuel is transported to the power plant, and
b) Energy production and distribution is held by one hand.

The current energy supply chain is vertical and the benefits are shared only among a few stakeholders. In the necessary transformation towards 100% renewable energy, all of this changes. By nature, renewable energy technology is decentralized, has a horizontal supply chain, and requires an entirely different infrastructure and market. New actors and stakeholders – including individual citizens and small businesses – become producers of energy, and the grid not only is a distribution network but exchanges, converts and handles data and incoming electricity.

Citizens claimed energy market

With their new structure, E.ON apparently wants to be part of this new market in which citizens, cooperatives, local utilities, communities and small enterprises are the pioneers and innovators.

Due to the inclusive design of the German feed-in tariff, the majority of investment into renewable energy (RE) is coming from stakeholders that were only regarded as consumers. More than 800 energy cooperatives, citizens, private investors, farmers, banks and enterprises own about 95% of total installed RE capacity. Citizens are the backbone of the energy transition in Germany. Energy cooperatives alone have invested about 1.3 billion euros in RE projects, thus generating revenues for communities, regions and citizens.

Only 5% of RE investment in Germany is owned by the “big four” energy providers E.ON, Vattenfall, EnBW and RWE. For decades they enjoyed an oligopoly all along the energy supply chain — from extraction to refining to distribution.  As Teyssen mentioned in yesterday’s press conference, this has drastically changed now.

Success for the people`s movement, BUT…

E.ON´s plan is therefore a major success for the people`s movement that has been calling for this radical shift among utilities for decades. However, there are important concerns that require all of our attention now. While it is valid and necessary to congratulate E.ON`s management board for the reasons outlined above, one must also carefully look at the impact of its decision, especially to create a “Bad Bank” for the fossil resource business.

In their press conference, E.ON made clear that this new company will depend on the UK’s ‘capacity markets’, which allow payments to gas and coal plants to remain open even when they are not profitable and provide ‘security of supply’. In addition to that, it has its own expansion plans with big investments into coal, gas and nuclear outside Germany.

The impact of this decision on the climate and human and environmental safety is, therefore and unfortunately, nil. To be clear here: E.ON has not closed down a single coal, nuclear or gas plant or planned to phase them out. By splitting into two companies, E.ON simply gave investors the opportunity to put their money where they would prefer and made the risks for each technology more transparent.

Another major concern that needs to be carefully followed is the costs and responsibility that the new “Bad Bank” is facing in Germany. Due to the nuclear phase out in the country, the company has to cover all costs associated with the winding down and demolition of its nuclear power plants. While E.ON CEO Teyssen says it will give the new company enough money to cover these expenses, the uncertainty over whether it will make enough money from its power plants to cover this remains. The German government is therefore responsible now to ensure that in case of a failure of this new company, these costs do not have to be carried by the state or by citizens.

All this shows that this milestone in the German Energiewende is an important signal, as it is living proof of what the people`s movement has been saying for many years. But it also calls us to work harder in making sure that there is no market for fossil fuel-based business models.  And it is here that our governments and politicians play a crucial role!

Tuesday, December 2nd, 2014