The Future of Large German Utilities is Also Here

Review of Peter Varadi’s article”The future of the large German utilities: it’s already here”

By Roy L Hales

Last November, Peter Varadi  wrote an article that points to a possible resolution of the utility/solar conflict. Feed-in-tarrif (FIT) was disruptive in Germany, but – instead of fighting it – RWE, E.ON, EnBW and Vattenfall have all “turned green” by founding solar companies. The future of large German utilities is also here.

Black Forest Sawmill (Click on image to expand) – Courtesy Roman Boed, CC by SA, 2.0

Varadi writes:

“The situation which the large German utilities are facing is very similar to what was happening in the telephone business which similarly to the electric utilities also started with central stations connected to customers by wires and was also a monopolistic situation which was regulated by localities and governments. Same way as the utilities, it was a regulated, stable and profitable business. The emerging cell (mobile) phones which were not connected to the local central station by wire, but could be used anywhere in the world, became a fast growing, and importantly, an unregulated business, where profit is limited only by competitors.”

The US telephone companies had the foresight to look beyond their corporate culture of wired telephones and go wireless.

So far, America’s 3,269 utilities seem more inclined to fight.

The extent to which Germany’s utilities have “greened” can be seen on their websites:

  • RWE Solar web site declares: “Switch now to smart energy. Make your roof a profit center”.
  • E.ON Solar: “You should be your own electricity producer”.
  • EnBW Solar: “Innovative all-round-carefree-package for Photovoltaic customers”.
  • Vattenfall Solar: “Without moving parts, noise and emission-free, thousands of plants in this country provide electric power.” (Translations provided by Varadi)
Solar panels on almost all buildings, and more being installed. (Click on image to expand) – Courtesy sacratomato_hr, CC by SA, 2.0

This does not mean they are abandoning their old business model! Germany’s utilities now pursue a two track policy.

One arm of the company serves non-solar customers, much like the telephone companies that still serve land lines.

The other helps homeowners go solar. RWE is encouraging them to purchase battery storage systems and get as independent of the grid as possible.

“This approach is quite understandable,” Varadi explains. “By making homes and farms independent the utilities are losing many small customers but they escape the menace that these homes and farms ruin their profitable peak power business by dumping the large quantity of PV electricity (over 20 GW) into the grid at peak power times, when the sun is shining. That utilities are not investing money in PV systems themselves is also understandable, as they already have enough capacity for peak power.”

Everybody wins: PV solar finds more customers; homeowners get solar, the utilities keep their customers.

Official portrait of United States Department of Energy Secretary Steven Chu from 2009 (Cropped)

The North American debut of Varadi’s observation was at the University of Chicago, when former Energy Secretary Steven Chu said utilities could avoid the predicted death spiral by going into the rooftop solar business. Chu even repeated the cel phone anecdote.

Since then, Arizona’s largest utility has proposed to go into the rooftop solar business. They hope to offer their customers a twenty-year contract at a rate $20 to $25 dollars cheaper than companies like SolarCity or Sunpower can.

This seems like a route for APS to extend its monopolistic control over rooftop solar and has third party companies crying “unfair” competition. The problem being that APS gets its money from ratepayers.  If APS’ proposed rooftop division stood on its own, without the support of ratepayer money, it would be on the same level as existing solar installers.

APS’ proposal is currently before the Arizona Corporation Commission.

A much more encouraging example of a utility in the solar sector comes from the Netherlands, where  E.ON partnered with Sungevity in a pilot project.

According to Sungevity’s CEO, Andrew Birch, electricity is 27 cents per kWh in the Netherlands. That is more than twice the 12 cents kWh in California. Solar has reached grid parity in 8 of the 11 EU countries they studied, without any subsidies.

Birch sees an incredible opportunity opening. E.ON has 26 million customers and is already a large investor in the California based company; Sungevity brings its software expertise to the table. This dynamic duo could make quite an impact on the European electricity market.

Peter F Varadi

Thank-you Peter Varadi, for writing the article I just followed up on.

Varadi founded the World’s first terrestrial solar company  in 1973 and, up until a few years ago, was a consultant for organizations like the EU, World Bank and NREL.

You can purchase his book Sun Above the Horizon – Meteoric Rise of the Solar Industry through Amazon.com. You will find a review of it here and a radio interview with Varadi here.

(Image at top of page: Solar panels, Green Homes –  Assenbucher Straße, Leoni, Bayern, Deutschland. – Courtesy Jimmy Baikovicius, CC by SA, 2.0

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