Will 2008 be the year in which we start to see the beginning of the end of the traditional European electricity and gas utility?

For over 100 years traditional utilities have expanded as more consumers were connected to the electricity and gas grids for the first time, while sales volumes increased as more energy-intensive lifestyles and business processes meant demand for energy was constantly increasing. That business model has served as a reliable blueprint for making money, give or take a few hiccups along the way and the relatively recent arrival of regulatory risk.

But now, with growing concerns about climate change, the depletion of Europe's indigenous energy resources and worries about security of supply, the challenge for Europe's utilities is how to sell less power or gas, not more, and still make a profit.

Centrica, the British utilities group which owns the British Gas energy supply business says European utilities need to change their customer relationships and general business culture in order to cope with the realities of climate change. Speaking at a conference in December, Gearoid Lane, director of British Gas
New Energy said increased energy saving by customers, stricter regulation by the European Union and national governments, and milder temperatures as a result of global warming will significantly reduce energy demand in the near future.

According to Lane, utilities have to provide "greener energy, greener efficiency, greener services and they will have to change their general customer culture."

Ultimately this means that utilities need to reinvent themselves so they focus not on trying to sell their customers more commodity, but on selling them advice and expertise on how to optimize and reduce their use of that commodity.

Warnings about utilities having to reinvent themselves are nothing new of course. The old monopoly utilities that roamed Europe before liberalization were warned they had to turn themselves into customer-facing organizations and build up strong brands to survive in a more competitive environment. Some, like Centrica, did just that and rushed off to develop mass-market businesses in new areas like telephony, insurance, roadside assistance, and in the case of one German utility, shoes!

10 years on, old dinosaurs like Electricite de France and Germany's RWE are still going strong, while some of the more adventurous diversification models haven't stood the test of time.

But the challenges facing utilities today are more fundamental than the liberalization process. If competition meant they had to fight for their share of the pie, the challenges of climate change mean the pie could end up a lot smaller.