Interview - Germany's Energy Revolution: What American Utilities Can Learn from E.On

Location: New York Date: 2014-04-22

European utilities are rethinking their business models as a result of a sharp drop in their revenue and asset values. Leonhard Birnbaum, a member of the board of management at E.On SE, offered the view from Germany during a recent interview in New York.
ENERGYBIZ: How is E.On changing its business model in Europe as distributed generation becomes more significant?
Birnbaum: If you have your main operations in Europe, you have to adapt to the changes in the business environment that are happening in Europe. You will see more decentralized generation and renewables generation.
ENERGYBIZ: So how do you make money in an environment of selling less power?
Birnbaum: In our European business, we have to defend ourselves and we have to change our business strategy to adapt. We need to actually get closer to the customer. We need to actually offer solutions. You might as well produce them yourself, deliver them yourself and manage them. You don’t invest any more because we’re not the cheapest provider of capital. You manage, operate and run the portfolio in such an environment. And this is what we have to do in Europe. At the same time, we have to build up options to have another leg, and then a second and a third leg of our business to stand on. This is why, in addition to actually improving our European situation, we are expanding into Turkey and Brazil, and why we have a sizable business in Russia. We have also moved to the United States where we have now five operations. We have close to 3 gigawatts of wind power in the United States, plus some PV. If the world is changing, you need to be part of it.
ENERGYBIZ: Your company and German utilities in general face flat to declining power sales. What advice do you have for U.S utilities in a similar bind? How should they respond?
Birnbaum: If you just look at what is happening in your market, you’re going to miss what’s going to happen. Germany has paid down the learning curve for renewables. And now everybody in the world can have very cheap and competitive renewables. First, you have to look outside and you have to really understand what is happening in other markets. And second, whatever you believe, it’s going to happen more drastically and aggressively. If you believe we will see some renewables, but not too much, this is what we thought in 2008. If you believe there will be no aggressive dynamic evolving, this is what we believed in 2005. We have already made the mistakes. My advice would be to not make the same mistakes we’ve made. Be more forward-looking.
ENERGYBIZ: Is E.ON going to be around in 25 years? And how will it look then as compared to now?
Birnbaum: Absolutely we’re going to be around.
ENERGYBIZ: How will you look different?
Birnbaum: We will be much closer to the customers in a world in which we have a much more decentralized and fragmented structure. The monolithic-based structure of the past is not going to be there anymore. We will be in a much more partnership-like association that’s going to look completely different from today. Today, we have a value chain. At the end is the customer. In the future, we will have a customer who is in generation via renewables and basically is sitting in the middle of everything we’re doing. We will be the partner of the customer who is actually active all along the value chain. That’s going to be a transformational step. There will be some businesses that will still deliver commodity trading on a global scale. The world’s going to look very different. This is why we are working so hard on the cultural transformation. Any utility that doesn’t do that is going to be in for a surprise.

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