Climate

Germany’s Largest Utility Gets Out Of The Fossil Fuel Business

CREDIT: flickr/Linda

On Sunday, Germany’s biggest utility E.ON announced plans to split into two companies and focus on renewables in a major shift that could be an indicator of broader changes to come across the utility sector. E.ON will spin off its nuclear, oil, coal, and gas operations in an effort to confront a drastically altered energy market, especially under the pressure of Germany’s Energiewende — the country’s move away from nuclear to renewables. The company told shareholders that it will place “a particular emphasis on expanding its wind business in Europe and in other selected target markets,” and that it will also “strengthen its solar business.”

E.ON will also focus on smart grids and distributed generation in an effort to improve energy efficiency and increase customer engagement and opportunity.

“With its decision, E.ON is the first company to take the necessary steps from the completely changed world of energy supply,” German Economy Minister Sigmar Gabriel, said Monday.

With roughly 33 million sales customers and 26 million network customers in Europe and Turkey, E.ON will increase its investment plans for next year by about €0.5 billion, around $625 million, compared to its previously planned €4.3 billion, or $5.4 billion. The company said the spinoff will not result in job losses for the company’s 60,000 employees, and that it will create a clear distinction in enterprises that both accelerate the deployment of new, unconventional energy sources as well as create transparency for regulators. The new, yet-to-be-named natural gas-focused company will work to bolster overall energy security for the region, using its power and gas foothold to help ensure supply security in the United Kingdom, Germany, Sweden, Russia, and other countries.

The company said that as the global carbon market and the E.U. Emissions Trading Scheme are revitalized, the new company’s technologically advanced gas-fired power plants stand to prosper.

Efforts across Europe to transition to a low-carbon energy economy have hit German utilities hard as renewables have become cost-competitive in many places leading to unprofitable power plants. With France hosting the major U.N. climate summit next winter and the E.U. announcing further measures to increase renewables and cut emissions 40 percent by 2030, this trend is likely to accelerate.

Germany currently has 35 gigawatts of installed solar generation and 30 gigawatts of onshore wind. The country is committed to reducing its CO2 emissions by at least 80 percent below 1990 by 2050.

During a press conference on Monday, E.ON Chief Executive Johannes Teyssen spoke at length about the decision. He said that “until not too long ago, the structure of the energy business was relatively straightforward and linear:”

The value chain extended from the drill hole, gas field, and power station to transmission lines, the wholesale market, and end-customers … In the last few years, however, a new world has grown up alongside it, a world characterized above all by technological innovation and individualized customer expectations. More money is invested in renewables than in any other generation technology. Far from diminishing, this trend will actually increase.

Part of what will increase this trend is the development of energy storage devices, with which customers will be able to make themselves largely independent of the conventional power and gas supply network.

“What we can perceive of this world today is, obviously, just the beginning,” said Teyssen. “The new energy world is still in its infancy. But we believe it will grow faster than the conventional energy world.”

A recent study by two German physicists found that the country could transition to a clean energy, low-carbon economy in the next several decades in an economically advantageous fashion. They found that in order to make the complex transition, the country would need to invest €470 billion ($586 billion) for all major renewable energy sources over the next 35 years. However, this investment would save €660 billion ($823 billion) in avoided fuel costs at constant fossil fuel prices and far more if fossil fuel prices rise by one or two percent a year.

Last month, NRG, a large U.S. power provider with fossil fuel interests, announced a similarly ambitious plan to cut GHG emissions in half by 2030, including a major expansion of renewable energy sources.