Putting lipstick on a pig?
How energy companies are risking their future
RWE is running its subsidiary Innogy, E.ON has outsourced some of its core business to its daughter company Uniper. But new names cannot hide the fact that the traditional energy providers have seriously miscalculated the transition to clean energy – and are lagging behind. There are lessons to be learned: about a reluctance towards innovations and the pitfalls of conservative management.
They started as dwarves …
In 1983 the German experimental wind turbine colloquially known as „Growian“ – short for „Grosse Windkraftanlage“ – went into operation. Loud chuckles could be heard from the executive floors of the German energy providers: this little windmill with its laughable output of three megawatts, good enough for a handful of households, was supposed to be the future of energy production? The fact that Growian, by the time it was dismantled in 1987, had managed no more than 420 operating hours, was seen as definitive proof that wind energy was a dead end.
Of course, nobody cared about the 300 kilowatts solar farm going into operations on the North Sea island of Pellworm at the same time Growian was introduced. The North Sea – not exactly sun-drenched, is it? Faced with these small-fry niche technologies, the energy companies shrugged their shoulders and carried on as usual: expanding their capacities for fossil and nuclear energy. After all, that was how real businesses earned their money.
… and grew up to be giants
Well, money is still being earned, just differently from what the big energy providers anticipated. Wind power is a lucrative high-tech business, built on efficient on- and offshore generators. And in 2016, the worldwide capacity for solar power exceeded the Pellworm plant by a factor of 765,000. All the while, big energy is posting losses by the billions and trying to right the ship by restructuring their business model. So, RWE launched Innogy, E.ON wants its new company Uniper to take over their conventional power plants, and Vattenfall is flogging its East German lignite at dumping prices. It seems that carrying on as before would spell the end for conventional energy companies. Which, by the way, the Club of Rome said over 40 years ago – just read “The Limits to Growth” (1972).
A 765,000-fold increase in solar power within 33 years is not only a result of improved technology. It’s also based on global ecologic and political trends. To identify and interpret these changes is easy in hindsight. Not so much in the present.
Learning from mistakes others make
Like the energy sector, the banking industry is facing the challenge of some fundamental changes. Banks would be well advised to closely study the success of young and ambitious fintech companies. And the secret of that success is called digitisation.
Until a short time ago fintech companies were dwarves in the financial sector. Now they are demonstrating, on a daily basis, how digital technologies and new products are yielding market shares. It is up to the banks that their competition with fintechs doesn’t evolve into the old fairy tale about the hare and the hedgehog: wherever the breathless hare arrives, the clever hedgehog is already there, in our days either as an alternative energy provider or an innovative fintech. No bank has to die of exhaustion, though, like the hare does in the story. The takeaway should rather be: live and learn from the hedgehog. By committing to digitisation.
A current project by Innogy shows that RWE has learned a lesson. Innogy is joint owner and developer of the 860 megawatt offshore wind farm Triton Knoll, with construction beginning in the near future. The future doesn’t seem that far removed from Growian, after all.