June 13, 2018 Read More →

Market changes across Europe are undermining viability of traditional power plants

Financial Times:

The upcoming privatization of a Dutch utility highlights the changing landscape of Europe’s power sector.

Owned by more than 50 cities, analysts expect Eneco to fetch more than €3bn. However, the potential sale has sparked the interest of much larger rivals as Eneco has things many of them covet — a range of home energy services, from a smart thermostat to an electric car charging device that enables the utility to remotely decide when is the cheapest time to charge your vehicle.

Europe’s power sector is under pressure as never before — from changes in government policy to technological advances and the explosive growth and falling costs of renewable — all of which are undermining the economics of traditional power plants. The model of sending electrons from a big gas or coal-powered plant through a central transmission grid to passive consumers is being left behind.

In the new world order, energy services will play a big role and snapping up Eneco could give a traditional utility or even an oil and gas major a lucrative foothold. It would be just the latest deal in an industry that is having to reinvent itself or face extinction.

Mark Lewis, head of research at not-for-profit group Carbon Tracker and previously head of European utilities research at Barclays, described what is driving the transformation in terms of “the three Ds”: decarbonization, digitalization and decentralization. All three, he said, “are disrupting the entire sector, there is no respite at all”.

Sam Arie, utilities analyst at UBS, said: “The single most important trend we see is the plunging cost of wind and solar.”

It is this trend, argued Mr Arie, that could change the structure of Europe’s industry “from a patchwork of regionally-focused utilities to one that will be dominated by larger, more global businesses that have the scale in renewables to achieve cost efficiencies”.

The increasing digitization, continuing growth of renewables generation and advances in battery storage mean more consumers will start to generate their own energy — and rely less on a centralized transmission network.

Benoit Laclau, global power and utilities leader at consultancy EY, said: “In the past consumers have always been recipients of energy. With the ever greater digitisation of the value chain, consumers are getting options as to how they want to consume energy in the future. The value chain is shifting towards the customer.”

More deals are inevitable. In Portugal the country’s largest utility, Energias de Portugal, recently rejected a €9bn takeover offer from China Three Gorges. The winners, according to UBS, will be global players.

By 2030, said UBS’s Mr Arie, the industry could come to look more like the oil and gas sector where companies are typically twice the size.

New entrants are vying for market share. Royal Dutch Shell and Total have both recently bought businesses in the consumer energy market — and are tipped as potential buyers for Eneco, according to analysts. Major technology groups, which have so far held off investing in the provision of consumer energy, remain the big unknown.

In an uncertain energy world what is certain is that in the future, the energy powering your home and your car will no longer have to come from an RWE or an EDF. It could come from a Google, a BMW or your own roof.

More ($): Winds of change blow through Europe’s power sector

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