Study: Municipal Utilities Prepare for Change in View of Energy Transition – Readiness to Cooperate Increases

Municipal utilities prepare for major changes of their business within the next four years. At the same time the readiness to cooperate has increased significantly. These are the main findings of a study on municipal utilities carried out by Ernst & Young (EY) in cooperation with the Federal Association of the Energy and Water Industry (BDEW). The study polled CEOs and managing directors of municipal utilities of different size and and set-up.

1. Expectations for the Period 2014 to 2018 – Importance of Stable, Transparent Legal Framework

58% of those polled expect 2014 to be a good or even very good year for their company, a significantly higher percentage than two years ago, BDEW points out. Utilities engaged in operating conventional power plants, however, have considerably less positive expectations.

43% believe that their business will change considerably until 2018 due to the German energy policy shift towards a mainly renewable energy supply (Energiewende). Less than every fourth person interviewed expects that no or only slight changes to the business model are necessary. 43% expect that new business areas will make considerable contributions towards future results. Respondents also believe that decisive changes of the existing business structure are likely: 24% expect to withdraw from current business areas.

“The study shows: Municipal utilities are prepared to implement the energy policy change. The study also demonstrates: Municipal utilities view an intransparent and unstable legal framework, e.g. concerning generation and grid expansion, as the greatest impediment for a success of the Energiewende and establishing new business. Hence, it is important that policymakers do not impede municipal utilities, but support them by creating a clear regulatory framework for the energy sector”, Hildegard Müller, head of BDEW said.

2. Readiness to Cooperate Increases

Half of those polled believe that more cooperation will be highly or even very highly likely. “The high importance attached to cooperation indicates that a majority of managers of municipal utilities are convinced that the challenges of the future can not be dealt with alone by most companies. The main motives apart from achieving synergies are gaining competence, strengthening the market position and improving financing”, Helmut Edelmann, Director Utilities at Ernst & Young and author of the study said. Openness for partners from other sectors like financial investors and equipment manufacturers has also increased significantly to 14%, up from 3% two years ago.

3. New Business Opportunities – Internet and Energy Business

There was no general recipe for success for tapping new business areas, Gerd Lützeler, Sector Leader Energy at Ernst & Young, said. However, the study indicated that utilities that offered additional services, e.g. billig and IT services, and those that embraced new opportunities early on, e.g. virtual power plants, smart grids and smart metering, had a greater opportunity to achieve positive business results.

However, the majority of the interviewed is still reserved with regard to topics like “internet and energy” respectively digitalisation. Only a third can envisage cooperations in the telecoms sector. Yet utilities should focus more on this sector BDEW/Ernst & Young said, pointing out the opportunities to strengthen the position in the electricity market and regarding new business areas, saying this was the way to gain information to manage and optimise smart grids as well as for developing new business.

Source: BDEW

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