European Utilities Suffer From Increased Renewables
Several German utilities reported losses on their electricity generation business as the increased penetration of renewable energy lowers electricity prices and captures market share. German utility giant RWE reported a loss of $3.8 billion for 2013, its first loss in over 60 years. The company hopes to shift toward renewable energy in order to compete in the future.
Renewable energy has priority access on German grids, and more and more wind and solar are driving down wholesale prices for electricity - at times even forcing them to go negative. The lower power prices have led to nearly 5 billion euros in writedowns for RWE. Since 2008, the company has lost more than 70% of its share value. "I grant we have made mistakes. We were late entering into the renewables market-possibly too late," said RWE Chief Executive Peter Terium, according to Reuters.
RWE hopes to focus more on distributed renewable energy as well as non-generation business opportunities, such as software and energy efficiency initiatives, or energy "services."
Another Germany utility, E.ON, has also been hit hard in recent years. And it's not just Germany. French utility GDF Suez posted a 15 billion euro writedown last week.
Unfortunately for big utilities in Europe, they may be entering a period of what analysts have called the "utility death spiral," - more off-grid renewable energy means fewer customers, forcing the utility to raise rates on its remaining customers, which drives more customers off-grid. Astonishingly, one in every sixth German company now generates its own electricity.
There are a few forces working against the utilities. Companies can generate their own power, by say, installing solar panels on its roofs. In doing so, they are eligible for subsidies. But even more, by going off-grid, companies can also avoid a 22% tax on electricity - which is levied to cover the cost of funding renewable energy. Taken together, companies that generate their own power in Germany can cut their electricity bills by nearly 50%.
That is a remarkable incentive for businesses. About 16% of German businesses generate their own power. Another 23% of companies are considering doing the same.
What next for energy investors?
Imagine a company that rents a very specific and valuable piece of machinery for $41,000... per hour (that's almost as much as the average American makes in a year!). And Warren Buffett is so confident in this company's can't-live-without-it business model, he just loaded up on 8.8 million shares. An exclusive, brand-new Motley Fool report reveals the company we're calling OPEC's Worst Nightmare. Just click HERE to uncover the name of this industry-leading stock... and join Buffett in his quest for a veritable LANDSLIDE of profits!
The article European Utilities Suffer From Increased Renewables originally appeared on Fool.com.Written by James Burgess at Oilprice.com.
Copyright © 1995 - 2014 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.