EURELECTRIC Annual Convention & Conference

Opening the EURELECTRIC annual convention and conference, outgoing President Johannes Teyssen, CEO of E.ON SE recalled the milestones of his Presidency and highlighted some of the key work undertaken by the association, all aimed at drawing politicians’ attention to the lack of consistency in national and EU energy policy. The EURELECTRIC Manifesto called, among other things, for immediate action on the EU ETS and a -40% CO2 target; the Upstream Report provided solutions to reconcile renewables’ growth with markets; and the Downstream Report delved into “the silent but nevertheless radical revolution brought about by the massive uptake by customers of new, distributed and zero-marginal-cost technologies.” He welcomed the positive action taken by the European Commission on several of these points as well as the flagship “Energy Union Strategy”, stressing that the time to “craft a long-term energy and climate policy, responding to the needs of our customers is now”. “Companies that want to shape the energy future must make clear decisions. This also applies to policymakers”, he said.

Hildegard Müller, Chair of BDEW’s Management Board, highlighted the importance of finding solutions at European level. “For us to accomplish a European single market for electricity and gas, we need to raise the level of harmonisation in the restructuring of our transnational energy industry”, she said. She stressed the relevance of EURELECTRIC in this respect: “As a central European stakeholder, EURELECTRIC is the first point of contact for the EU institutions” and the “mouthpiece for all the needs of the electricity industry and the interests of our customers”. She went on to stress that sustainability is not merely an environmental concept but also an economical one - Europe needs to define the right speed of change but also integrate customers much more into the process. Taking the German example, she said that only companies with innovative projects manage the energy transition properly. Ms Müller also mentioned the need for a guarantee for conventional generation in the future, the importance of network development and the security of supply challenge.

Rainer Baake, Secretary of State for the German Federal Ministry for Economic Affairs & Energy, reminded the audience of the German “Energiewende” strategy for 2025-2035 (40-45% electricity from renewables in 2025; 55-60% in 2035), and insisted that Germany does not want to go ahead in isolation from the rest of Europe. Recognising the challenges posed by wind and solar electricity production, which are the bulk of renewables development, Mr Baake underlined the need for more flexibility and considered the prospect of a new market design. In this respect, he refuted the direct link between renewables and the need for capacity markets, stating that for Germany, at the moment, the most important thing was to eliminate price caps. He therefore hoped that Germany was close to signing an agreement forbidding price caps and rejecting market intervention in times of scarcity.

In his keynote speech, Miguel Arias Cañete, European Commissioner for Climate Action & Energy, recognised that the power sector is going through “one of the most profound changes in history”. New business models are arising and the stakeholders’ ability to adapt will determine success or failure. The Commissioner pointed to three main objectives that the Internal Electricity Market must achieve: become the main driver for investments in the power sector; accommodate and drive the development of renewables; and adjust to increasing customer participation. In conclusion, he welcomed the cooperation with EURELECTRIC, saying “we cannot achieve anything without working hand-in-hand with the industry”.

Ricardo Klatovsky, Global Vice-President, Energy & Utilities at IBM, outlined how cognitive systems are creating a new partnership between people and computers. “Large volumes of unstructured knowledge and information – big data – are available, but remain untapped by utilities”, he said, adding that the “industry is in a moment where viable substitutes are rising, revenue models are changing and customers become more demanding.” He also stated that in the future, cognitive systems would advise utilities on the way they construct their processes. He concluded by stating that these will bring value in terms of enhancing the relationship with customers and optimising the management of assets.

Session I panel discussions were chaired by Marc Oliver Bettzuege, Director of the Institute of Energy Economics at the Cologne University. In line with the overall theme of the conference, he focused the debate on the major trends and challenges impacting on our sector, the main drivers for change and the impact on the business environment i.e. how are utilities adapting and responding to change?

Outgoing President Johannes Teyssen stressed the magnitude of the changes currently taking place across all areas of the value chain and reiterated the need to place customers at the centre of the new retail paradigm: “Everybody adds ‘colour’ to it but only the customer defines it.” Overcapacity in the power system hides a more contrasted reality in which energy is not always dispatched where needed either for reasons of lack of grid capacity or firmness. Emphasising a main priority of his Presidency, Johannes Teyssen also mentioned the urgent need for market reform: “It is better to heal the problem while it is still cheap to do so, rather than waiting for costly intervention.”

Newly-elected Vice-President Jean-Bernard Lévy, CEO of EDF said that he foresees many challenges ahead for the industry including the misalignment of the energy mix with political will, growing intervention in markets and the lengthy process to reform the EU ETS: “It is disappointing to see how long it takes even though people know what to do”, he said. He stated that investment does not materialise due to the fact that market fundamentals are flawed and are unable to provide a strong market signal. He concluded by stating that more low-carbon units will have to shut down before reforms in the market will start to deliver.

Maxim Timchenko, CEO of DTEK, started by stressing that “the challenges faced today in Ukraine are different than in other countries”. Ukraine faces increased import dependency to Russia compared to last year. Mr Timchenko saw three main drivers for change in the Ukrainian energy sector: the increased involvement of the private sector; the need to reform the tariff system; and the urgency of establishing an independent, professional industry regulator. He concluded by saying that Ukraine plays an important role in the European energy sector and that its current main task is to make the system more attractive for foreign investment.

Marek Woszczyk, President of the Management Board of PGE Polska Grupa Energetyczna, considered that “there is no good or bad news”. In his view, the world is full of challenges and what needs to be done is to understand them, respond to them, and adapt the market design. He considered innovation to be the key solution to all these challenges and sees energy storage as one of the most crucial factors. When defining solutions, especially towards decarbonisation, Mr Woszczyk insisted that the consumer dimension and affordability should be at the heart of all initiatives.

Markus Beyrer, Director General of BusinessEurope, described the industry’s perspective regarding the unfolding changes in the electricity sector. He stated that the evolution towards a more diverse energy mix needs to happen in a more market-oriented and less distortive way, and that the energy transition should happen through a more coordinated approach. The discussion on the Energy Union provides the right momentum for this, he noted. He also warned that the design of the EU ETS should remain a market-based instrument to drive decarbonisation and should not become a fiscal tool that can be exploited by policymakers. He concluded by saying that high energy prices and competitiveness remain priorities for energy intensive industries.

Session II opened with a political statement from Jochen Flasbarth, State Secretary at the German Ministry for the Environment, Nature Conservation, Building and Nuclear Safety, who presented three prerequisites for Germany to meet its 2020 greenhouse gas reduction target and beyond. “First and foremost, we need to strengthen the EU ETS, and we are very pleased with the recent agreement on the Market Stability Reserve”, he said. “Secondly, extra effort is needed to reduce supply from coal power stations, something that is still heavily debated with the industry. Last but not least, energy efficiency has a key role to play, and this is where consumers can make a significant contribution.” He developed this last statement further in his speech, clearly emphasising the electrification of sectors which heavily rely heavily on fossil fuel, like transportation and heating, as a vital requirement in meeting the 2020 goals.

Fridrik Larsen, CEO and owner of Larsen Energy Branding, discussed how the sector should engage with customers, drawing a number of parallels with other industries, such as the airline and mobile telephony industries. “Essentially, branding is about giving people a different experience. Companies need to identify their points of difference as a matter of priority,” he stressed. Mr Larsen then emphasised the need for a change of metrics - “return on investment” should become “return on information”, and “return on assets” should become “return on attention”, he said. He went on to stress that it is those companies that are able to adequately draw customers’ attention and channel information will be the ones to win customers. “You cannot do marketing and branding without listening to customers and embracing change,” he concluded.

“With innovation in data management, robotics or biotechnology, consumers naturally expect new answers from energy utilities too,” said Arndt Neuhaus, CEO of RWE Deutschland, as he presented some of the innovative products and services his company offers to industrial and commercial clients. These products and services span from simple solutions (e.g. giving customers access to more information on their consumption through the addition of sensors on meters) to more complex ones (e.g. self-learning devices that optimise customers’ own production plants and increase self-consumed energy by 15%). He also presented the work undertaken by RWE in deploying electric vehicles’ charging infrastructure and concluded by presenting Powerhouse, a new service which allows easy and direct access for customers to energy markets.

Kalina Trifonova, Deputy Chair of the Management Board of EVN, Bulgaria, argued that in some parts of Europe, smart grids and innovative services are still abstract industry jargon. “In Bulgaria, the electricity market is heavily regulated and artificially low tariffs lead to inefficient generation and low or non-existent energy efficiency”, she explained. “Furthermore, an additional obstacle is the lack of political and regulatory stability”, she continued. In these circumstances, EVN invests heavily in order to trigger a consumer-powered transition: customers’ ideas are gathered and implemented in the company, thus making customers feel like an integral part of the company’s effort to offer them a smoother service. However, the “Bulgarian energy market seems to be left outside of the EU regulation,” she remarked regretfully.

Session II moderator, Philip Lewis, Founder and Chairman of VaasaETT, kicked off the panel discussions with the following provocative statement: “We know customers want change to happen. If the utility industry does not embrace change, it will happen without them anyway.” What opportunities and technologies will drive change in the industry and how to act with a customer mind-set were some of the key issues addressed by panellists in this context.

Alex Laskey, CEO and Founder of Opower, stressed that the successful survival and growth of European utilities depends on their ability to act as a source of transformative change. In support of this he shared “evidence” gathered through Opower’s own analysis, as well other external stakeholders, revealing that customers want solar (71%) or home automation (64%) to be provided by their utility instead of other actors from adjacent industries. And yet, not many utilities have entered the solar or smart home competition to date.” Going back to basics, Mr Laskey stressed that “the main thing customers want is a sense of control and choice”. They do not want to be overwhelmed with the complexity of the utility world, but would rather expect their utility to offer quality services, for instance knowing in advance whether they are going to receive a huge bill.

Patricia de Suzzoni, Chair of CEER’s Customers & Retail Working Group, recalled the importance of the “RASP principles” (reliability, affordability, simplicity, protection and empowerment) in engaging with customers. She took a cautious stance on flexibility, considering that the “time of use tariffs” has long existed and that real time pricing, while making sense for industrial consumers, has uncertain value for households. “What is needed for small consumers is the type of service provided by companies like Opower,” she said. Ensuring that new entrants can enter the market and develop business models on a level playing field along with traditional actors is the job of the regulator, she concluded.

Ingo Luge, Chairman of the Board of Management of EON Deutschland, said that “the energy industry needs to take customers more seriously. We are here to improve their lives and should be able to provide the services they need.” Drawing up a parallel with the extremely fast development and deployment of smartphones, he anticipated that there would be tremendous changes in the energy sector over the next ten years. Utilities can be part of this change and have a compelling story to tell. He stressed that “we can take complexity away from customers while making our industry thrive: a win-win situation!” Mr Luge concluded by stressing that all of this will, however, crucially depend on the regulatory framework and on our industry’s engagement with energy regulators.

Jorge Gonzalez, Managing Director at Ormazabal, stressed that manufacturers were developing technologies that will enable the deployment of smart grids as the foundation for new customer services and innovative solutions. “But at this stage, smart grids are mostly about pilots”, he added. “If you ask me who is gaining from the change happening in retail markets, I would have to admit that the manufacturers’ bottom line actually suffers from this situation,” he continued. Touching upon another sensitive issue, Mr Gonzalez stressed that “communication protocols are also completely different from one country to another,” and this hinders the deployment of smart solutions on a bigger scale.

“If we believe in competitive markets, as I do”, said Stephen Woodhouse, Director at Pöyry, “we need to fully involve the demand side”. “And if the demand side is active, we can deal with renewables volatility,” he added. In his opinion, the development of trading products that value flexibility (especially demand-side flexibility) can help the electricity market work to the benefit of its customers. In this context, offering energy efficiency and demand response services that benefit customers should be seen as the power sector investing in its future. “Utilities shouldn’t wait for obligations to be imposed on them to go ahead and do that,” he stressed. In his concluding remark Mr Woodhouse stressed that “utilities must take a view that customers are their primary asset,” a comment which was also strongly supported by Mr Laskey.