E.ON Interview Reinventing the Energy Wheel

A management board member of E.ON explains how the energy company wants to ward off new competitors and why the new company Uniper will have a bright future.
The changes at E.ON are more than just this big.

Germany's "Energiewende," the mammoth task the country has set itself to transition away from fossil fuels and nuclear power towards renewable energy alternatives, needs every good idea that the brightest minds can offer. These days, that challenge is being driven less by traditional energy providers than it is by smaller start-ups.

It was these startups that took the lead in submitting their smart ideas for this year's Handelsblatt Energy Awards, which the paper runs together with partners including General Electric. The jury spent a good six hours deliberating on over 100 submissions in the library of the paper’s headquarters in Düsseldorf before narrowing it down to a short list. That short list of 15 includes both start-ups and more established companies. Some 230 energy experts will pick out a winner in five categories before the ceremony on October 8.

Bernhard Reutersberg is a manager at the established energy provider E.ON. He was on hand for the company's spectacular rise after its founding in 2000, as well as for its spectacular collapse in recent years as fossil fuels fell out of favor.

E.ON is now preparing an ambitious but risky plan to spin off its conventional power plant business – once central to its success in the last decade – into a company called Uniper.

The 61-year-old Mr. Reutersberg is preparing for yet another roller-coaster ride, serving as chief markets officer on the board of the new-and-improved E.ON SE, which will deal in alternative energy and smaller power plants. He gave an interview on Handelsblatt's rooftop terrace in Düsseldorf discuss how seriously Germany’s largest energy company is taking the new competition from start-ups.

 

Mr. Reutersberg, after the division of E.ON into two companies, you will sit on the management board of E.ON SE, which will take care of the business related to the energy transition. How relieved are you not to have to change to the new company Uniper with conventional power plants?

Mr. Reutersberg: Relieved, how so? I am convinced that both companies have good opportunities in their own markets. There were naturally certain pre-qualifications when it came to the choice between E.ON and Uniper. That resulted in who would likely go in which direction.

That wasn’t all determined by your CEO?

If you look at my CV, then the decision for E.ON-New was logical. The customer-oriented business is more in my nature.

Why has E.ON reacted so radically to the "Energiewende"?

We must first clarify which Energiewende we are talking about. Do you mean the heavily-subsidized German plan to restructuring the energy system? That is not what drove our decision. We reacted much more to global mega-trends.

They are?

We see enormous growth with renewable energies – but also a trend in principle toward decentralization, or the production of electricity close to the consumer. In addition, the readiness of people to invest in some photo-voltaic systems or batteries is increasing. They want to produce a portion of their own energy consumption. Combined with the move to digitalization, there is incredible dynamism here. It will change the energy economy in the coming years in a more lasting way than ever before. The industry will not just have to grapple with its own kind, but completely new companies with different business models will aim to poach from us or attack our supply chain.

 

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You are alluding to the wild young ones from Silicon Valley. You yourself have been there several times. What were you looking for and what did you find?

In Germany, energy is often talked about in a negative tone. In Silicon Valley, on the other hand, it is talked about as something somewhat positive, something that has a future. There, it is not about the large-scale plants, but rather about how the individual customer can most efficiently bypass energy. How can they produce electricity themselves? How can they sell electricity? The companies in the valley have an entirely different perspective. That is very stimulating. That is why we have placed a team in San Francisco and participated in 14 start-ups.

What companies do you find especially fascinating?

Sungevity, for example. They basically make something very simple and sell photo-voltaic systems for the roof. But they considered the entire value chain, from the first customer acquisition to installation on the roof, and they wondered where the biggest costs are. Therefore, Sungevity optimized the customer approach. The employees, with the help of Google Earth, identify in a city the houses that have the best roofs to use solar energy. They then calculate exactly how large an installed photo-voltaic system has to be and deliver within the shortest amount of time calculations for energy and efficiency. They then give this data to their call center. They call the homeowner and ask if he wants to earn a certain margin on his invested capital.

The lesson from Silicon Valley is for many that the German providers are much too plodding, which means that one must think in completely new terms. Can a company like E.ON even do that?

If we were not completely convinced of that, then we would not follow such a strategy.

E.ON needs an entirely new company culture for its planned business. How do you want to achieve that?

That is surely one of the greatest challenges. Cultural changes are very difficult to manage. And they need time. Intense work is needed to change people’s thinking. But we are not starting from scratch. In recent years we have already invested much more in skills to better understand our customers. It is true we are not yet where we want to be – but starting with the management board we have started to increasingly look at things from the point of view of the customer. From that we deduce their needs, advance innovation processes and offer solutions. And through all of this work, the culture in the company will change.

You need very different worker profiles.

We cannot change the world overnight. But in the new energy fields we have already brought many excellent employees on board. Naturally, like in other companies, we must constantly ask ourselves if the employees in key positions have the right profile. This transformation is a process. We will also not entirely avoid recruiting employees from other sectors, who support us in implementing the new culture.

 

</a> EON manager Bernhard Reutersberg with Handelsblatt editors Hans-Jürgen Jakobs and Jürgen Flauger.

 

Why not forge partnerships with other companies to balance out the lack of digital know-how at E.ON?

I don't rule that out – even an alliance with companies such as Google would be possible in principle. Partnerships are a very important element. In the end, it must be a win-win situation for both partners. A partner must bring us skills that we do not really have or cannot build up quickly enough ourselves.

Don’t you have a credibility problem? A provider known for giant power plants and centralization now wants to be green and decentralized?

If I look at the feedback from politics and the media, I cannot recall our credibility being questioned. We are currently receiving a lot of approval from politics. It's actually the other way around: If we were to keep the structure as it is, then we would have a credibility problem. As E.ON, we must decide if we are a large provider or want to offer customers tailor-made solutions.

The distribution networks are regulated and renewable energy remains dependent on subsidies. The sales margins are meager. Where is the potential for growth?

We see good potential for growth in all three areas: distribution grids, renewable energy and customer solutions. The share of renewable energy in the energy mix is growing disproportionately worldwide.

…but this is because of government targets.

Not only. The government targets are dwindling. Solar energy is in some areas already completely competitive without subsidies. If affordable batteries were to be added, then we will someday not need any government support for this area. Also, the state of regulation is different in each region of the world. Our success no longer depends on individual countries.

 

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The managers of powerful financial funds are supposed to believe that?

We are betting on the right trends. And funds value the fact that a large share of our business is resistant to fluctuation and therefore is predictable.

What future technologies is E.ON betting on? Co-generation, wind turbines on land, offshore wind farms, solar parks, decentralized energy solutions or all of the above?

With regard to technologies, I would explicitly not like to rule anything out. We are very active in offshore wind farms and are among the three largest investors worldwide. We have just decided with Rampion to build a large offshore wind farm south of England. We are targeting onshore wind in the same systematic way. There, we are primarily involved in North America. And decentralized production and energy efficiency are an absolute must. We also want to grow in photo-voltaics.

And you are simply dividing yourselves among these?

E.ON’s new strategy is not to divide itself further. The initial division was the precondition for E.ON’s realignment – the orientation to customer solutions, the creation of recoverable innovative products.

And Uniper will be the "bad bank" of the German energy industry?

No, not at all. Uniper’s business model will be necessary for decades. The company has value-holding assets, which are essential to a secure energy supply. Bad bank? Forget it!

 

Hans-Jürgen Jakobs has been editor in chief of the Handelsblatt newspaper since February 2013. Jürgen Flauger is a Handelsblatt editor, covering electricity and gas providers. To contact the authors: [email protected]; [email protected]