ENERGY TRANSITION E.ON’s Brave New World

The energy giant needs to boost revenues, revamp its business model and find a new identity. Head of operations Karsten Wildberger thinks he can do all three.
Knowing how much sunlight your roof will get annually is helpful information when investing in solar panels. E.ON and Google are making that available for German customers.

Karsten Wildberger is in buoyant mood, addressing a late night team meeting at company headquarters. E.ON’s chief operating officer for commercial business is here to point the way to the future. “People talk about us like we’re yesterday’s news. But we want to be the energy company! Customers should think of us as pioneers of the new world of energy!” he says.

The 49-year-old executive with a physics PhD and an MBA can already point to one big success last week: E.ON will partner with Google to bring the Sunroof app to Germany. Sunroof uses data from Google Earth to tell E.ON clients precisely how much solar energy their houses can generate, then providing a link to buy and install the technology.

Mr. Wildberger will need a lot more deals like that. Ten years ago, E.ON was the biggest company in Germany, valued at more than €100 billion, around $110 billion. These days, it’s not even the country’s biggest energy company. In many ways, the company’s hopes – perhaps even its very existence – now rest on Mr. Wildberger’s slim shoulders. Heading a division called Customer Solutions, his job is to invent products and services for the company’s 21 million energy customers – and, ultimately, to reinvent the lumbering giant for a clean energy world.

Mr. Wildberger’s job is ultimately to reinvent the lumbering giant for a clean energy world.

For decades, E.ON’s business was simple enough. In the monopoly days, it generated electricity from coal, gas, oil and nuclear power, which it passed on to a massive, passive customer base. This was not so much “selling” as “supplying.” Captive customers paid their bills and E.ON grew rich on the fat margins.

Then in March 2011, an undersea earthquake near Japan generated a 40-meter tsunami, sending the Fukushima nuclear plant into meltdown. The tectonic event in the Pacific had seismic consequences for the German energy market. Responding to the country’s latent anti-nuclear atmosphere, the Berlin government threw itself behind an “energy revolution,” including a total shutdown of nuclear power and massive subsidies for renewable energy.

In the years that followed, solar and wind energy flooded the market. The wholesale electricity price collapsed. In a remarkably short time, E.ON’s vast infrastructure of fossil fuel power plants went from cash cows to stranded assets. To make matters worse, E.ON  – along with other traditional power companies – was ordered to pay tens of billions of euros for nuclear decommissioning. Since Fukushima, the company has lost a total of €27 billion. No longer the darling of the DAX, the company is currently valued at a mere €14 billion.

Something had to be done, and in late 2014, chief executive Johannes Teyssen announced a radical step. E.ON would spin off its former pride and joy, the fossil fuel power plants, and form a new company it called Uniper. And it would rebuild its core business around what remained: renewables, retail business and network operations. The reformed E.ON would be lean, clean and forward-looking.

However, questions remained: What should the company do with the old power stations? And how could it make money and generate real growth in the brave new world of the energy revolution? These became all the more pressing as E.ON’s shrunken share price has left the business increasingly open to hostile take-over and break-up.

These are also the questions Mr. Teyssen brought Mr. Wildberger over from Australia to answer. Down under, Mr. Wildberger had helped drag Telstra, the Australian telecoms giant, into the digital age. His teams were responsible for consumer business, digital transformation and product development, rolling out one new lucrative product after another. Do that for us, was Mr. Teyssen’s message to his new right-hand man.

It is no coincidence that Mr. Teyssen looked to the telecoms industry for salvation. Many see the energy sector’s upheaval as a rerun of the telecoms industry in the 1990s: new technologies disrupting old certainties, deregulation causing old monopolies to implode, long-established companies forced to compete for customers and invent new ways of making money.

In the time since Mr. Wildberger joined up, E.ON’s situation has become more pressing. The flotation of Uniper cost far more than expected. Enormous write-downs meant a record annual loss in 2016 of €16 billion. Meanwhile, it became even more clear that the company needs more than a new business model. It needs a new identity.

Mr. Wildberger must tackle both tasks. Addressing his team in that late-night meeting, he reeled off fresh plans and new partnerships. The retail side has seen progress with solar panels and storage technology, he told them. The company has launched “Solarcloud,” a personalized solar energy account, allowing customers to directly use the energy their solar panels generate. There is heavy investment in charging stations for electric vehicles. “Really big commercial clients” are in his sights – Bilfinger, Goodyear, Dow Chemical and Sainsbury’s – along with joint ventures with BMW, Sixt and IBM.

Along with announcing innovations, Mr. Wildberger was also pushing for the transformation of E.ON’s corporate culture. “We can be proud of our successes,” he says. “The speed of our change is good. But we have to accelerate.” E.ON should be “the number one in digital solutions,” and above all, “we have to be the customer company.” Typical Wildberger: first motivate, then demand more.

Energy customers are changing, Mr. Wildberger believes. They are demanding clean energy as well as low prices. Like mindful food consumers, they want to know where their energy comes from and how it is made. They are increasingly producing their own energy and selling it back to the grid. As a product, energy is becoming “more emotional,” he says.

He is not alone in thinking this. Competitors are looming, with powerful trans-Atlantic players like Tesla and Google hoping to bring disruption to the energy market, as they have done in many others.

But E.ON’s possibly most dangerous challenger is a familiar rival: RWE, another mammoth old utility based in Germany’s post-industrial northwest. A year after E.ON announced its split, RWE said it would also divide itself into old and new halves, with fossil fuels in one firm, networks, retail and renewables in another.

However, there was a difference: unlike E.ON, RWE’s new successor company, Innogy, would inherit the clean, green parts of the business, with a minority stake to be floated as soon as possible. Last October, with E.ON still mired in billion-euro write-downs, Innogy’s IPO was a soar-away success. Its market value shot up to €18 billion, knocking E.ON off the top spot overnight.

In addition, Innogy launched a nationwide marketing blitz, which pushed its brand recognition up to 77 percent in key German markets – a brilliant result for a company less than one year old. In the city of Essen, where both companies are headquartered, E.ON’s employees were goaded with huge posters proclaiming “Energy is Innogy.”

Mr. Teyssen says E.ON’s more cautious approach is a strategic choice. “Our staff know that companies win with customers, not with posters,” he says. He has given Mr. Wildberger a free hand in revolutionizing the customer division, based on three core values: added value, quality and service. “With every new product, we check if we are fulfilling our the promise made by our brand.”

But does E.ON have the time – or the capital – to move cautiously? Apart from innovation, a cost-cutting program will trim €400 million in annual expenditure, and cut 1300 jobs. Investment decisions are subject to strict discipline.

Investors have their doubts. “A new beginning is hard. E.ON has been severely weakened,” says Thomas Deser, a portfolio manager with Union Investment, which represents 4 million investors. He advises E.ON’s management to focus on stable businesses, above all network operations. Others investors want more radical steps: Knight Vinke, an activist asset management company, has demanded that Mr. Teyssen raise cash with disposals, starting with the network business.

A new beginning is hard. E.ON has been severely weakened. Thomas Deser, portfolio manager, Union Investment

For now, E.ON staff are giving Mr. Wildberger the benefit of the doubt. “He has good ideas. He’s a breath of fresh air,” says one influential workers’ representative. But E.ON can’t neglect its “bread and butter business,” which may promise limited growth, but brings in stable revenues. In 2016, “Customer Solutions” brought in €820 million in earnings before interest and taxes (EBIT), only a quarter of the company’s revenues. Staff have nicknamed Mr. Wildberger’s division “the app company.” It is watched with interest, but skepticism.

Last month, in a video hookup with 1,500 employees across Europe, Mr. Wildberger faced some of his toughest questions yet. He spoke of his division’s “great pipeline,” mentioned Solarcloud, and said he was “proud of his team.” But then a British manager asked a question that went straight to the point: “What’s in it for E.ON? Please give us figures on investment and expected profits for 2017 and 2018.”

“Profitability is a very important question,” came the answer. “You can be sure that, for every new product, we have a clear idea of the profit threshold.” But he refused to give concrete figures, instead offering a parable: “If you climb a high mountain, it makes no sense to keep looking at the summit. You just keep on moving to the next target, keeping up your speed.”

 

Jürgen Flauger covers the energy market for Handelsblatt, including electricity and gas providers, international market developments and energy policy. To contact the author: [email protected]