Utilities Line Up to Profit From ‘Slowest Trainwreck’ in History

Source: By Jess Shankleman, Bloomberg • Posted: Wednesday, September 20, 2017

The unrelenting plunge of power prices will benefit companies that can withstand new challenges from upstart wind and solar newcomers, according to two of Europe’s biggest utilities.

Only large companies with diverse portfolios and resources will have the weight to compete against renewable projects that sell subsidy-free power to markets, Enel SpA’s Chief Executive Officer Francesco Starace said at the Bloomberg New Energy Finance conference that finishes on Tuesday in London.

“You need to have a diversified portfolio, you need to be able to say ‘No I don’t like this project, I have another three coming,”’ he said. “If you only have one project and that project is everything you need for growth, that is not a good thing.”

Renewable energy technologies are upending the century-old, centralized business model that that utilities have used to grow. The cost of electricity from offshore wind farms, once one of the most expensive forms of green energy, is expected to slide by 71 percent over the next two decades, according to BNEF. Solar, once so costly it only made sense in spaceships, now competes with coal and even natural-gas plants on cost.

“I do think we’re experiencing the slowest trainwreck in history,” Steven Martin, chief digital officer at General Electric Co.’s energy connections unit, said at the conference. “We’re going to reach some point where the marginal cost of energy is zero.”

Earlier this year, Germany shocked the renewable energy industry by handing out contracts to developers willing build offshore wind farms without subsidy. Spain has also seen zero subsidy tenders, according to Starace, who said he expects the trend to go global after beginning in Europe.

The trend to zero subsidy is clear, and that beefs up competition leading to consolidation in the market, said Leonhard Birnbaum, chief operating officer at the German utility EON SE.

“The party is over now, and not everybody can make money,” he said at the summit. “In the future, only the good performers can make money. The rest won’t be able to cover their cost of capital.”

— With assistance by Anna Hirtenstein