Why being stubborn to cut up the energy companies?

For several years, the European integrated utilities which had been built up over the past decades have been cut, modified, merged and undergo major changes in their scope of activity.

Is what may seem like a stubbornness really one? Are this cutting up and these changes necessary in view of current evolutions?

Let’s take a few examples:

– The separation of network management activities, that are regulated, and generation and supply activities, open to competition, (known as unbundling) has been pushed in Europe by regulation and has concerned, unless a more “binding” decision of the countries , all energy companies with more than 100,000 customers.

In the eyes of European legislators, this unbundling is an essential condition for the development of a competitive energy sector. The electricity grid, used by all energy suppliers, must be neutral and favor none of them.

Apart from a few countries, such as the Netherlands and Great Britain, which have chosen to impose different shareholdings on suppliers and network operators, the unbundling has been difficult, long and has given rise to defensive strategies from incumbent suppliers, who sought to make the most of the activities and the image of their network management activities with their customers.

Until very recently, the name of the network operators reflected their historical affiliation (EDF / ERDF in France, ENEL / ENEL distribuzione in Italy etc …)

If this unbundling was necessary to liberalize the markets, it separated activities at the time when they had to strengthen their ties. The emergence of distributed generation sources, the need for flexibility, the search for better energy efficiency requires unprecedented coordination between suppliers and network operators: their separation makes the task more difficult.

In some countries (Switzerland, Germany, Sweden etc …) local energy companies (“Services industriels”, Stadtwerke) grew up, very close to their customers. If the liberalization of the market has advantages, it makes lose this very precious proximity. I understand the reluctance of some Swiss energy companies to face this deadline; however, few have really exploited this proximity to demonstrate its benefits for consumers.

– The merger of transport networks to harmonize national operations

The ever stronger links between European transport networks for a more harmonious functioning and a better sharing of resources have led certain countries, having several transport networks, to merge them to simplify the management of their national power system: this was the case in 2005 of Eltra, Elkraft system and Elkraft transmission merged to form energinet, the Danish TSO.

– The merger of network managers to reach a size that better meets the challenges of energy transitions.

Once the unbundling has been carried out, the local nature of the activities is less important for a network operator than for a supplier and its commercial activities. For a network manager, dealing, in an economically optimized way, with the on-going developments (deployment of smart meters, digitalization of the network and automation of its operation, development of data management etc…) requires a minimum size pushing the smallest networks to regroup. Some choose to merge: ENSA and EEF in Switzerland to form Groupe e as a pioneer in 2005, Trønderenergi Nett and NTE Nett to form Tensio in Norway in 2019

– The merger of suppliers in search, as in all activities, of a larger size which they hope to take advantage of to strengthen their market position: SE and Eniig to form Norlys in Denmark in 2019

– The separation, within the same energy group, of activities relating to the old energy world and those relating to the new energy world. The old energy world represents carbonized or even centralized production, the new world includes renewable energies, energy supply and therefore energy services and distribution networks, at the heart of energy transitions. The forerunners of this type of organization were RWE and innogy based in Germany, E.ON and Uniper based in Germany and may soon be followed by EDF.

These movements have the risk of creating noble and visible activities and others less noble, with the associated personnel management difficulties.

These changes are understandable and explainable, but their consequences should not be underestimated:

– At each time, organizations are asked to adapt their mode of operation and focus on their new priority issues. Beyond organizational adjustments, managers and leaders sometimes have to mourn past positioning. I sometimes find among network operators the nostalgia for commercial activities and a “business” to manage.

– The need for global approaches with now more specialized players requires the development of cooperation and partnerships. These modes of action were rare in societies whose culture was to do everything by themselves; they take a long time to develop in such cultural environments.

– Adapting to a major change in scope takes time, a lot of time. The transition period is always a critical period where a significant part of the energy of employees is burned on internal objectives. It is always beneficial to anticipate changes and face changes courageously to reduce the duration of the transition. I often see the opposite.

– The changes must be carried out in an energy world in perpetual and fast evolution, to which it is necessary to adapt: ​​to find the resources to innovate, to follow the evolutions of the markets and technologies, at the same time as the organization reinvents itself, is always very difficult. Without a clear strategic line, the risk is to have an average performance on all fronts.

All of these difficulties to be overcome are probably at the origin of the feeling of stubbornness that we can nurture about the developments asked to utilities. The only point on which this feeling can be justified is the identical treatment of national and local Stadtwerke-type energy companies.

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