Two recent business developments on opposite sides of the
world confirm that electric utilities are shaking up their business models in
response to the rapid rise of renewable energy. Hawaii’s electric utility, the Hawaiian
Electric Industries, recently struck a deal, estimated at $4.3 billion, to
merge with NextEra Energy, Inc., a prominent, Florida-based renewable energy
developer. Half a world away, German utility E.ON recently announced that it
was splitting in two, forming one company to focus on renewable energy and
another to continue managing fossil-fuel assets (primarily lignite, the
dirtiest form of coal). Despite great physical distance between the electric
utilities, there are strong parallels between their business developments. Each
company has touted its development as a clear victory for renewable energy and
a blow against climate change, but the reality for both is cloudier.
Bold Benefits for
Renewable Energy?
Coverage of the utility moves has played up potential
benefits for renewable energy development and climate change mitigation. For
example, E&E
News quotes Jim Robo, NextEra’s CEO, as saying that its merger with the
Hawaiian utility is “about two leaders in clean and renewable energy joining
forces to build a more affordable clean energy future.” Meanwhile, Eric
Wesoff at Greentech Media writes of the merger as a “brilliant idea” that
could transform the Hawaiian utility into a “renewable energy powerhouse.” As for E.ON’s split into fossil fuel and
renewable energy companies, Stefan
Nicola at Bloomberg News writes that it “marks a watershed moment in
Germany’s renewables effort that will likely bolster the country’s already
leading position in clean energy.”
There is likely some merit to these claims. NextEra is
purchasing a Hawaiian utility just as the state is considering a very broad
transition away from fossil fuels and toward renewable energy, as my
colleague Nate Larsen has discussed on this blog. Meanwhile, E.ON’s split
is set against the backdrop of the German Energiewende, that nation’s ambitious
transition from nuclear power to renewable energy. Both NextEra and E.ON’s new
renewable energy arm should bring some valuable expertise toward managing these
transitions. For example, NextEra
claims to be the nation’s largest owner and operator of wind energy facilities
and one of the largest generators of solar power as well. Proven experience
making renewable energy work as a viable business could indeed help both Hawaii
and Germany make a sustainable, affordable transition to renewable energy.
Or Business as Usual?
However, it is important to remember that utilities are
capitalists, not environmentalists. Both companies are likely making these
moves because they benefit corporate bottom lines, not because they benefit the
global climate. For example, E&E
News quotes the president of a Hawaiian solar company as noting that
“NextEra would be buying HEI with the idea of making money, not doing the right
thing to make this state some kind of renewable energy paradise.” The fact that
NextEra is also the parent company of Florida Power and Light, a utility that
has recently
and successfully opposed energy efficiency and distributed solar power in
Florida, provides a solid foundation for that suspicion. NextEra is likely
pursuing new options in Hawaii because the market for renewable energy there is
quite competitive with the high cost of importing fossil fuels. In short,
NextEra is likely moving into Hawaii because it stands to make money there.
Meanwhile, E.ON is struggling to adapt to the fact that the
German Energiewende has hit that nation’s utilities hard, with the price of
shares in E.ON having fallen by 75% since 2010 and the utility’s revenues from
fossil fuels dropping by a third. As Damian
Khaya at Greenpeace reports, E.ON’s split likely has more to do with
minimizing risks to its renewable energy efforts while simultaneously
continuing its fossil fuel business. In fact, Mr. Khaya reports that E.ON’s new
renewable energy arm will carry all the debt from the utility’s prior
fossil-fuel activities, essentially subsidizing the new fossil-fuel arm’s reach
into new territories (including a plan to build a new coal-fired power plant in
Turkey). In short, E.ON’s split is a way to adapt to Germany’s new regulations
while still making money from fossil fuels.
Renewable Energy as
Utility Business Model
Nevertheless, despite my cynical look at the financial
engines under the utilities’ hoods, I find some cause for optimism in the news
about NextEra and E.ON. The world of regulated electric utilities has been in
an uproar about renewable energy for some time now. At least six legal challenges have
been raised against renewable portfolio standards, and more
are looming on the political front, and U.S. utilities have been fretting about
rooftop solar power throwing them into a
death spiral. However, the recent moves by NextEra and E.ON. demonstrate
that some utilities are starting to look toward renewable energy as a viable
business model. As the
purely economic case for renewable energy continues to become stronger, we
should expect more utilities to move in this direction as well. And that, for
me, is reason to hope.
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