* Utilities long ignored renewables, now trying to catch up * Strongest firms are those who embraced renewables early * Grids seek new revenue from storage, charging stations * Labour-intensive energy services unfamiliar new terrain By Geert De Clercq PARIS, Dec 2 (Reuters) - European utilities executives meeting at the Paris Climate Conference know they are part of the problem. What they have not yet figured out is how to make money by being part of the solution to climate change. For decades, power plants owned by the likes of RWE , Enel and EDF have been among Europe’s worst polluters. When governments started subsidising solar and wind power in a bid to reduce carbon emissions, many utilities shunned green energy as unrealistic and uneconomic. Now, renewable energy accounts for more than a quarter of Europe’s power and is pricing fossil fuel and nuclear plants out of the market, forcing utilities to come up with new strategies to benefit from a low-carbon energy environment. Some are belatedly jumping on the renewables bandwagon, some focus on their power grids, while others venture into emerging markets and new energy services. But all are still weighed down by their legacy fossil fuel or nuclear businesses and are struggling to reinvent themselves. Italian utility Enel’s CEO Francesco Starace admits his industry has been in denial for a long time. “The big industrial revolution in Europe on the renewable front saw most utilities passive and outside what happened. This has been a tragic mistake,” he said. Enel - with other southern European utilities like Spain’s Iberdrola and Energias de Portual - was one of the few to embrace renewables early on. In 2008 it set up Enel Green Power, now worth more than 10 billion euros ($11 billion). Enel wants to merge with its green unit, showing renewables are its core business, not a sideline. “Ten years ago, most European utilities had nice clean separate units doing renewables and they needed to be small so they didn’t bother them too much,” Starace said. “How long will they be the little guys?” he added. Even French EDF, which has long been hesitant about renewables, now plans to invest up to 2.5 billion euros a year in them, though mainly abroad, not at home, where it remains focused on nuclear. With its stock down about 40 percent since the 2008 financial crisis, Enel is roughly in line with Europe’s Stoxx 600 Utilities index, which peaked in early 2008 and dropped nearly 60 percent by mid 2012 amid overcapacity and falling power demand. Many of Enel’s peers have done much worse, their stocks falling 60 to 80 percent, with the biggest losses for those who held out the longest against renewables. The worst performer is German RWE, heavily reliant on coal. On Tuesday, a year after competitor E.ON, RWE set up a separate unit for its renewables and grids. The only power companies to have thrived since 2008 are high-voltage transmission grid operators like Spain’s Red Electrica, Italy’s Terna and Britain’s National Grid, whose stocks are up between 25 and 80 percent thanks to state-regulated fixed returns on their assets. Under EU rules, utilities can no longer own transmission grids, but most have managed to hang on to the low-voltage distribution grids that bring power into people’s homes. Many are now investing in grid-related services like Austria’s Verbund in electric car charging systems, Dutch Eneco in smart thermostats, Terna in power storage and EDF in smart meters. Swiss utility boutique EIC fund manager Andreas Schneller said distribution grids and renewables are where the growth is. “The European utilities that have moved in that direction early are now in a relatively good position,” he said, mentioning Iberdola, Engie and Enel. Utilities have also entered the unfamiliar terrain of energy services, such as running airconditioning systems for companies or museums, district heating systems for cities or waste-to-energy plants. These are labour-intensive activities out of utilities’ comfort zone, but they offer reliable returns. The champion in that field is France’s Engie, whose Cofely unit is EU market leader with sales of 16 billion euros and staff of 100,000. EDF has followed Engie’s example by buying energy services firm Dalkia and other utilities such as E.ON have announced similar plans. Engie has also invested heavily in emerging markets but despite its innovative strategies, it remains weighed down by its gas and nuclear business, with its shares down 60 percent from 2008. Like many EU peers Engie actively scouts for new business ideas and has set up the 100 million euro NewVentures fund to invest in startups in sectors like grid management, mobility, indoor comfort, and decentralized power production and storage. Hendrik Steringa, who studies utilities’ strategy at the University of Twente, said these venture capital units typically report straight into the CEO, in order to reduce the risk that promising new ideas would get smothered at a lower level. Steringa said there is a continous battle between the old and new business models and utilities’ risk-averse corporate culture makes innovation difficult. “At the moment, I cannot name a single utility in central and western Europe that has developed a successful new business model,” he said. ($1 = 0.9457 euros) (Additional reporting by Tom Pfeiffer in London and Christoph Steitz in Frankfurt, writing by Geert De Clercq; Editing by Elaine Hardcastle)
Major utilities companies are among Europe's worst polluters and most, until now, have viewed renewable energy as unrealistic and uneconomic. But the German government has been pushing ahead with a plan to build up its own wind power capacity in order to meet growing demand for electricity from renewables such as solar panels and biomass. While a few companies, such as Italian utility Enel, were early to embrace renewables and are now in a relatively strong market position, utility companies that resisted renewables the longest have suffered the biggest losses from falling share prices. Jumping belatedly on the renewables bandwagon, French utility EDF has announced plans to invest up to €2.5bn p.a. in renewables, albeit mainly abroad. Meanwhile, German utility RWE, which is heavily reliant on coal, is setting up a separate unit to focus on renewables and grids, following in the footsteps of its competitor E.ON, which opted for a similar strategy last year.