As the shockwaves created by the Energiewende in 2011 resonated through the energy sector’s centralised generation landscape, EnBW, Germany’s fourth biggest utility, saw a chance to fast-track a transition to a renewables-led business.

The strategy launched in 2013 by the Baden-Württemberg-headquartered company, a state-owned entity with six million customers, was fittingly radical. Not only would it focus on shedding the nuclear, coal and gas power assets that at the time were making up almost two thirds of its profits, but it would also ratchet up its share of renewables to more than 40% by 2020.

Time was of the essence. The company’s fossil-fuel plants were facing decommissioning to make space for new wind and solar production flowing on the German grid and its nuclear power stations were being shuttered in line with the government’s energy policy shift.

“We undertook a deep analysis [in 2013] of how the markets would develop in the next years and decades. At that time [utilities] were all mainly focused on lignite and coal and nuclear — for us it represented 65% of our profits, so the numbers in our forecasts were not good if we didn’t change rapidly to adapt to the Energiewende,” Dirk Güsewell, EnBW’s head of generation portfolio development, tells Recharge.

“Every challenge, opportunity and risk we could identify came down to this — wholesale electricity markets, the growth of the renewable energy industry, digitalisation of the end customers and so on.

“To us the most important thing, we felt, was how we handled the Energiewende: do we defend our existing market position and ignore [the rise of wind and solar power in Germany] in our business model? Or do we put [the Energiewende] at the heart of the company, central to all our business units?”

The results of the investment campaign, which put €14bn ($16.3bn) into wind, hydropower and grids, speak for themselves, with renewables taking the utility back into the black in 2017 with adjusted Ebitda (earnings before interest, tax, depreciation and amortisation) rising a further 8.1% in the first half of 2018 to €164.8m, driven by new onshore wind farms coming on line.

“We have seen a very big change in the right direction in last year’s figures. The renewables business was the second-biggest unit in terms of investment and to reach our [2020] target of €500m Ebitda, based on the projects we already have installed and in operation and those that are under development, we feel is on track,” says Güsewell.

He points to the company’s forecast of a 10-20% year-on-year uplift in renewables earning for the full year, underlining EnBW chief Frank Mastiaux’s view that the year was “a key milestone in [the] company’s transformation”.

EnBW aims to have 1GW of onshore wind plant turning by 2020, up from 204MW last year, underpinned by production from projects in Baden-Württemberg, but in future boosted by “selective internationalisation” into markets such as Turkey, Sweden and France, where it opened a new office in June.

Offshore wind rising

And steady as the revenue stream promises to be from onshore wind for EnBW, offshore wind is rapidly gathering momentum as the longer-term engine of its transformation. Foundations went in at its 497MW Hohe See project off Germany earlier this year and construction at its 609MW Albatros development is due to start in September, adding to the 336MW operational at its Baltic 1 and 2 projects. Further gigawatts are on the horizon in the US, starting with the 1GW Morro Bay floating wind project, and off Asia, led by a stake in three developments off Taiwan.

“Here in Germany, ‘Energiewende 2.0’, if you will, is going to be powered by offshore wind, so we feel we are well positioned in terms of our portfolio and how we are developing it,” says Güsewell.

“But it is also important to look at the regulatory and political dimensions too when it comes to the dynamics of renewable energy in Germany and the additional capacity being developed.

“Offshore wind is going to be fundamental to some dramatic changes in the next two to five years and this will be based on the market’s stimulation [of the sector rather than governmental support].”

He explains that the experience EnBW has gained in project construction and operation from Baltic 1 and 2 — and the extra cash in the coffers coming from the wind farms’ “noticeably higher” production last year — has been crucial.

“Not every player in our market can handle the complexity of offshore wind projects. For us, it is in our DNA. The only question in recent years has been [connected] to the question of costs,” says Güsewell.

“Cost was the main driver of just how big offshore wind can be for us and the wider industry in the next decades. But, of course, the changes we have seen in the per-unit size of turbines has been really impressive and makes us believe that offshore wind will be and continue to be an important part of our evolving business.”

To this end, EnBW is keeping a narrow focus on what it sees as the two main issues driving offshore wind’s development: “The size of the turbine, which is important to get more energy from the same wind, if you will; [and] the foundation, which can make up 45% of a project’s cost,” says Güsewell.

On the turbine side, the utility is part of a consortium fleshing out a 10MW+ offshore concept under the aegis of the European Commission’s €25m ReaLCoE project, joining OEM Senvion and 12 other partners on a mission to “unleash the full potential of offshore wind energy to be in direct competition with conventional energy sources in electricity markets worldwide”.

“We are a utility but we are also a developer and operator,” says Güsewell. “It is important that these new technologies are brought to market in the next years and all stakeholders should support this process as cost continues to be key, not least to offshore wind. Having 13 companies and organisations involved is key to give the widest range of viewpoints and we can contribute the operator’s — and thus the customer’s — perspective.

“We are in close contact with our suppliers, including Senvion, because we need these new technologies but because we also need competition — it won’t help our industry if we have monopolists in the supply chain.”

Floating wind future

For foundations, EnBW is looking even further into the future, beyond monopiles and jackets to floating structures. In June, the company formed a joint venture with US start-up Trident Winds to build the Morro Bay development off California, as the lead-off project in a long-term international partnership.

“Finding new markets is about what works best for your company in terms of competitiveness — and this is about maturity of regulation, local supply chain, technology and so on,” says Güsewell.

“With the cost of offshore wind having come down so dramatically, this is opening up possibilities for many new markets, but many have conditions that will not work with conventional [bottom-fixed] wind farms.”

Floating wind “quickly becomes very interesting” in regions such as the US Pacific and Japan because of waters that are too deep for monopiles or jackets, as well as in some shallow-water locations, including off Europe, he notes. These include sites with “noise pollution issues related to installation of foundations or other factors” such as seabeds unsuited to piling in conventional foundations.

High-altitude wind energy

For EnBW, the pursuit of new markets goes beyond projects in new geographies.

Fundamental to its strategic energy transition shift is a belief in technology innovation, which can be seen in its plans to begin developing solar projects, as well as in the recent tie-up with SkySails, a high-altitude wind-energy (HAWE) outfit developing a kite-driven concept.

“It is important for us to be active in all the technologies that are relevant, to be close to the market, to be able to be flexible and adapt your business models using all the lessons [you have] learnt. We want a balanced portfolio in terms of the different technologies,” says Güsewell.

“The main argument [in the case of HAWE] is clear: winds at higher altitudes are stronger and more stable. And we have seen the technology works at smaller scale, so we now need to test how it will work in bigger dimensions.

“From 15 years in renewables I have learnt it is important to be open to the potential of new technologies. We [the industry] are moving forward so fast.

“With SkySails, we want to be close to the technology development at a relatively early stage to understand how to best advance it. It is, after all, still wind, and we want to support the innovation side.”

New business model

The Energiewende has presented an existential crisis for Germany’s utilities, says Güsewell, “changing the success factors that had been crucial in the past”.

“In a centralised energy world, the size of a utility is very important [for capital and operational expenditure]. But with the changes we are seeing in Europe and globally, we feel there is something coming that is very new. Speed, flexibility, response time — these will be the characteristics [of a successful new model utility].

“Perhaps not being one of Europe’s biggest utilities was a kind of disadvantage in the past, but we feel that with the new success factors we are seeing emerge, it is better for us. Every market player has to define for itself an active way of planning for the future and how it will fit into this future.

“Those companies looking to the past in trying to keep a business progressing as it did over the past 20-30 years will be facing extreme danger in maintaining profitability [as their fossil-fuel and nuclear generation declines]. Those that intelligently look ahead to the challenges that are approaching and then define how to handle these risks will have a better chance of capitalising on these changes.” 

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