How Public Utility Companies May Propel the Energy Transition and What Hinders Them to Reach Their Full Potential
As a sustainability consultant, the QLab works closely with private and public stakeholders involved in the German energy transition. Through such collaborations, we noticed that public energy distributors struggle to realize their full potential for the energy transition.
Why public energy distributors are key stakeholders
In Germany, energy is distributed through the networks of municipal utility companies (MUCs) (German: Stadtwerke). While smaller Stadtwerke buy the lawfully determined energy mix from producers, mainly via the European Energy Exchange in Leipzig (DE), the larger cities’ Stadtwerke only provide the network for energy coming directly from various producers.
Therefore, MUCs play an essential role in maintaining reliability and prices. Moreover, the Stadtwerke can significantly steer their municipality’s path towards climate neutrality as they’re close to the consumer and local stakeholders. This enables them to invest in local green energy production and motivate residents to invest in private photovoltaic (PV), for instance.
However, according to the Fraunhofer Institute (p. 38), their unique role in the German energy market also hinders improvements in specific areas. The manifold relationships with local stakeholders may reduce their maneuverability further.
Moreover, according to oekologisches-wirtschaften.de, the business model of the Stadtwerke has run at risk of being unprofitable since 2010. When private PVs and overall energy efficiency across sectors increase, especially large Stadtwerke may experience profit loss.
Sustainability, reliability, pricing
While renewables are already cheaper than fossil fuels, the lack of efficient alternatives to gas remains a problem. Concurrently, the inflated oil and gas prices transfer from private providers through public distributors to private households. Frankly, German public energy distributors are dependent on gas, but business-as-usual is no longer an option.
Unfortunately, bureaucratically sluggish institutions like the Stadtwerke do not necessarily have the dynamic skillset to tackle such disruptions. After decades of federal politics focused on risk-minimizing maintenance, the Stadtwerke are ill-equipped to deal with novel situations, and long foreseeable sustainability demands suddenly become urgent matters needing a quick fix. Periodically, the lack of expert advice makes the path ahead uncertain.
The big-point question here is: Which strategies should German Stadtwerke adopt to provide energy affordably, sustainably, and reliably?
Approaching best practice: Issues and possible strategies
- Taxonomies. What is sustainable? This question must be answered through comprehensive taxonomies, ideally including yearly targets that public energy distributors can use as guidelines for their long-term strategies. Plannability is key. However, these taxonomies are determined by the EU, and the Satdtwerke have no influence on such decisions. If gas is considered green by the EU, the Stadtwerke may be incentivized to rely on gas for longer. In the best-case scenario, Stadtwerke may instead invest in alternative heating options through district heat networks or hydrogen to become more independent from gas prices.
- Federal plans for renewables. How much can the Stadtwerke rely on renewables without risking their reliability? In coordination with the providers of renewables and federal policymakers, the Stadtwerke must learn about the prospects of renewables. Knowing about the capacities will help public energy distributors outline a roadmap for outsourcing fossil fuels during the coming years.
- Realizing independency. While public energy distributors can support innovative local projects only to a limited degree, they may encourage their municipalities to invest more in local sourcing of renewables such as photovoltaic and hydrogen. By increasing the availability of renewables, the Stadtwerke may play an active role in dragging down renewables’ prices and become more independent from well-established fossil fuel suppliers.
- Increasing flexibility. Traditionally, the main objective of public energy providers has been to maintain the status quo. The demands of 2022 show that this is no longer sufficient. Instead, institutions like the Stadtwerke must adopt flexible, goal-driven motivations and see themselves responsible for reaching tomorrow’s goals instead of maintaining today’s status quo.
- Coordination and cooperation with other public distributors. Public energy distributors must interconnect and cooperate. In fact, some municipal utility departments are way ahead of the pack and are finding solutions for issues other departments have not yet identified. By increasing networking efforts, less progressive public distributors may learn about strategies and how to circumnavigate possible pitfalls others have already experienced. When outlining the roadmap for years to come, streamlining supply chains may allow for mutual synergy between producers of renewables and the public institutions. Networking is key.
- One-stop shops. Currently, the citizenry is wholly lost due to the lack of knowledge of the feasibility and technicalities of the energy transition of individuals. Stadtwerke may enable their citizens via all-in-one information hubs, through which they may communicate the financial value of investing in, for instance, private photovoltaic or green heating applications. In communication with local agents, Stadtwerke are prestigious communicators and enablers. However, many MUCs currently lack the entrepreneurship and innovative capacity to capitalize on this potential.
Take-away and outlook
The number of feasible strategies municipal utility departments can adopt to strengthen the reliability, sustainability, and pricing (and ultimately their business model) is vast. The resources and tools are readily available, but each public energy distributor must realize the need to explore and utilize them.
If you want to make your local policymakers aware of the knowledge gaps described in this article, you can easily do so through this fantastic tool by the TFCA.
In the following weeks, we will subsequently dive deeper into issues related to the potential of municipal energy departments. Please share this article and subscribe to never miss the latest QLab insights!
Finn Faust, Webdesign & Research at QLab Think Tank GmbH
