Distributed generation hits the big numbers

Utilities Unbundled - Issue 15

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With distributed generation firmly embedded in Germany, how is life changing for utilities? Report by Helmut Edelmann and RWE.

In Germany, the energy revolution is well underway, with 48% (86 GW) of the country’s total installed capacity now distributed generation. Nearly half (47%) of energy-related industries in Germany produce electricity themselves and another quarter are planning to over the next few years, according to 2013 research by EY.

Germany’s tradition of industrial self-generation stretches back several decades, from utilizing heat and steam from industrial processes for combined heat power (CHP) plants to companies running their own power plants with big utilities or independently. In Germany, Volkswagen currently produces 60% of its own energy.

But the German Renewable Energy Act, which subsidizes mainly domestic users and farmers who produce their own electricity from renewable energy sources and feed it into the grid, has intensified commercial pressures by cutting energy prices and reducing revenues from centralized power plants.

CHP units, micro-CHP units and photovoltaic (PV) systems continue to gain ground. The installed capacity of PV systems shot up from 1 GW to 32 GW between 2004 and 2012. Ambitious targets for PV and micro-CHP have also been set.

Nevertheless, our research with companies that are, or plan to be, active in self-generation indicates that only 18% believe the decentralized generation market is well or very well developed; 32% believe the market in Germany is hardly developed, if at all.

New partnerships key to success

The country’s energy transformation will rely heavily on decentralized plants. New partnerships– between service providers, competitors for energy suppliers, and municipal plants – are needed to realize the potential for development.

Clearly this is disruptive change. German utilities face a major challenge to:

  • Stay relevant to changing customer needs
  • Revise strategies to counter declining sales volumes
  • Create new revenue streams

The speed of advances in self-generation in Germany – and the impact on utility revenues and customers – could presage the future for utilities worldwide.

RWE on the front line of change

Professor Dr. Hanns-Ferdinand Müller, CEO/CFO of RWE Vertrieb AG, discusses the key impacts of major-scale market change at RWE.

“If we simply resign ourselves to this and don’t innovate in the value chain, our traditional business will be cannibalized.”

— Professor Dr. Hanns-Ferdinand Müller, RWE

Self-generation by Germany’s industrial, agricultural and domestic energy consumers naturally impacts RWE’s commercial position. The company forecasts declining electric sales, indicating that peak demand will decline by around 20% from 24GW to 19GW through to 2035.

“We can’t prevent the loss of electricity sales due to consumers providing their own energy,” says Professor Dr. Müller. “But if we simply resign ourselves to this and don’t innovate in the value chain, our traditional business will be cannibalized. If we don’t take up the business opportunities, others will. RWE has established a dedicated company that pools new energy-related services and will generate revenue of €0.5b. Shifting half a billion from traditional business into new business segments is pretty remarkable.”

Partnerships offer a “win-win”

Innovation requires more than new products and services and new skills; it also means cooperating with other businesses in the energy value chain. RWE is extending its partnership with Siemens to integrate distributed energy sources and enable trading of power generated by customers.

Müller believes success will be decided at a local level. “Many German municipal utilities enjoy high customer loyalty. But they are often not in a position to develop new products themselves. Forming partnerships at a distributed generation and municipality level creates a win-win situation.”

“Partnerships of this kind are nothing new: they have shaped RWE for more than a century. Take the example of the co-generation plant in the municipality of Schmalkalden in which the local authority, a private investor, and RWE each hold equal shares. The way I see it, it’s better to get a third of the cake than nothing at all.”


The success of distributed generation in Germany undoubtedly depends on subsidies – but also on the distinct characteristics of the German market and culture.

“In Germany, this development is a conscious political decision and is subsidized accordingly. In neighboring markets, however, it is far less pronounced,” says Müller.

Many German people – both private households and entrepreneurs – want to actively shape their own energy future. And if Germany goes this way successfully, other countries will definitely follow.

This is an abridged version of the full article in Utilities Unbundled.

For more information on this topic, please contact Helmut Edelmann.