- Verbund sees business model shifting toward consumer run grid
- Silicon Valley's help sought to help Verbund with technology
Austria’s biggest utility is seeking to buy more of its electricity from the customers it serves, the latest sign of upheaval for the industry’s traditional business model.
Verbund AG Chief Executive Officer Wolfgang Anzengruberis attempting to expand a network of “virtual power plants” where energy flows from homes and businesses with their own generators, usually driven by renewables. Purchases from solar, wind, biomass and hydro plants often located at the premises of existing power customers rose to 100 megawatts last year from 4 megawatts in 2014.
The move flips on its head the century-old way utilities have been doing business and moves away from the centralized power stations linked to national distribution grids, which form the primary assets of the industry. With wholesale electricity prices bumping along the lowest in 14 years, utilities from Arizona to Germany are ripping up their business plans to adapt to the generation technologies reshaping the industry.
“What the system needs is flexibility and integration with clients,” Anzengruber said in an interview in Vienna. “The classic electricity model of ‘produce and forget’ is dead.”
About 80 percent of Verbund’s energy comes from hydropower, and Moody’s Investors Service said last week Verbund’s credit rating might be cut.
His remarks address concerns about Verbund’s strategy as its earnings suffer from a drop in prices that already has forced change at RWE AG and EON SE, Germany’s two biggest utilities. On Thursday in London the U.K.’s biggest utility, Centrica Plc., told analysts that virtual power plants “could become a very material growth node.”
Verbund, which is 51 percent owned by the Austrian state, has lost a third of its market value in the last 12 months, and most financial analysts advise investors to sell their shares.
Anzengruber said analysts are focusing on the wrong metrics, overlooking changes to the way utilities are making money that ultimately will be more important. To ensure Verbund is ready to take advantage of technologies that are forcing the shift, he dispatched a delegation of executives to Silicon Valley last year and signed a deal to sell home batteries made by Tesla Motors Inc. to Austrians.
“The analysts are always concentrated on the market structures of the past,” said Anzengruber. “The world is changing.”
For now, Verbund’s virtual power purchases are a fraction of the 70,000 megawatts of power that Austria consumes. Most of the company’s electricity comes from the 127 hydro plants that dot the Alps and central European rivers. That side of the business is likely to expand, said Elchin Mammadov, an industry analyst at Bloomberg Intelligence in London.
“I see a significant potential in the growth of virtual-power-plant capacity in central Europe,” Mammadov said. “Utilities can leverage their relationships with clients to cross-sell them other energy services.”
Growth in power management service were a bright spots at Verbund through the first nine months of 2015, with earnings up 50 percent to 120 million euros ($133 million). Analysts estimate the company’s full-year sales will drop for a second consecutive year to 2.7 billion euros in 2015 and are forecast for fall again this year. Verbund publishes its annual result March 9.
Verbund is partnering with Austrian, German and U.S. software companies to power their new virtual offerings, said Anzengruber as he opened an iPhone application created by Tado GmbH, a Munich-based software maker that raised an additional $17 million in venture capital funding in October.
With the application, Anzengruber, 59, can turn lights on and off at his homes in Vienna and Salzburg. Location-based software elements tell the heater to kick in the closer he gets to home. The Tado platform shows precisely how much money he’s saving on his utility bill. Verbund also works with Boston’s Enernoc Inc., which last year bought Entelios AG, another Munich-based maker of network management tools.
The CEO reiterated his criticism of renewable-energy subsidies given away to consumers across Europe, saying that they created unfair competition. He nevertheless acknowledged those policies are unlikely to change.
“The biggest issue in the world is decarbonization,” Anzengruber said. “Good ideas always get money.”
“What good ideas don’t have is access to the network,” said the CEO, a native of Salzburg who ran a crane manufacturer before taking the Verbund job in 2010. His company is the sole owner of Austria’s high-voltage power distribution network spanning 6,700 kilometers (4,164 miles).
With the help of its innovation chief, Wolfgang Pell, Verbund has set up annual technology competitions for startups. It’s ready to create joint ventures, provide angel investments or outright buy new ideas in order to stay competitive, Anzengruber said.
“Electricity supply used to be a one-way street,” said the CEO, whose company only started competing to sell electricity to consumers when markets were liberalized 15 years ago. “Now it’s about integrating supply with clients. It’s a giant sleeping market.”