As a sustainability consultant, QLab works closely with private and public stakeholders in the German energy transition. Through such collaborations, we have found that public utilities struggle to realize their full potential for the Energiewende.
Why public utilities are important for the energy transition
In Germany, energy is distributed via the power grids of municipal utilities. While smaller municipal utilities buy the legally defined energy mix mainly from generators via the European Energy Exchange in Leipzig, the municipal utilities of larger cities only make the grid available for energy fed directly from various generators.
Therefore, municipal utilities are essential in maintaining reliability and electricity prices, even if they do not influence the available energy mix. In addition, because of their proximity to consumers and local stakeholders, municipal utilities can play a significant role in steering their community's path toward carbon neutrality. For example, municipal utilities can invest in local green power generation and motivate residents to invest in private photovoltaics (PV).
However, according to the Fraunhofer Institute (p. 38), this unique position in the German energy market also hinders improvements in certain areas. In addition, the diverse relationships with local players can further limit their maneuverability.
Furthermore, according to oekologisches-wirtschaften.de, the classic business model of municipal utilities has been threatened to become unprofitable since 2010 if the proportion of private PVs and cross-sector energy efficiency increase, large municipal utilities, particularly, may suffer profit losses.
Sustainability, reliability, pricing
Renewable energies are already cheaper than fossil fuels, but the lack of efficient alternatives to gas remains a problem. At the same time, increased oil and gas prices are being transferred from private suppliers through public distributors to households. In short, public utilities rely on gas, but business-as-usual is no longer an option.
Unfortunately, bureaucratically inert institutions like municipal utilities do not necessarily have the skills to manage disruptions. After decades of federal policies focused on risk-minimizing maintenance, municipal utilities are ill-equipped to deal with new situations, and long-foreseen sustainability standards suddenly become urgent matters that must be fixed quickly. The occasional lack of expert knowledge makes the way forward uncertain.
The critical question here is: What strategies should German municipal utilities pursue to provide energy affordably, sustainably, and reliably?
Best practice: problems and possible strategies
Taxonomies. What is sustainable? This question must be answered by comprehensive taxonomies that ideally include milestones that public utilities can use as guidelines for their long-term strategies. Predictability is essential here. However, the EU sets these taxonomies, and public utilities do not influence such decisions. If gas is classified as green by the EU, municipal utilities may see the incentive to rely on gas for longer. In the best case, municipal utilities will instead invest in alternative heating options through district heating networks or hydrogen to become more sustainable and less dependent on the price of gas.
Federal plans for renewables. How much can municipal utilities rely on renewables without risking their reliability? In coordination with renewable energy providers and federal policymakers, public utilities need to learn about the prospects for renewables. Knowing the capacity will help public utilities design a roadmap for outsourcing fossil fuels in the coming years.
Increase self-sufficiency through diversification. While public utilities can provide limited support for innovative local projects, they can encourage their communities to invest more in local sourcing of renewable energy such as solar PV and hydrogen. By expanding local availability, public utilities can play an active role in lowering renewable energy prices and become less dependent on incumbent fossil fuel suppliers.
Increasing flexibility. Traditionally, the main goal of public utilities has been to maintain the status quo. The 2022 requirements show that this is no longer sufficient. Instead, institutions such as municipal utilities must adopt flexible, goal-oriented motivations and see themselves as responsible for achieving tomorrow's goals rather than maintaining today's status quo.
Coordination and cooperation with other public utilities. Public utilities need to network and cooperate. Some public utilities are way ahead of the crowd and finding solutions to problems other plants have not yet identified. Through increased networking, less advanced public distributors can learn strategies and work around potential mistakes others have already experienced. In outlining the roadmap for the coming years, coordination regarding supply chains could enable mutual synergies between renewable energy producers and public institutions. Networking is essential.
One-stop stores. Currently, residents are entirely lost to individuals due to a lack of knowledge about the feasibility and technical details of the energy transition. Municipal utilities could facilitate all-in-one information centers for their citizens through which they can communicate the financial value of investments (for example, in private photovoltaic or eco-heat applications). When it comes to communicating with local stakeholders, municipal utilities are respected communicators and enablers. However, many municipal utilities lack the entrepreneurship and innovation capacity to exploit this potential.
Take-Away and Outlook
The number of potential strategies public utilities can take to strengthen reliability, sustainability, and pricing (and, ultimately, their business model) is vast. The resources and tools are readily available, but public utility stakeholders must recognize the need to frequent and use them.
If you want to alert your local decision-makers to the possible knowledge gaps described in this article, you can easily do so with this fantastic tool from TFCA.
In the following weeks, we will dive deeper into the issues surrounding the potential of municipal energy offices. Subscribe to our publication to never miss the latest QLab Insights!