Metering & Smart Energy International contacted Håkan Ludvigson, CEO and founder of Eliq, a Sweden-based utility customer engagement company, regarding the acquisition of Innogy by E.ON.
He had the following to say:
The news are out, E.On intends buying Innogy - the retail brand spun out from RWE in 2016. This has been a long time coming and is only the last in a row of major deals involving the two companies.
Between this deal, the €3.8 bn acquisition of E.On’s stake in Uniper and the SSE merger with RWE’s UK energy retailer Npower, E.On is becoming the Godzilla of European energy retail and RWE is leaving the retail space altogether.
So far it all makes sense (or “alles klar” as they say in Germany): when times are tough it's time to focus - we get that! But when the energy giants are losing big, it’s hard to understand why they look for the solution in their loser peers, rather than teaming up with the winners.
And to the million-euro-question: when the small players are beating you, is the solution really to become bigger?
So why are incumbent utilities struggling so desperately? It’s no secret that the market cap of RWE and E.On has plummeted since 2011, for example. Aside from the regulatory challenges, it appears that two major items set them apart from the fast-growing newcomer suppliers:
(1) Inefficiency. For some reason economies of scale doesn’t seem to work in energy retail. In fact, it would seem the opposite applies. In addition to inefficient legacy IT systems, the incumbent energy companies are stuck with heavy over-head costs (in some cases entire departments) that the new players don’t seem to need.
(2) Lack of trust. These are not well-liked companies among the consumers. Years of inaccurate and confusing energy bills and tariffs that take advantage of inactive customers has been an issue in many parts of Europe. Many of the newcomer suppliers seem to do a better job of understanding and serving their customers in a transparent and convenient manner.
With E.On’s acquisition of Innogy, Germany is waking up to a very different market landscape. The question is if the company can turn around the Innogy business.
For anyone who missed the €43Bn E.On/RWE deal which is currently in the making - this will get you up to speed.