In this instalment of the Power Talk series written by Ph. D. researcher Hendrik Steringa, a staff member who worked for Nuon, the Dutch subsidiary of Vattenfall, tells about the struggle inside the company to develop new business models. “To come up with new business models in sustainable energy is not so difficult. But to come up with financially attractive models is a lot more difficult.”
How does a prominent market player like Nuon – the second largest utility in the Netherlands after RWE-subsidiary Essent – cope with the energy transition?
As a result of the massive sums mother company Vattenfall had to write down on the value of Nuon (€4.6 billion in 2013), the company has little room for manoeuvre. Reorganisations are taking their toll on the employees. The ex-employee says: “The mood on the work floor is tense. There is constant fear that a new ‘efficiency improvement programme’ will be announced, a nice word for another round of job cuts. But because of all the cost cutting, there simply is less money available for new activities. As a result, Nuon’s and Vattenfall’s management is focused on avoiding risks, limiting losses by protecting existing interests and hoping that the situation will get better somehow.”
“There are lots of ideas on the work floor but they get no traction with the management”
“But there is no vision of the future of the energy system and the role Nuon could play in it. At any rate I have not been able to discover one. The vision should come from headquarters in Stockholm, but they seem to be at a loss too. Without a vision it is difficult to set out a course. For now they aren’t able to think of anything except that ‘we must get to a CO2-neutral energy supply’. But this is not made very concrete.”
Sense of urgency
“Before 2012 there was no sense of urgency among staff or management to adapt the business and move towards more sustainable energy. Nuon was caught unawares by the rapid growth of renewable energy, especially in Germany. By now everybody realises that great changes are underway. There is a lot of talk inside the company about new business models. There are a lot of creative ideas but they are not taken up by the company, not yet anyway.”
“There are lots of ideas on the work floor but they get no traction with the management. The question is how much management in the Netherlands still has to say about the company. It’s Vattenfall that takes the strategic decisions. This is frustrating for the people who do want to renew the company. I expect more and more people will leave if no action is taken.”
“I am not saying nothing is being done. They do look at innovations in sustainability, from smart applications to delivering services to energy cooperatives. But most emphasis is on wind energy. This is something that the management of a traditional company like Nuon understands best.
Why? Because like a power station a wind park is a centralised form of electricity generation which requires a lot of capital and skills. And it allows the company to maintain control over its means of production.
The problem is, large-scale centralised power generation is under pressure in the market. Personally I believe the future lies in facilitating customers who want to be active in decentralised energy, and I know many people inside Nuon feel the same. Supplying services is also part of this.”
Contract with the Sun
An example of a new business direction was the action “Contract with the Sun” that was started at the end of 2013. This was an ambitious project, as can be seen from the announcement back then: “Nuon today signed off on a promise to let 1 million Dutch customers profit from the sun by the end of 2015.”
“If they go on like this and don’t adjust to the fast changing market conditions, I fear they won’t survive”
But nothing ever came of this. As to why it is so difficult for a company like Nuon to implement new business models, the former employee says: “To come up with new business models in sustainable energy is not so difficult. But to come up with financially attractive models is a lot more difficult. That has to do with the high risks involved, because you don’t know how a new market will develop. If you’re lucky it turns out that 5 or 6% return on investment is possible for a new business case. Some business cases are even negative initially, e.g. the construction of infrastructure for electric cars. Perhaps 5-6% is acceptable for an individual household, but not for a company like Nuon. And Nuon has a large head office with thousands of employees, a lot of overhead costs. In short, it’s just not possible.”
Are other companies in a different position? “I don’t talk that much with staff from other energy companies, because of competition concerns, but I know they have the same problem.”
About the network companies (system operators), which in the Netherlands are publicly owned, he says: “The network companies manage a lot better than Nuon to generate new ideas. Their investment horizon is further away, which is convenient for an energy transition that takes decades. Even more importantly, they have more money at their disposal. It’s not really fair competition because they use public money, so their risk is much lower. A private company like Nuon can’t compete with that.”
“Whether Nuon still exists ten years from now? Everybody inside Nuon knows that the company has to change. Although sometimes people still seem to think the company is indispensable. But if they go on like this and don’t adjust to the fast changing market conditions, I fear they won’t survive.”
The identity of the person quoted in the article is known to the editor. If you want to comment on the article or supplement it, or if you want to tell your own story, please leave a comment on send an email to firstname.lastname@example.org or call him at +31 (0)6 41091639 (anonymity is assured).
The article above was first published in Dutch by FD Energie Pro on 4 March 2015.