June 16, 2023
Source: German Association of Energy and Water Industries (Bundesverband der Energie- und Wasserwirtschaft e.V.) and Ernst & Young GmbH
Municipal utilities coped very well with the energy crisis in 2022 and held their own in an enormously difficult market environment. However, the predominantly positive conclusion to the challenging year 2022 should not obscure the fact that almost half of the municipal utilities (48 percent) generated lower earnings last year than in 2021.
This also shapes the municipal utilities' view of the current year: only 44 percent assess the outlook as good or very good - the lowest figure since the financial crisis of 2008/2009. This is shown by the results of the Municipal Utilities Study 2023, for which EY and the German Association of Energy and Water Industries (BDEW) surveyed 100 municipal utilities and regional energy suppliers across Germany.
"Long-term procurement strategies, the decline in gas volumes, the decarbonization of heat supply, and the high investment requirements for implementing the energy, mobility, and heat transformation are increasing the pressure for transformation. For municipal utilities, it is therefore more important than ever to find strategic answers to these questions and to get out of crisis mode," says Andreas Siebel, Partner and Sector Leader Energy & Resources at EY.
"The experience gained from the energy crisis is leading to an acceleration in transformation, particularly in the areas of renewable energies and heat supply. One thing is clear: municipal utilities are willing to continue investing in energy transition technologies and strengthen security of supply. Accordingly, they are adjusting their investment strategies and also looking at which new business areas can be expanded," says Kerstin Andreae, Chairwoman of BDEW's Executive Board.
Top trend: expansion of renewable energies
The municipal utilities surveyed name the expansion of renewable energies (89 percent) and the implementation of the heat transition (88 percent) as their currently most important topics. However, the increasing shortage of skilled workers is not stopping at the utilities: in third place is the recruitment of new employees (86 percent). Digitization - still in first place in 2022 - has become much less of a priority compared with the previous year and is in fifth place in the current study (74 percent). At 85 percent, awareness of IT security has remained almost the same as last year.
"Many municipal utilities are planning to invest more in renewable energies. They are also ready to drive the heat transition locally. Stadtwerke know the infrastructures in their region like no other and are therefore indispensable players for municipal heating planning. This also enables municipal utilities to make targeted investments in the climate-neutral heat supply of tomorrow. Basically, we will need a mix of renewable heat technologies. It is right that heat pumps and district heating are at the heart of the heat transition. But to decarbonize the housing stock, gas-based systems are also an option - in the future operated with renewable and decarbonized gases," says Andreae.
Sustainable energy supply opens up opportunities for new business models
The heat transition offers various options for partly new business models. "Municipal utilities that already take a cross-sector view of electricity, gas and heat today are well placed to develop business areas around heat. Holistic solutions for a sustainable energy supply are therefore becoming a central part of the corporate strategy," says Metin Fidan, Partner and Leader Green Transformation & Mining and Metals in the Europe West region at EY and also author of the study. The importance of commodities - for example, the supply of energy or water - will decline in perspective, he said, and new innovative energy services will emerge.
Decarbonization not yet a core part of business policy
The challenges of energy purchasing and the implementation of regulatory requirements ensured that strategic issues could only be addressed to a limited extent last year. As in the previous year's survey, only just under a third (29 percent) of the municipal utilities surveyed have a genuine decarbonization strategy, i.e. transformation solutions for customers and their own company. Just under a fifth (19 percent) have no decarbonization strategy at all, and around half (51 percent) are still in a "strategic process." Still, 36 percent offer customer solutions for decarbonization.
"Without decarbonization strategies, municipal utilities will not be able to fulfill their role as implementers of the energy transition on site. Against the backdrop of the transformation acceleration, investments in infrastructure, heat planning, decarbonization strategies, as well as the development of new business modelsin the heat transition will become key areas of action in the coming years," Siebel warns.
The complete 2023 municipal utility study can be found here .
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