Facing the Climate and Digital Challenge: European Energy Industry From Boom to Crisis and Transformation

Mrs Proadpran Boonprasurd  Piccini, BI Norwegian Business School, Norway 

Prof Atle Midttun, BI Norwegian Business School, Norway

1   THE TOPIC, BACKGROUND AND SIGNIFICANCE

The paper explores the business models and turbulent commercial trajectories of major European energy(electricity&gas) incumbents through the first one and a half decades of the 21st century,as they struggle to meet the pressure for green transition as well as the challenge of the digital economy. It also examines trajectories and business models of new actors that have challenged and transcended established business practice. Based on this analysis, the paper presents perspectives on future positioning of a sustainable European energy industry and reflections on how to better integrate EU climate and energy policies.

2   RELEVANCE TO THE CONFERENCE

The paper focuses on the Conference’s core theme “Innovation and Disruption: the energy sector in transition”. Our study highlights the implications of transformative change that is taking place in the European energy industry, and enhances current knowledge as well as provides indications of emerging new business models and strategies for the energy industry.

3   METHODOLOGY

The study undertakes a longitudinal comparative analysis of nine energy incumbents from seven European countries, spanning 2000–2015.  The incumbents are compared to green spinoffs, renewable technology suppliers and emerging new actors in the European energy market.

The commercial trajectories are studied with a focus on the underlying business models and how they have evolved over time. A main source of information is top management’s framing of company strategy, as expressed in annual reports, particularly in the letters to shareholders. This overview of strategies and business models is juxtaposed to financial data (EBIT, net profit, dividend and share price development) and resource data (mix of generation capacity).

4   RESULTS

The first one and a half decennium of the 21st century has seen a massive shakeup of business models in the European energy industry. Most large incumbents saw massive rise in share value under the early ‘golden’ years of the new millennium, and then experienced dramatic fall in share value in the decade following the financial crisis.

Engagement in renewables appears to be one of the differentiating variables. On average, companies with higher shares of renewables in their generation portfolios have done better in terms of share price development than others. The share price development of green spinoffs and green energy-technology providers further indicates advantages of green transition.

Size appears to be another distinguishing factor. The champions of scale and scope before the financial crisis seem to be less successful than their smaller peers.

The integrated energy companies have also been challenged by digital platform providers that position themselves at the customer interface and bundle energy into broader home or estate management systems. Digital technology has facilitated opportunities in the energy market without the need for massive investment in the underlying infrastructures.

5   CONCLUSIONS

Following the dual challenge of greening and digitalization, the European energy industry has moved into new competitive terrain. The energy industry now exists in a dualistic limbo, between the conventional and the emerging new models.

The dramatic change has taken place against the background of transformative policy change, as the European Union has added a strong climate policy on top of its deregulation policy. Concurrently, the network-logic of the new emerging business models entails a race for positioning as the dominant platform providers, building on advancement of new channels of communication, distribution, and sales. In addition, information technology has opened up avenues for new sharing economy and customer-centric green energy ‘prosumership’.

6   REFERENCES

Annual Reports of European energy incumbents 2000-2015, and other companies’ publications, and time series of share prices development from the Financial Times, etc.

7   KEYWORD SET

European Energy Industry, Business Models, Crisis, Transition, Renewable energy, Digital challenge