The German generator has announced it will offer Internet services over power lines.
RWE’s announcement, at its annual earnings conference, that it is to reduce its generating plant capacity and introduce Internet capabilities along its power lines is a significant shift in strategy. But it is a necessary one. Fierce competition in the German energy market resulted in a drop in operating profit of 28% in the energy part of their business for the fiscal year to 30 June 2000. This is almost entirely owing to a flattening of margins and as such, with competition now firmly entrenched, margins in its core business areas look likely to remain wafer thin.
In the UK, Powergen and npower have dealt with the same problem by refocusing their positions, in terms of a more consumer-centric approach to developing their business. This has been driven by fierce competition that has cut margins in generation and supply businesses, creating the need to move into new products and markets. But in Germany, the ability to offer gas to customers is hampered by the prevalent market conditions, which have inhibited competition for all but the largest users – even though the market has theoretically been opened up.
The move into providing Internet capabilities instead allows RWE to build both on its customer base and on its core physical asset, its extensive transmission network. The company is taking this further. It is understood to be well down the road to offering Internet security systems and intelligent home automation products, which would be bundled with its electricity offering. This is an area that the company sees as groundbreaking and could allow it to develop a more lucrative revenue stream.
This is an untested market, however. Evidence has shown that consumers will buy gas or telecoms from energy suppliers, but it may be rather longer before they will buy home automation. This could restrict the gains from this diversification, at least in the short-term.
