Stay Energized: What Executives of Energy Companies Need to Consider

It was a rather unflattering award the CEO of the largest German energy company RWE, Rolf Martin Schmitz, received in late December 2018: Dinosaur of the Year. The anti-award is assigned annually by the NGO Nature and Biodiversity Conservation Union (NABU) and is directed towards stakeholders impeding environmental progress. Mr. Schmitz “earned” this special recognition for his active resistance to the preservation of the Hambach forest to expand RWE’s lignite open-cast mining activities. This was accompanied by extensive civil protest and ultimately, a legal and political decision to maintain the forest — for now. These events had a severe impact on RWE’s public reputation.

As climate issues are at the top of the European and international agendas, energy company executives need to rethink their current approach and consider creating corporate models that meet the needs of a growing population in diverse economies in a sustainable way. With e-mobility and renewable energy generation on the rise and rapidly changing consumer demands, utility company executives have a crucial role in setting the stage.

Taking into account global trends and developments, three visions and values are decisive:

1. Be bold.

For a long time, the business models of utilities remained static. However, since the Fukushima Daiichi nuclear incident, energy companies have been forced to undergo changes. In this, they are not different from other industries. Unlike others however, their nature as a network industry makes them even more dependent on political decisions. The German nuclear and coal phase-outs have challenged the domestic C-Suite to find solutions that are economically viable, structurally acceptable and sustainable. German utility EnBW has taken a full-fledged turnaround towards clean energy, diversifying its portfolio and expanding its efforts in on/off-shore wind, solar and hydro power. The company and their CEO, Frank Mastiaux, were able to transmit this corporate shift to employees, shareholders and the public—securing profits at the end of 2018, following significant investment costs.  EnBW, which, before the Fukushima shock, was the most invested utility in nuclear energy, is now a green frontrunner enjoying the reputational benefits. The key message is: the company can thrive if the C-Suite actively decides and takes bold steps, instead of incrementally reacting to political circumstances.

2. Listen and communicate.

These naturally are good features of executives; but for the energy sector, it is more important than ever. The alliance between FridaysForFuture and scientists, calling for wide-ranging measures to combat climate change on an international scale, has increased the pressure on companies and governments. At the same time, long-standing employees who have worked with at-risk assets of utilities—e.g., coal—rightly have concerns and questions regarding their personal future. Taking these concerns and demands seriously on both sides, refraining from dismissing the arguments in public debates and proactively seeking the exchange is vital. Once executives adopt this open position, they can credibly take informed decisions and communicate them internally and externally.

3. Be forward-thinking.

With use of renewable energy on the rise, several CEOs of energy companies have issued concerns about the security of supply—and the risks of potential blackouts. Instead of spreading fears, it is essential for the sector to seriously invest in technologies solving the problem. Power-to-X (converting excess renewable power for use in other sectors such as heating, transport or chemicals) and the use of hydrogen can, although still very costly at this point, be a crucial technology. Digital Smart-Meter devices help utilities to have more control on the consumer demand for electricity and hence foster the efficient usage of resources. C-Suite, embracing and communicating these projects and focusing on innovative technologies, can create positive spillover effects for the firm and society.

These visions and values are not exhaustive but surely crucial for the C-Suite in the energy space to define the future—and to not receive the Dinosaur of the Year award.

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