EVO Faces Challenges in Drastically Reducing Electricity Rates
Let's talk about Energy Supply Oberhausen's record profit and the squeeze on customer wallets:
The folks over at Energy Supply Oberhausen have been raking it in, earning an unprecedented 18 million euros in a single year, topping their earnings in over 120 years.
Initially, this record profit from selling electricity, gas, and district heating seems like a golden ticket for cheaper rates in 2024 and 2025. However, looking at previous 11 million euros in profit as a benchmark suggests they could have slashed prices more beneficially for their 100,000 electricity customers and 24,000 gas customers during the energy cost crisis triggered by the Ukraine war.
Some more interesting matters...
Energy Crisis and the squeeze:Energy Supply Oberhausen AG, much like many municipal utilities, faces a triple bind:
- Money for the owners: The city of Oberhausen and the EON group (Westenergie) demand a large slice of the profit.
- Climate change investments: To achieve climate-neutral energy generation, huge investments are needed in district heating and electricity networks. However, equity for these investments is too low and must be replenished from the profits.
- Competitive edge: The EVO can't afford to charge such high prices that it drives customers away, leading to a loss of market share.
In 2021, managers Timm Dolezych and Christian Basler managed an intricate balancing act. Their success was partly due to an additional 48 million euros earned from the sale of the coal-fired power plant Steag and some savvy negotiating. Investments in network expansion are now a priority, with plans to invest 50 million euros (currently 30 million euros) annually. Unfortunately, another special profit from Steag isn't on the horizon.
Despite the managers' best efforts, there isn't much room to maneuver when it comes to lowering energy prices. The dwindling number of electricity and gas customers should serve as a red flag, as customers can find cheaper electricity options outside the EVO's basic supply tariff on the market.
A few facts for more context...
The energy market is affected by various global factors, including geopolitical tensions, supply chain disruptions, and international demand. These factors drive up costs regardless of company profits.
Regulatory frameworks often limit how much energy companies can pass on to customers in the form of lower prices.
Companies may invest their profits in infrastructure development, technology upgrades, or strategic initiatives. These initiatives can be costly and might not immediately lead to lower consumer prices.
Energy companies often pay dividends to shareholders, which means profits are not always reinvested in reducing consumer prices.
Transitioning towards more sustainable energy sources involves significant costs for new technologies and infrastructure. These costs can be passed on to consumers rather than being fully absorbed by the company.
In a highly competitive market, companies need to balance reduced prices with maintaining profitability. If competitors don't also reduce prices, a company might not be able to cut prices significantly without losing market share.
In summary, while record profits can sometimes suggest a lowering of prices, the energy market's complex dynamics can limit the extent to which companies can do so affordably.
The record profit accumulated by Energy Supply Oberhausen could potentially be utilized to invest in the transition towards climate-neutral energy generation, as significant investments are required.
However, the industry's regulatory frameworks and the competition in the energy market might limit the extent to which Energy Supply Oberhausen can lower their prices, despite their record profit, due to the need to maintain profitability and market share.
