German Utilities Eye Solar Leasing Options

Germany's big utilities are looking to a new business of leasing solar systems as a strategy to help halt a fall in their share of the home market, which has already become the world's biggest solar energy producer without them.

By 2017, analysts expect a push by top utilities E.ON and RWE into renewable energy to bring their slide in market share and in profits to a halt. Solar leasing may play a role in such a turnaround and will be a development to watch.

"Smarthomes, solar leasing will be an incremental opportunity that can help utilities capitalise on their customer base," said Deepa Venkateswaran, a senior analyst at Bernstein Research.

The top three utilities E.ON, RWE and EnBW currently own just 0.003 percent of all German solar capacity.

A slew of smaller, green-energy providers have built wind and solar capacity, benefiting from state subsidies under Germany's plan to phase out nuclear power by 2022.

Germany now has nearly 37 gigawatts of installed solar capacity, meeting 28.5 percent of its domestic power demand in the first half of 2014, according to energy industry lobby BDEW.

After RWE lost 5 percent of its German clients and E.ON lost 12 percent over the last three years, the big utilities are in the midst of a profound rethink on how to handle the competition from renewables.

"We're now in the process of understanding how it works when it's not simply about building a power plant and selling electricity and gas. That's simply not in our DNA," said Thomas Unnerstall, board member at N-ERGIE, Germany's eighth-largest utility by sales.

"This (solar leasing) is one way of doing that."

Households do not need the expertise of big utilities to buy solar panels and install them on roofs. Nor can the utilities profit from selling solar panels, a market long-ago captured by Asian players.

But utilities can equip business clients such as supermarkets, petrol stations and warehouses with tailor-made roof-top installations for a monthly fee.

The selling point: Customers don't need to worry about operation and maintenance, can save up to a fifth of their energy bills and do not have to shell out capital costs of 1 million euros ($1.3 million) or more depending on size.

KEEPING CLIENTS

This model has been successful in California, where companies including Solar City have provided hundreds of millions of dollars in third-party funding to get solar power off the ground.

Furthermore, as power costs for German firms rise to the highest level in Europe, companies are looking for ways to cut energy bills by producing more power in-house.

So far, only a few players are active in Germany's nascent solar leasing sector, including PV.A Leasing in Europa, N-ERGIE and RWE.

For N-ERGIE, the contribution of solar leasing to the group's 2.87 billion euros of annual sales is still negligible, Unnerstall said.

He added that it yielded a return of 6 to 7 percent on capital employed, a measure of the value a company gets out of its assets. This is higher than the 5.4 percent Germany's biggest utilities are likely to report for this year and 4.9 percent for next, according to Exane BNP Paribas.

"We think that the profit mix of (Germany's) utilities will significantly shift towards renewables in the next few years," said Matthias Heck, senior analyst at rating agency Moody's (MCO).

German solar company Conergy, which has teamed up with RWE to offer leasing services, reckons it will take until 2017 before Germany's solar leasing market takes off.

"For RWE, one of the key drivers is to keep clients. That way clients still pay their bills while the utility keeps control of the power generation," said Josefin Berg, solar power analyst at research firm IHS.

"In the future we could expect further utilities to ally with solar groups in the area of leasing."

By Christoph Steitz