Green Growing Pains

Hoping to Benefit from Shift to Renewables, Bilfinger Boss Stumbles Amid Power Glut

roland koch bilfingerjpg
Roland Koch stepped down as Chief Executive from the German firm Bilfinger after three years.
  • Why it matters

    Why it matters

    Mr. Koch’s departure from Bilfinger highlights the challenges posed to both traditional power providers and those companies hoping to benefit from Germany’s broad expansion of green energy sources such as wind and solar.

  • Facts

    Facts

    • Roland Koch, former state premier of Hesse, was once one of Chancellor Merkel’s biggest political rivals.
    • Mrs. Merkel ordered the phaseout of nuclear energy after the Fukushima disaster in March 2011.
    • Germany intends to produce 80 percent of its power from renewable sources by 2050.
  • Audio

    Audio

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Once considered a potential political challenger to Angela Merkel, Roland Koch has seen his business career crushed by economic developments arising from the German chancellor’s energy policy.

His resignation on Monday highlights the challenges facing many businesses that have hoped to benefit from Germany’s ambitious expansion into green energy sources such as wind and solar. Chief among them: a glut of cheap electricity that is driving down prices not only for energy purchasers but also for companies building infrastructure, such as Bilfinger.

Mr. Koch, who left politics in 2010 to take the helm of the Mannheim-based construction and industrial services company, said in a statement on Monday that trust in his leadership had been “shaken” following two profit warnings in quick succession.

Germany’s federal government has set a target for renewable energy’s share of electricity production of at least 35 percent by 2020. That figure is intended to rise to 80 percent by 2050.

Renewable energy producers currently receive guaranteed prices on the power market, helping fuel the current glut.

“Prices on the electricity exchange are undoubtedly low at the moment and that’s making it harder to justify investment in new power plants,” Aike Müller, a senior project manager at the Berlin energy consultancy Adelphi, told Handelsblatt Global Edition. “We have a large overcapacity at the moment and renewables are a part of that.”

As fate would have it, Mr. Koch joined Bilfinger in March 2011 – the same month a tsunami caused the Fukushima nuclear disaster in Japan. That dramatic event prompted Mrs. Merkel to phase out nuclear energy in Europe’s largest economy and ramp up the use of renewables.

“I thought some things would happen more quickly.”

Roland Koch, Former CEO Bilfinger

Never failing to see which way the political winds were blowing while serving as the conservative premier of the German state of Hesse from 1999 to 2010, Mr. Koch quickly decided Bilfinger’s important power segment should concentrate on the growing market for renewable energy.

But Mr. Müller said the firm also still had a large focus on conventional energy sources such as coal and gas that could be a drag on its results.

“I thought some things would happen more quickly,” Mr. Koch told Handelsblatt last March.

The beginning of the end of Mr. Koch’s tenure at Bilfinger started in June, when the company’s shares plunged more than 16 percent after he was forced to lower the company’s 2014 growth forecast.

Bilfinger feuerwehrmänner
Source: Ronald Wittek / dapd
Bilfinger’s new logo is revealed in 2012. Source: DPA.

 

On Monday, Mr. Koch had to lower this year’s forecast yet again. Instead of the originally estimated revenue of €7.8 billion, Bilfinger now expects a meager €205 million to €220 million. The firm’s bottom line has been particularly hard hit by the poor performance of its energy unit.

“It is true that there is some hesitation within the general energy market right now, generated mainly by the German government’s energy agenda announced in July,”  Joachim Nitsch, who has advised the German Environment Ministry on the transition to renewables, told Handelsblatt Global Edition. “Investments on the energy market are shifting because of this.”

Public utilities in Bilfinger’s home German market have decided to hold back on building new power plants due to a surfeit of wind and solar power encouraged by the German government’s promotion of renewables. But the shift has also had an affect beyond Germany’s borders, including in Bilfinger’s important Polish market.

Several new German wind parks, which have gone online, have depressed electricity prices in Poland by sending surplus power over the border.

German Economy Minster Sigmar Gabriel hopes to correct the current situation with changes to the Renewable Energy Act, which regulates the guaranteed feed-in tariffs for wind and solar electricity.

“Gabriel’s 10-point plan is useful because it provides a concrete time schedule for changes on the energy market. This also provides transparency which is helpful,” said Esther Chrischilles, an economist at the Cologne Institute of Economic Research.

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