Last week, I listened to the OMR podcast featuring our CEO at E.ON, Leo Birnbaum. Among many interesting topics, let me comment on three of them:

☀️ 1. The end of solar subsidies for private PV systems

This is an important discussion that we need to have. Solar is and remains fundamental for the energy transition and shines with the lowest levelized cost of energy (LCOE). However, as the expansion progresses, we are seeing declining marginal utility: when the sun shines, everyone produces at the same time. And no matter how many panels we put on roofs—the sun still doesn’t shine at night. In the second phase of the energy transition, it becomes crucial to invest in flexibility (e.g., smart meters), batteries, and grid optimization. At some point, the next invested euro in these areas will simply create more system value than purely investing in additional generation.

📈 2. Refinancing & leverage in grid expansion

Grid operation and renewables are tough CAPEX businesses: you require massive amounts of money upfront to build the infrastructure, and you will only get the returns much later. E.ON is currently investing around €9 billion per year. These immense upfront costs require continuous access to the capital market, which demands a delicate balance. More debt means a higher leverage factor, which increases the risk profile and thus drives up the interest burden for future money. In addition, there is the risk that even small unforeseen market fluctuations could throw the model off balance.

⚡ 3. Retail challenges & the risk of default supply (Grundversorgung)

The retail energy business generally comes with a significant inherent risk due to maturity transformation (Fristentransformation). Customers expect a long-term stable price, while the energy company has to manage short-term volume fluctuations and highly volatile market prices. This needs to be handled extremely well, otherwise, you risk bankruptcy during a crisis. The business model should not just be about collecting as much money as possible during falling prices and enjoying the ride until the final crash. When that happens, it is incredibly painful for clients, who suddenly need to find a new contract exactly when market prices are at their peak. As a default supplier - usually a comfortable business - you suddenly might need to pick up thousands of stranded customers from those bankrupt providers and buy their energy at peak spot market prices. Just as the old saying goes: there is no such thing as a free lunch.