power provided by lignite and nuclear generation, which had high returns. In addition,
German municipalities owned 24% of RWE
and relied on the local employment from
lignite and coal assets. The employment from
lignite generation was also a political tool,
leading many politicians to support its use
and protect its role in the German energy
system, which further disincentivised RWE
from diversifying into other technologies.
• Context: RWE had already invested in
improving and expanding its traditional asset
base, locking capital into assets with long
lifespans. RWE’s previous status as a regional
monopoly also fostered a culture of inaction
and risk aversion. This was further accentuated by RWE’s history of large cashflows and
dividends that investors were not prepared to
compromise.
• Strategic response: RWE did not make any
significant additions to its renewable capacity
from 2004-10, instead it continued to focus on
its legacy assets. In 2004, RWE considered
Germany to be “at the beginning of a long-term
investment cycle” and the plan was to replace
old power stations with more efficient versions,
rather than branch off into alternative generation
methods. In its 2004 annual report, RWE mentioned the new renewable energy legislation
solely in terms of the monetary burden it would
place on the company, rather than the opportunities it offered. Consequently, in 2005 RWE
announced plans to spend €3.5 billion on two
projects to install 3.6 GW of new, optimised
lignite generation capacity, which were among
the largest projects ever planned in RWE’s
history. However, as renewable energy capacity
increases at unprecedented rates, RWE has been
forced to adopt a harvester mentality, with the
aim to derive as much value as possible from its
large legacy asset base that will be gradually
phased out of Germany’s power system.
• Organisational structure: RWE maintained
the centralised management structure that
oversaw its conglomerate of business areas.
For its traditional large-scale assets, this
allowed for efficient management, but it
constrained the autonomy, flexibility and
organisational development of its new energy
areas and made investment and growth more
difficult.
(2) Innogy
Innogy was separated from, but still
majority-owned by, RWE in 2016. It contained
the green assets of RWE, as well as the network
and retail businesses. The motivation for this
change was for Innogy to be able to pursue
growth opportunities in renewables and other
markets without being constrained by the growing liabilities of RWE’s legacy assets or conflicts
of interest. By splitting from RWE, Innogy was
free to attract fresh investment and implement an
organisational structure focused on energy services to better serve its new markets.
• Motive: Innogy was split from RWE in order
to chase growth opportunities. RWE as a
whole struggled to come to grips with the
changes it was facing and lacked flexibility
due to the capital it had invested in its legacy
assets.
• Context: German renewable energy policy
had motivated an unprecedented uptake of
renewables that has completely altered the
state of the energy system—it was clear that
the future trend in Germany was one of mass
renewable energy generation. In addition, the
Fukushima nuclear incident in 2011 resulted
in a moratorium on nuclear generation and
even greater support for renewable power as a
clean alternative.
• Strategic response: Innogy has marketed
itself as a highly innovative company and is
pursuing renewable energy opportunities
internationally. It is attracting financing as a
longer-term investment, which would not
have happened if it were still bundled with
the legacy assets of RWE, which represent
more of a short- to medium-term investment.
• Organisational structure: Innogy was separated as a partially owned subsidiary of RWE.
This removed any association it previously
had with the declining legacy asset base of
RWE, although 75% of the shares remain in
RWE’s hands. Separation afforded Innogy the
64
W. Xiaoming et al.
German municipalities owned 24% of RWE
and relied on the local employment from
lignite and coal assets. The employment from
lignite generation was also a political tool,
leading many politicians to support its use
and protect its role in the German energy
system, which further disincentivised RWE
from diversifying into other technologies.
• Context: RWE had already invested in
improving and expanding its traditional asset
base, locking capital into assets with long
lifespans. RWE’s previous status as a regional
monopoly also fostered a culture of inaction
and risk aversion. This was further accentuated by RWE’s history of large cashflows and
dividends that investors were not prepared to
compromise.
• Strategic response: RWE did not make any
significant additions to its renewable capacity
from 2004-10, instead it continued to focus on
its legacy assets. In 2004, RWE considered
Germany to be “at the beginning of a long-term
investment cycle” and the plan was to replace
old power stations with more efficient versions,
rather than branch off into alternative generation
methods. In its 2004 annual report, RWE mentioned the new renewable energy legislation
solely in terms of the monetary burden it would
place on the company, rather than the opportunities it offered. Consequently, in 2005 RWE
announced plans to spend €3.5 billion on two
projects to install 3.6 GW of new, optimised
lignite generation capacity, which were among
the largest projects ever planned in RWE’s
history. However, as renewable energy capacity
increases at unprecedented rates, RWE has been
forced to adopt a harvester mentality, with the
aim to derive as much value as possible from its
large legacy asset base that will be gradually
phased out of Germany’s power system.
• Organisational structure: RWE maintained
the centralised management structure that
oversaw its conglomerate of business areas.
For its traditional large-scale assets, this
allowed for efficient management, but it
constrained the autonomy, flexibility and
organisational development of its new energy
areas and made investment and growth more
difficult.
(2) Innogy
Innogy was separated from, but still
majority-owned by, RWE in 2016. It contained
the green assets of RWE, as well as the network
and retail businesses. The motivation for this
change was for Innogy to be able to pursue
growth opportunities in renewables and other
markets without being constrained by the growing liabilities of RWE’s legacy assets or conflicts
of interest. By splitting from RWE, Innogy was
free to attract fresh investment and implement an
organisational structure focused on energy services to better serve its new markets.
• Motive: Innogy was split from RWE in order
to chase growth opportunities. RWE as a
whole struggled to come to grips with the
changes it was facing and lacked flexibility
due to the capital it had invested in its legacy
assets.
• Context: German renewable energy policy
had motivated an unprecedented uptake of
renewables that has completely altered the
state of the energy system—it was clear that
the future trend in Germany was one of mass
renewable energy generation. In addition, the
Fukushima nuclear incident in 2011 resulted
in a moratorium on nuclear generation and
even greater support for renewable power as a
clean alternative.
• Strategic response: Innogy has marketed
itself as a highly innovative company and is
pursuing renewable energy opportunities
internationally. It is attracting financing as a
longer-term investment, which would not
have happened if it were still bundled with
the legacy assets of RWE, which represent
more of a short- to medium-term investment.
• Organisational structure: Innogy was separated as a partially owned subsidiary of RWE.
This removed any association it previously
had with the declining legacy asset base of
RWE, although 75% of the shares remain in
RWE’s hands. Separation afforded Innogy the
64
W. Xiaoming et al.