You wouldn’t tell when looking at the large numbers of gadgets in modern households, but European power companies are in bad shape. The quiet and predictable times are over. In the old days you were state-protected, your prices were fixed and quite high, and you were a monopolist, owning production as well as distribution resources. You had more than enough well-paid staff, and free-market worries such as Korean or Chinese competition were pleasantly absent.
The start of privatizations, somewhere in the nineties, marked the end of the old days. And it showed that the power companies were not ready for the free market: with all their money, collected during the monopoly days, they started building extra power plants, thus ignoring laws of supply and demand. European supply grew with double digit percentages in the years after 2000, in Spain even with 91%. And, what a surprise, prices fell. And, due to energy savings (better appliances, CFL bulbs) demand did not rise.
Then there were other factors. The Fukushima disaster made chancellor Angela Merkel panic: she decided on closure of (normally safe) nuclear power plants in Germany, without footing the bill of course. Then there was the abundance of shale gas in the United States, which made coal much cheaper and European coal-fired power plants reconsidered closing, causing even more overcapacity. And then there is solar and wind power, heavily subsidized, and unpredictable, but mostly delivered on peak hours. Sadly, these peak hours were the most profitable. Especially in Germany, where wind and solar power is excessively subsidized (double-digit billions!), and demand and supply are out of sync. Many note that all this money could better be invested in insulation, as heating requires the most energy.
In the old days, again, production was simple. You had coal or nuclear power plants, which needed to run all day to provide for the fixed component. Then the variable part was covered by gas plants that have shorter reaction times. The network is designed for central generation, and because of high prices there were hardly any reliability and maintenance issues. Now, a lot of consumers want to feed back their solar power into the grid, completely changing the dynamics, and some want to even get paid for it. And because of these changes in peak demand, there are more and more moments where there is too much power and you can’t slow down fast enough.
Then there are other issues with the grid. Wind power comes from coastal areas, but in Germany the industry is in the inland, roughly in the area between Stuttgart (Mercedes, Porsche) and Munich (Siemens). You need a whole new power grid. But any time you make plans, civil initiatives jump all over you in a perfect example of NIMBYism. And, who is going to pay for these new grids? The power companies are out of money. The governments? Same problem.
Financially, European power companies are a mess. Their combined stock market value peaked in 2008 around 1,000 billion euros, of which only 500 billion is left. It must be said that that is the same total value of some years before, around 2008. Swedish state-owned Vattenfall bought Dutch NUON for 10.3 billion euro during the privatization craze, and had to do a 4 billion write-down. Dutch Essent was sold to German RWE for 9 billion euro. RWE has a debt of 35 billion on a revenue of 50 billion, and their stock value has halved after 2008.
With all these developments it is ironic that some German cities are moving to buy back their utility companies. Hamburg held a referendum and is now buying back its power grid from Vattenfall for 500 million euros. Can a municipal administration really overview the risks if even seasoned professionals get in trouble? In Berlin there was also a referendum but there voters did not support a buy-back.
So many aspects resemble the US power generation: low investments, disturbing competition, messy politics. One large difference remains: because Europe has almost no overhead power lines and no tornados, large power cuts and blackouts are very rare. It also helps that the average house in Europe does not need air conditioning.
And there is another threat to many power companies: programmers Adam Crain and Chris Sistrunk discovered that the control units of power grids, who of course are connected to the internet, can easily be hacked. And all their warnings were ignored, which was even more shocking. So we only have to wait until some terrorist hacker finds out that there are easy alternatives to a suicide attack when you want to disrupt Western society.