Efficiency benchmarking for German municipal energy suppliers : data envelopment analysis - covering the influences of the German energy transition 2005 - 2014

Abstract

Four large companies dominate almost 70 per cent of the German electricity market – RWE, EnBW, E.On and Vattenfall. Their historical advancement was triggered by technical development in the electricity sector towards larger, centralized power plants and connected grids, all requiring high investments. The other 30 per cent of the market are in the hand of more than 1,000 regional energy companies. Moreover, again history repeats: The German energy transition, or ‘Energiewende,’ again requires massive investments. The only difference is that this time, the trend goes towards renewable, more de-centralized energy power production like wind, photovoltaic or biomass that requires smart grid infrastructure and innovative technologies for energy storage. This Data Envelopment Analysis analyzes the efficiency of eight German regional energy suppliers in relation to labor and capital allocation over the time span of 2005 – 2014. The aim is to identify best-practice examples of regional energy suppliers that successfully manage their resource allocation and adapt their business models to the requirements of the energy transition. The efficiency scores reveal that smaller companies can successfully participate in the energy transition, even though their financial power is limited. They need to work closely together with strategic partners in capital-intensive areas, like e.g. wind park investments or smart grid expansion and maintenance. Derived from the insights of this thesis, there are smaller regional energy companies that are following a clear path leading to efficiency improvement, but also a stable base of businesses that could improve their efficiency scores. Another important aspect of this thesis is to show the practicability of DEA for companies who are willing to benchmark themselves with others, analyze weak points in their business model and identify strategies to counteract those weak points. The willingness of the municipal energy companies to join this research was rather limited and hopefully improves with the results.