European energy utilities increase spending on R&D

The findings were reported in the second ESMT European School of Management and Technology Energy Innovation Index, which examines the innovative power of 16 leading European energy supply companies.  The bi-annual independent scientific study consists of the three sub-indices research, sustainability, and productivity.

Energias de Portugal (EDP), Electricité de France (EDF), and RWE topped the Energy Innovation Index 2012.

The ESMT Innovation Index 2012 covering the electricity supply industry, measures innovation activities of 16 major European utilities. In addition to expenses on research and development (R&D), patents and research areas, it also tracks indicators for process innovation, in particular the utilities’ performance regarding productivity and sustainability.

While utilities like EDP, Iberdrola, and Statkraft focus on improvements in the dissemination of innovations (“Dissemination Leaders”), companies like EDF and RWE spend substantial resources on in-house research and development, and have a successful track record in patents (“Research Leaders”).

Nonetheless, 6 out of 16 utilities have decreased their R&D spending during the observation period. Within the sample, 9 utilities show only lackluster efforts in innovation (“Hesitants”).

By contrast, all utilities have improved their rating in the sustainability subindex between 2007 and 2012.

The authors of the index, ESMT faculty member Christoph Burger and program director Dr. Jens Weinmann, draw a moderately positive balance of the innovation process in the energy industry between 2010 and 2012.

“Despite the difficult economic situation, the R&D budgets increased by three per cent during this time,” comments Christoph Burger, energy expert and managing director of ESMT Customized Solutions. “In many companies, the topic of innovation has grown in importance and has arrived in the boardroom.”

The best-ranked companies are pursuing different innovation strategies. EDF and RWE focus on classical research and development to position themselves as “research leaders” with a strong patent culture. By contrast, EDP, which topped the index, can be characterized as a “dissemination leader”. The company focuses on the implementation of product and process innovation and is particularly successful in applying advances in technology to new business models.

Despite the overall positive picture, Burger and Weinmann warn that, in total, there is too little investment in innovation. “In addition to the very active companies, there is a group of nine ‘hesitants’ that do not set a priority on R&D or innovation,” explains Weinmann. “For these companies, the results of the Energy Innovation Index should serve as a wake-up call.”

By contrast, all utilities have improved their rating in the sustainability subindex between 2007 and 2012. Energy generated from new renewables resources (i.e., all CO2-free sources except hydropower) rose from 48 to 136 TWh over the observation period. 14 companies were also able to increase their productivity.

The ESMT Innovation Index 2012 may serve as a wake-up call, because not all European utilities have realized that they need to strengthen their innovative potential for turbulent times ahead.

This article was originally published on the ESMT website.  You can ownload the complete ESMT Energy Innovation Index 2012 from here.