E.ON to Spin off Conventional Power and Other Activities and Focus on Renewables, Distribution Networks and Customer Solutions

In an effort to “respond to dramatically altered global energy markets, technical innovation, and more diverse customer expectations” E.ON SE announced yesterday that it wants to “focus on renewables, distribution networks, and customer solutions and combine its conventional generation, global energy trading, and exploration and production businesses in a new, independent company” (“New Company”), the majority of which shall be spun off to shareholders. It appears as if nuclear power shall also be spun off into the the New Company

Stock-listed E.ON SE, Germany’s largest utility, is responding to Germany’s Energiewende, the energy policy shift towards a mainly renewable energy supply that requires the company to close down its nuclear power plants by and by until 2022. The growing priority input of green power to the German grids, for which operators receive above-market remuneration under the Renewable Energy Sources Act (EEG), lead to an erosion of power prices, which further hit E.ON’s conventional power activities.

1. Renewables, Distribution Networks and Customer Solutions

E.ON SE wants to focus on what it calls “the new energy world and customer businesses”, i.e. renewables, distribution networks and customer solutions, providing “innovative solutions to meet the needs of its roughly 33 million customers”. About 40,000 employees shall work for the company.

“It will take new approaches to further developing each of its three core businesses”, E.ON says, explaining its strategy as follows

“For this purpose E.ON will increase its investments already for the next year by about €0.5 billion compared to the previously planned 2015 capex of €4.3 billion. E.ON will place a particular emphasis on expanding its wind business in Europe and in other selected target markets. It will also strengthen its solar business. It will upgrade its energy distribution networks in its European markets and also in Turkey and make them smarter so that customers can take advantage of new products and services in areas like energy efficiency and distributed generation.”

2. Conventional Power, Global Energy Trading, Exploration and Production

“The transformation of the energy system will continue to require reliable backup capacity well into the future as well as access to global markets for energy products. With a portfolio consisting of conventional power generation, global energy trading, and exploration and production, the New Company will focus precisely on meeting these needs,” E.ON’s CEO Johannes Teyssen said, adding that New Company would be an excellent position to lead the necessary consolidation of power generation in Europe and offer attractive services for the system needs of the future.

New Company shall have about 20,000 employees and be headquartered in Germany’s Rhine-Ruhr region.

E.ON describes the next steps as follows:

The first step of the spinoff will involve E.ON transferring a majority of New Company’s capital stock to its shareholders, with the result that New Company will be deconsolidated. E.ON intends—over the medium term and in a way that puts minimum pressure on the stock price—to sell the shares of its remaining minority. This will enhance E.ON’s financial flexibility for future growth investments.”

E.ON expects to carry out the spinoff after approval by the E.ON Shareholders Meeting in 2016.

3. Divestments in Spain and Portugal and Further Plans

E.ON further pointed out that it had agreed to sell its entire businesses in Spain and Portugal to the Australian investment firm Macquarie for EUR 2.5 billion.

Prior to implementing the new set-up E.ON also wants to explore the possibilities of selling its activities in Italy and conduct a strategic review of its exploration and production business in the North Sea, the company said.

4. Nuclear Power, Lawsuits Concerning the Energy Policy Shift and Conventional Power

In October 2014 media reports said E.ON had filed lawsuits claiming damages of approximately EUR 380 million because of the shutdown orders for its nuclear power plants Unterweser and Isar 1 that were issued as part of a 3-month moratorium on nuclear power in Germany in the wake of the Fukushima nuclear accident in Japan in 2011.

In late 2011 E.ON already lodged a constitutional complaint with the Federal Constitutional Court because of the moratorium and the energy policy shift that lead to the phase-out of nuclear power by 2022. It has not been decided yet.

Nuclear power generation indirectly figures in E,ON’s press release, saying “Existing provisions for the dismantling and disposal of nuclear and conventional assets will be fully covered in New Company’s balance sheet” and “The dividend proposal applies regardless of issues such as the possible consequences of portfolio streamlining, the accounting treatment of the new setup, and the outcome of the pending court cases regarding Germany’s nuclear-fuel tax”. This seems to suggest that E.ON’s nuclear power business shall also be part of the New Company.

Even before the latest energy policy shifts regarding renewables, building new conventional power plants had become difficult as such major projects are almost often challenged in courts by neighbours and environmental organisation. A good example is the 1100 MW coal-fired power plant Datteln 4, E.ON intends to build. Construction was stopped following a judgement by the Higher Administrative Court of Münster (OVG Münster), who declared the zoning plan for the Datteln 4 area void in September 2009. For the latest developments, please see here.

Source: E.ON

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