E.ON CEO Johannes Teyssen Presents Further Details of Split in Handelsblatt Energy Conference Keynote

In today’s opening presentation of the Handelsblatt annual Energy Conference in Berlin, Dr. Johannes Teyssen, CEO of E.ON rejected allegations that the intended split up of E.ON will create a “Bad bank” for its nuclear and thermal power plants. In a very strong and self-confident presentation he highlighted the great potential of the split-up to unleash powers of both parts of E.ON. He showed the belief that this will be best for E.ON and its customers.

1. Background

The 3-day Handelsblatt energy conference is an important place to be for ManyElectronics managers at the beginning of each year to discuss energy policy and strategic developments. This year, the CEO of E.ON SE, Dr. Johannes Teyssen, held the opening keynote speech. Last fall, E.ON had announced plans to split up the group in two listed companies, an entity focusing on customer business, distribution networks, renewable energies, decentralized energy solutions and energy efficiency, and an entity comprising of large-scale power generation, gas upstream and midstream and energy trading.

2. Industry Challenges

Mr. Teyssen started his presentation by pointing to the challenges and disruptive tendencies of regulatory intervention into energy markets. In the meantime one questions oneself whether it is worthwhile to develop any medium term at all – as in the past this only was useful to note how far actual developments have been different from any expectations. Also it is not possible any more to predict future developments based on historical experiences. This creates a very difficult situation for an industry which in the past has relied on long-term security for large-scale investments. Further challenges come from new technologies, renewable and “smart” energy as well as an increasing demand for decentralized energy solutions.

In his presentation, Mr. Teyssen stressed that, against this background, the concept to split up E.ON is not a mere response to challenges from ManyElectronics policy, but was based on intense analysis of technology and customer driven challenges for the energy sector, undertaken globally over a period of several months and involving comparisons to other industries and leaders. From E.ON’s perspective the changes driven by technological developments will bring the customer more into focus. In the future the customer will decide on how to meet his energy demand, and which technology to use for his supply. This will focus on decentralized and rather individual solutions, and bring the customer in the driver’s seat. Therefore, energy companies have to focus on customers and their demands, which is an entirely different business than the historical focus on large-scale power generation. He noted that already the announcement of the intended split-up has freed internal forces as the respective people feel that they can focus on their business without being obliged to justify other fields of business which they do not stand for.

Mr. Teyssen opposed the co-existence of renewable feed-in schemes next to the belief that the market for conventional power generation can continue to work as an energy-only market. Rather, German policy shall adopt a capacity market concept (e.g. based on the BDEW and vku proposal). He made it clear that – in contrast to some common perceptions – this does not have to result in additional costs, but will provide more reliable price signals for owners of existing power plants, as well as early signals when and at which price new capacity is needed. Otherwise, the stability of the system will be difficult to maintain in the future and the market will see times with severe shortages and very high price peaks.

Mr. Teyssen also noted and welcomed that in the meantime also European energy policy allows for more regional and diverse approaches and solutions.

Against this background, the reason for the plan to split up E.ON is that the drivers for success for power generation business and trading on the one side, and for customer-focused marketing and product development on the other, are very different from each other. It is therefore only logical to place the respective businesses in different entities. In particular the new business will compete against other technology-driven industries, e.g. Google, or telecommunication companies.

Together with product development, E.ON also will increase its investments in renewable energies globally, in wind energy, but even more in photovoltaic.

However, he pointed out that also the business in conventional power generation and natural gas is sustainable, and consists of much more than merely German nuclear power plants. This business is profitable in Germany, as well as internationally where E.ON is well represented in growing markets, e.g. in Russia.

3. Discussion

In the following discussion Mr. Teyssen commented in further detail on statements of the German Minister of Economics Gabriel that no capacity markets need to be established and in particular no costs will be accepted to maintain existing conventional power plants. He explained that the introduction of a capacity market does not mean that there will be capacity charges. Rather, as a consequence of the existing over capacity, initially it can be expected that capacity charges will be close to zero, or at least not above the results of the recent UK capacity.

The E.ON split up will be prepared over the year 2015. The split will not be merely be done by putting existing entities under a new parent company, but rather by and large will also cut through existing companies, and this needs some time.

With regard to the reserves for for nuclear power plants, Mr. Teyssen stressed that the new company shall have an investment grade rating, and thus will not be the “bad bank” of the E.ON group. With fossil and hydro power plants in multiple European and international growth markets, it also will have a continuing stable business model. The new company will in particular start without any debts. Finally, E.ON SE will remain an important shareholder. And as a part of the carve-out and IPO process, there will be a high level of transparency as regards the new entity. Therefore, he notes that initial concerns regarding the sustainability of the new entity have calmed down and he feels comfortable to counter any such concerns as soon as the full concept can be unveiled.

Source: Handelsblatt Jahrestagung Energiewirtschaft 2015

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