RWE, Germany’s second-biggest utility, has declined to follow rival Eon
and spin off its fossil fuel and nuclear assets into a publicly listed company.
Eon on December 1 announced the move in response to the country’s dramatic
shift towards renewable energy, which has battered utilities’ profits.
Germany’s biggest utility by market value plans to create a publicly listed company in 2016 that will combine its power generation, global energy trading, exploration and production businesses.
Johannes Teyssen, Eon chief executive, said utilities were struggling to bridge the divide between the old world of centralised power generation and a new business model in which customers can generate their own electricity with solar panels on their roofs. "It is increasingly difficult for companies with broad portfolios to grow and become successful in both the new and conventional energy markets,” he said. Eon was the biggest gainer on the Dax on Monday. Shares climbed 4 per cent to €14.83 by early afternoon.
However, RWE said it had no plans to follow suit. In a statement last Monday, the company said: "Our business will remain deployed along the entire value chain. We are convinced that through the optimisation of the energy business we can generate value along the entire value chain.” The subsidised production of energy from clean sources in Germany has led to a glut of electricity on the market and pushed down wholesale prices, squeezing earnings at utilities.
Eon said it expected additional impairment charges of about €4.5bn in 2014, primarily on its operations in southern Europe and on generation assets, beyond €700m disclosed earlier this year. The charges will result in a substantial loss for the year. After the split, Eon will focus on renewables, distribution and customer services. It will increase investment with an emphasis on expanding its wind business. Eon, which had net debt of around €32bn at the end of 2013, is divesting its businesses in Spain and Portugal to help its finances. It is also looking at disposal of assets in Italy, and its exploration and production business in the North Sea. Mr Teyssen said there was a "fundamental trend” towards specialisation in the utilities sector.
Eon’s generation business currently produces about 40 per cent of its electricity output from gas, the least polluting fossil fuel.
This means the spin-off company will be well placed to benefit if there is a recovery in Europe’s carbon market. However, this also means that after the split, Eon will be exposed to price rises. Vincent Gilles, head of European utilities research at Credit Suisse, as quoted by the "Financial Times”, said in a note that even after the split, investors would not be presented with a choice of "pure plays”, adding that: "If anything the ‘old’ Eon and the new (commodity exposed) company will have conglomerates characteristics.”
