RWE’s plans for new renewable subsidiary

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Similar to domestic rival E.ON, German energy giant RWE hopes the separation of its renewable business from ailing fossil fuel generation will help it to adjust to the sweeping changes triggered in the sector by the country’s Energiewende. In order to raise much needed capital, RWE plans to list a company called "innogy" focused on renewables and grids on the stockmarket by year-end. CLEW presents an overview of RWE’s plans, background material, as well as selected press commentaries. (Updates with new company name "innogy")

What are the changes at RWE?

With around 40,000 employees, two-thirds of the total RWE workforce, the new subsidiary will pool RWE’s renewables, grids and retail operations in Germany and abroad and generate annual revenues of around 40 billion euros, RWE said. In late June, RWE unveiled the name of its new “colourful, cheerful and innovative” subsidiary: “innogy”.  Until then, it was provisionally called “RWE International SE”.

Innogy's initial public offering (IPO) is scheduled to take place by the end of the year, but RWE said the exact date will depend on market conditions. It will be headquartered in the West German city of Essen, where the parent company RWE AG is also based.

The renewables subsidiary will be headed by Peter Terium, who will also retain his position as RWE CEO for an interim period. After the IPO, his current deputy Rolf Martin Schmitz will succeed him at the helm of RWE AG. Terium said the restructuring was a “mammoth task”. The new company will be "fast, decentralised, innovative and close to customers", he said, adding it intended not to simply keep up with the competition, but “to take a pioneering role and shape the energy market of the future.”

RWE’s plans were applauded by financial markets when first announced in detail in December 2015. Bank analysts said the split gave RWE much-needed access to fresh capital. For more details, read CLEW’s

RWE suspended payment of its ordinary dividend earlier this year. The move caused an outcry among many municipalities, who are shareholders and have relied on the payments for decades. The company’s annual general meeting is scheduled for 20. April and likely to feature heated debates.

The Background

RWE's decision comes at a time of rapid changes in Germany's energy landscape. The transition to green energy sources has dealt a heavy blow to its largest utilities' old business models. Renewables, mostly wind and solar, now produce roughly a third of electricity, but the largest power companies, such as RWE and E.ON, with their focus on fossil and nuclear power, have been slow to adapt.

Germany’s ambitious transition to renewable energy has left the four major utilities - RWE, E.ON, EnBW and Vattenfall - that have dominated the market for decades out in the cold. For more background on the utilities’ struggles see CLEW’s

The sharp rise of renewables and overcapacities have led to a collapse of the wholesale power price in Germany, spelling trouble for the large utilities’ fossil power plants. Many have become unprofitable due to the competition from green energy, a phenomenon explained in the

Germany’s nuclear exit is also a major headache for the utilities. Half of Germany's nuclear power plants have been switched off since 2011 and the rest will be shut down by 2022 at the latest, with utilities having to pay billions of euros for decommissioning. For background, see CLEW’s

Germany’s shift to renewable energy has created an entirely new class of market players in the utilities’ home turf, the energy market: Millions of Germans have turned into energy producers, investing in solar panels on their houses and buying shares in wind parks. For more background, see CLEW’s

 

RWE in the press

Frankfurter Rundschau, 1 April

“Tour de force of the utilities”

RWE’s split is "the most daring project in the history of Germany’s energy industry," writes Frank-Thomas Wenzel in the Frankfurter Rundschau. The partial sale of the new renewable and grid subsidiary by year-end is meant to bring in cash for renewables investments. “The company is teetering on the brink of the abyss. This is symptomatic of the whole sector,” writes Wenzel. Among Germany’s four biggest utilities, RWE delayed its restructuring the longest. Instead, the company invested in superfluous fossil power plants, creating massive overcapacities, according to Wenzel. “There are doubts about the chances of the latecomer. Many renewables competitors have a large head start.”   

Read the article in German here.

 

General-Anzeiger/dpa, 1 April

Dawn of a new era for RWE

RWE’s transformation is the dawn of a new era for the company, but at first glance, not much will change, writes Rolf Schraa for German press agency dpa. Previously the company did not take its renewables business seriously, but now the new subsidiary is built around it. The Essen-based company can only invest one billion euros into the renewables business within three years, whereas E.ON has earmarked three times as much, writes Schraa.

 

Welt online, 30 March

“RWE must finally make the radical change”

Rolf Schraa writes on Welt online of a “change of an era” for the German utility RWE in the run-up to the corporation’s spin-off of its renewables operations from the fossil and nuclear energy generation at the end of this week. With about two thirds of the current employees, the as-yet-unnamed company will constitute the “new core” of RWE’s business. Schraa notes that the “old RWE AG” has announced to hold a majority stake in the new company. Therefore, “the green daughter will not get rid of her black parents”. The belated decision to split was driven by low wholesale electricity prices and the pressure of the Energiewende, writes Schraa. “RWE slept through the lucrative Gold Rush-era of the energy transition.”

Read the article in German here.

 

Handelsblatt Global Edition, 23 March

“Leading RWE’s Exit from Brown Coal”

Rolf Martin Schmitz will become the CEO of RWE’s conventional power branch when the renewable division is spun-off in April. His goal will be to minimise the burden imposed on the company by the federal government, be it the funding of the handling of nuclear waste or the phase-out of brown coal, Angela Hennersdorf writes in Handelsblatt Global Edition. Schmitz is working on a foundation solution, mirroring the RAG foundation that is in charge of phasing out Germany’s hard coal mining operations.

Read the article in English here (behind pay-wall).

 

Süddeutsche Zeitung, 9 March

“Giant company all sheepish”

RWE’s renewable business is starting from an even weaker position than E.ON’s, writes Varinia Bernau in Süddeutsche Zeitung. While E.ON generated more than 13 percent of its power from renewables last year, RWE managed just 10 percent. The success of RWE’s renewable business will depend on the success of its partial sale on the stockmarket later this year. CEO Peter Terium admits that many innovative energy business ideas are no more than tender shoots. “But he doesn’t mention that he might have run out of money long before those shoots bear fruits,” writes Bernau.

Find a report on RWE’s results in Tuesday’s News Digest here.

 

RWE/Bloomberg, 8 March

RWE posts second net loss in two years

Germany’s biggest power producer RWE posted its second net loss in three years, reports Tino Andresen for Bloomberg. The group’s net loss amounted to 170 million euros, compared with a profit of 1.7 billion euros a year earlier, on sales of 48.6 billion euros, according to the report. Plunging electricity prices forced RWE to write down the value of its plants at home and in the UK by 2.1 billion euros. RWE’s UK unit is to cut 2,400 jobs after billing system failures and more than 350,000 customers left the utility.
Largely due to the commissioning of new wind farms with a total generating capacity of some 1,000 MW, RWE’s renewables division more than doubled its result to 493 million euros, according to the RWE press release. “This means that renewables now account for the largest share of RWE’s generation portfolio after gas and coal.” RWE noted a “drastic deterioration of earnings prospects in conventional power generation”.

Find the RWE press release in English here.

Read the Bloomberg report here.

 

Die Welt, 4 March

“North Rhine-Westphalia cities agree to forego RWE dividend”

Despite their own financial difficulties, cities in North Rhine-Westphalia that own stakes in utility RWE have accepted that there will be no dividend this year, writes Daniel Wetzel in Die Welt. CEO Peter Terium will step down from running the company in the autumn and will become head of RWE’s new renewables unit, while COO Rolf Martin Schmitz will take over the helm of RWE.

Read the article in German here.  

 

Rheinische Post, 4 March

“The power of the RWE cities”

For many years, cities benefitted from holding stakes in utilities to which they awarded electricity concessions, but this is no longer the case, writes Antje Höning in a commentary in the Rheinische Post.  RWE’s mistakes since the beginning of Germany’s energy transition mean the days of high dividends for municipalities are over. German cities where the company held concessions felt they were no longer taken seriously by the company’s chief executive Peter Terium, she writes. His decision to split-up RWE is also having a negative affect, which is why it is good that they have pushed for a change of management and Rolf Martin Schmitz will take over, she writes.

 

Frankfurter Allgemeine Zeitung, 2 December

“Terium the tactician”

RWE CEO Peter Terium has proven to be an able tactician, Carsten Knop argues in a commentary for leading conservative daily Frankfurter Allgemeine Zeitung. His move was again opening the company's access to capital - needed to finance growth areas such renewables. As RWE remained owner of the whole company, it seemed that Terium had incorporated lessons from some of E.ON's mistakes when preparing his own plan, according to Knop.

Find the commentary in German here.

 

Süddeutsche Zeitung, 2 December

“Late, perhaps too late”

RWE’s plans are radical and effectively split Germany’s second largest utility in two, writes Caspar Busse in a commentary for Süddeutsche Zeitung. “The decision is right and long overdue, because the sustainable business has to be separated rigorously from the old, if RWE is to stand a chance in its fight for survival. But possibly, the step comes too late,” writes Busse.
Stricken energy giant RWE revealed on Tuesday that it plans to spin-off a company focused on renewables and grids to raise capital, while retaining fossil and nuclear energy generation.

Find the article in German here.

 

RWE / Handelsblatt, 1 December

Utility RWE follows E.ON example, to split in two

One of Germany’s largest utilities RWE will split in two, the company announced on Tuesday. Renewables, grids and retail activities in Germany and abroad will be transferred into a new subsidiary company which will be listed on the stock market probably by late 2016. RWE will retain the majority of shares “over the long-term” a company press release states. The remaining RWE parent company will focus on conventional power generation and energy trading. "The Group's restructuring is our response to the transformation of the European energy landscape," Peter Terium, CEO of RWE said. The split did not affect RWE’s liabilities for nuclear decommissioning and waste storage he said. “On the contrary, the shares of the new subsidiary will be an asset that will make it easier for us to fund provisions in the future if necessary, whatever the circumstances." The split is pending approval by the company’s supervisory board which is due to meet on 11 December. RWE is following in the footsteps of E.ON who announced a similar split a year ago, a move that Terium had opposed for a long time, the Handelsblatt writes.

Find the RWE press release in English here

 

Süddeutsche Zeitung, 10 Aug

“Exhausted”

RWE boss Peter Terium has announced the complete overhaul of his company, says Markus Balser in the Süddeutsche Zeitung. He is cutting out an immense bureaucracy of more than ten different supervisory boards and 100 different subsidiary companies by getting rid of the aloof RWE holding, Balser writes. The central RWE management is supposed to gain influence which should enable it to react more quickly to changes in the sector, he adds. RWE’s share values have dropped from 100 euro at the end of 2007 to just 20 euro on Monday; its debt amounts to 28 billion euros while the company was worth only 11 billion euros on the exchange, Balser says. This means the company lacks capital for investment in new business areas and could still follow E.ON’s footsteps and spin-off the ailing power station branch.

Read the article in German here.

Read a CLEW article about RWE’s turnaround plan here.

 

Rheinische Post, 10 Aug

“RWE, this is not enough”

In its glorious times as part of the electricity oligopoly, RWE amassed a myriad of subsidiary companies, chairmen and board positions – it was about time that it tightened the organisation and cut down on costs, writes Antje Höning in an editorial for the Rheinische Post. But compared to rival E.ON and its spin-off of conventional power production, RWE has not presented enough to ensure the survival of the company, Höning says. RWE needs a future-proof business model and that has to include more than another round of job cuts.

 

Frankfurter Allgemeine Zeitung, 10 Aug

“Plan B for RWE”

Facing an existence-threatening crisis, RWE CEO Peter Terium finally cuts through the rampant bureaucracy and streamlines his company management, writes Helmut Bünder in an op-ed for the Frankfurter Allgemeine Zeitung. This is a small revolution that might be followed by a larger one, even though a company separation like E.ON is not yet on the table for RWE. It is nevertheless remarkable that Terium, who for a long time vehemently opposed splitting RWE, is now publicly reflecting on the pros and cons of such a move. The new RWE structure facilitates this option.

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