Split-up of innogy between RWE and E.ON shakes German energy market
Clean Energy Wire
German energy companies RWE and E.ON have agreed to a deal in which E.ON will buy RWE's green power subsidiary innogy and the two utilities will exchange large parts of their assets to focus their activities. The deal would drastically reshape Germany's energy landscape, already in turmoil as the country's phase-out of nuclear power and transition to renewable power sources is wrecking old business models, and new competitors enter the frame. Following the deal, E.ON is to concentrate on the highly regulated distribution grid with its stable returns and end-customer focused energy solutions, while RWE takes on E.ON's and innogy's renewable businesses, on top of coal- and gas-fired power plants. As part of the complex deal, E.ON will grant RWE a 16.67 percent stake through a capital increase from existing authorised capital, and make an offer equalling 40 euros per share to innogy shareholders. RWE will also pay 1.5 billion euros in cash to E.ON as part of the deal.
RWE said in a press release the deal would turn it into “a leading European utility for renewables and security of supply with a broadly diversified portfolio of renewable and conventional generation assets”.
E.ON would become Europe's largest power retail company, the Handelsblatt writes. The deal still hinges on the approval of E.ON’s and RWE’s company boards, and the go-ahead from Germany’s antitrust and competition regulatory authorities. The role of the EU commission is not clear yet, Karin Matussek writes for Bloomberg.
Find a collection of reactions to the deal from German politicians, energy companies and researchers here.
Check the CLEW dossier Utilities and the energy transition for background on Germany's changing energy market.
On the sidelines of its surprising and far-reaching deal with competitor E.ON, German utility RWE is mulling another major transaction - the purchase of utility EnBW's coal and gas plants, Jürgen Flauger writes for Handelsblatt. RWE CEO Rolf Martin Schmitz says he wants to make his company “a guarantor for the security and reliability of the energy supply.” Despite RWE’s decision to re-enter the renewables business by reintegrating the green power production capacity of its spin-off innogy, “Schmitz has not lost its faith in conventional power production,” Flauger says. If there is an opportunity to buy coal and gas plants, “we will use it,” Flauger quotes Schmitz as saying. According to Flauger, EnBW could provide this opportunity as CEO Frank Mastiaux has declared conventional power production “an obsolescent model.” Flauger says Schmitz is speculating that Germany will eventually opt for a capacity market model that pays power producers just for providing production capacity, as RWE has been struggling for years to operate its coal and natural gas plants at a profit.
Find the article in German here (paywall).
If and when the RWE-E.ON deal is approved by cartel authorities and the companies, the restructuring of Germany’s energy sector will be far from complete, writes Thorsten Knuf in an opinion piece for Berliner Zeitung. “It’s only a matter of time before more spectacular mergers in the power sector,” he writes. As soon as the new government decides on the conditions of Germany’s coal exit, market consolidation will start in this segment as well, Knuf writes.
Find the opinion piece in German here.
While it could be years before the possible “surprising reorganisation” of Germany’s energy market can be fully assessed, innogy is “clearly” the deal’s loser, Jürgen Flauger writes in an opinion piece for Handelsblatt. “The company will be broken up, integrated into E.ON – and robbed of its growth goals,” Flauger says. It remains to be seen if E.ON and RWE emerge as the deal’s winners, as both “have paid dearly” for the new assets. RWE gives up its dividend supplier innogy – in which the market had shown great interest – and E.ON gives up a segment it had deliberately bet on in the company’s own split two years ago: power production from renewables.
Find the opinion piece (behind paywall) in German here.
The deal on innogy between utilities Eon and RWE is another sign of how weak the two former energy giants have become, after they failed to act in time on the shift towards a low-carbon energy supply, Jakob Schlandt writes in a commentary for daily Tagesspiegel. Politicians must take a significant share of the blame, he argues. “After all, E.ON and RWE as conglomerates have long been favoured by federal governments,” he says. The government is lucky the two are sorting it out between themselves. “In particular, RWE and innogy have been highly coveted targets for international investors – who nobody likes to see here.”
Read the full commentary here.
Frankfurter Allgemeine Zeitung
If the extensive deal between E.ON and RWE goes through, “old rivals" will "become partners under the pressure of the energy transition” and create “a new order in the German energy industry” by organising a clear “division of labour”, Helmut Bünder writes in an opinion piece for Frankfurter Allgemeine Zeitung. E.ON CEO Johannes Teyssen “has chosen the risk-free path” by putting the focus on grids, where government regulation ensures dependable revenues, Bünder writes. RWE fully bets on power production from conventional sources and increasingly from renewables, but the company will be able to rely on the “very calculable” income from its minority stake in E.ON, Bünder writes.
Find the opinion piece in German here.
Frankfurter Allgemeine Zeitung / Clean Energy Wire
Thomas Bareiß, member of the German parliament and energy policy representative of the conservative CDU/CSU Parliamentary Group, will become parliamentary state secretary in the Federal Ministry for Economic Affairs and Energy (BMWi), reports Frankfurter Allgemeine Zeitung (FAZ). Bareiß was part of the Christian Democrats’ (CDU) negotiating team on energy, climate and environment in the January coalition talks with the Social Democratic Party (SPD). In a pre-election interview with the Clean Energy Wire, Bareiß said he supports the phase-out of subsidies for new renewable power plants, and favours the EU Emissions Trading System (ETS) as the main instrument for CO₂ reduction. CDU politician Oliver Wittke from North Rhine-Westphalia will also become parliamentary state secretary in the new BMWi under Peter Altmaier, long-time ally of Chancellor Angela Merkel, writes FAZ.
Find more information on Thomas Bareiß and his views in this CLEW interview, and also read the CLEW article on the next energy minister Altmaier Merkel puts long-time confidant in charge of energy transition.
Germany’s next government must introduce an “Emergency Programme for Climate Protection” to reach the goal of reducing greenhouse gases by 40 percent by 2020, write several Green Party and Green parliamentary group members in a paper seen by the Clean Energy Wire. This should include putting a price on CO₂, making motors clean and drives climate-neutral, making heating climate-friendly and affordable, pushing climate protection in the agriculture sector, and “taking industry serious as a partner for more climate protection”. The paper’s authors are Annalena Baerbock, Anton Hofreiter, Oliver Krischer, and Lisa Badum.
See the CLEW factsheet Germany's greenhouse gas emissions and climate targets for more information.
Greens/EFA Group in the European Parliament / Green Budget Germany / Green Budget Europe
The divergence between type-approval and real-world emission values cost Germany 1.2 billion euros in lost motor vehicle tax revenues in 2016, according to a report by the Greens/EFA Group in the European Parliament. This corresponds to 13 percent of the total motor vehicle tax revenues of that year. “The majority of EU member countries levy motor vehicles taxes based on type approval CO₂ emission values, which turn out to be a seriously flawed tax base,” write the Greens. In the 11 European countries under consideration by the report, tax revenues from car registration and ownership would have been more than 10 billion euros higher in 2016 if CO₂ is based on true emission values.
Find background in the CLEW article Why the German diesel summit matters for climate and energy.
German citizens’ interest in renewable power contracts is declining, according to a press release from price comparison website Verivox. In 2016, 36 percent of consumers who switched power providers through the website chose green contracts, down from 76 percent in 2012. “Since the peak of green power demand after the nuclear catastrophe in Fukushima seven years ago, we see a steady fall in interest in eco power contracts,” Mathias Köster-Niechziol, energy expert at Verivox, said in the press release.
Find the press release in German here.
For background, read the CLEW factsheet What German households pay for power.
Frankfurter Allgemeine Zeitung
Germany’s goal of reducing greenhouse gas emissions by 80 to 95 percent by 2050 means the remaining 5-20 percent are being “left undiscussed”, Oliver Geden, head of the EU division at the German Institute for International and Security Affairs (SWP), writes in a guest commentary in Frankfurter Allgemeine Zeitung. Geden says the next German government should instead set a “reference point” of full net carbon neutrality. This would not only be in line with Paris Climate Agreement goals, but also shift the national debate in Germany “by getting all stakeholders out of their comfort zone” and forcing everyone to think about how the last emissions could be compensated by mid-century, Geden writes. The debate also needs to include “negative emissions, which so far only exist on paper” he adds.
Find the guest commentary in the newspaper’s e-paper (behind paywall) here.
For background, read the CLEW factsheet Germany’s greenhouse gas emissions and climate targets.