RWE has announced plans to create a spin-off company over the next 12 month that will cover its renewables operations, the grid, and retail sales in Germany and abroad. The announcement is in response to the effects of energy policy in Germany which has led to a deterioration in profits for RWE as demand for thermal generation has fallen and a nuclear phase-out programme must be complied with.
It is intended that the parent company, RWE, will concentrate on power generation and energy trading. A similar move was announced by Eon earlier this year, which is also on course for a planned split into two companies in 2016.
RWE has blamed its operating losses in the first half of 2015 on a fall in profit margins for its conventional generation plants. This reflects lower commodity prices and unprecedented increases in renewable capacity in Germany where renewable generation made up approximately 28% of generating capacity last year.
The new company is expected to be launched on the stock exchange in 2016, with 10% of the share capital being offered to the public. It will have its own access to the capital market, which RWE says will strengthen the group as a whole.
Peter Terium, CEO of RWE AG said, “By establishing the new company, we are creating one of Europe’s leading innovative energy companies with substantial expertise in managing decentralised energy systems. Within the new structure, we will continue to bear our responsibility in the conventional energy landscape and satisfy the needs of tomorrow’s energy world.”
Under Germany’s Energiewende Policy, the country has a renewables target of 80% of electricity from renewable power by 2050 and the German government is currently consulting on the introduction of competitive tenders across a range of renewable technologies to commence from 2017 in place of the existing FiT regime. A pilot is being run for the scheme and the second round of the tender for 150MW of PV was reported to be three times oversubscribed.
As investment in renewables grows, the German electricity network is increasingly having to deal with decentralised and intermittent power generation. Thermal generation provides backup to intermittent wind and solar power, an essential provision by the large German energy companies. But the development of storage solutions for decentralised electricity is also seen as a crucial part of the solution. Europe’s largest energy storage plant opened in Brandenburg this year. The 10MW plant will provide stability to the local grid, storing power when too much is produced by renewables, such as wind, and releasing energy when required.
The creation of the spin-off company will increase RWE’s financial flexibility for nuclear phase-out. Under Germany’s nuclear phase-out plans, nine plants have already been shut, although are yet to be decommissioned. The remaining eight are due to be closed by 2022. Following the Fukushima disaster in Japan in 2011, Germany closed eight of its nuclear generation plants straightaway. Eon and RWE are currently suing the German state because of lost profits following the sudden closures and there is much debate in Germany over how the decommissioning and storage of waste should be financed.
RWE’s plans to float the new company are still subject to board approval, but it is expected to start operating in 2016 and will employ approximately 40,000 of the RWE Group’s nearly 60,000 staff members.
Written By – Nikki Wilson