German utility giant E.ON splits in two in order to focus on renewables

Europe’s largest power utility has announced plans to dump conventional, fossil fuel energy generation and focus instead on renewables and customer-led distributed generation solutions.

In what has been described as a watershed moment for renewables, Germany’s E.ON will essentially spilt into two listed companies, with the new E.ON to focus exclusively on renewable energy, energy efficiency, digitising the distribution network and enabling customer-sited energy sources like storage paired with solar.

The “old utility”, meanwhile, will own all thermal and hydro plants and the global commodities business, as well as the remaining nuclear assets. 

E.ON shareholders will receive a majority stake in the “old utility”, but E.ON itself intends to sell its stake in the old utility.

The Düsseldorf-based company, whose main markets will be Europe and North America, said it was necessary to make the spilt because the changing shape of the energy future would require a compete change of culture.

“We’re already experiencing how difficult it is to combine these two very different cultures in a single organisation,”E.ON CEO Johannes Teyssen told a news conference on Monday.

“And we have to assume that the new energy world will become even more dynamic and diverse than we can imagine today,” he said.

E.ON’s departure from fossil fuels follows a similar move by RWE, to focus on distributed energy, while Vattenfall, another major utility, is looking to divest its brown coal generation business in Germany just as the German government contemplates exiting coal in the same way that it put a deadline on nuclear.

It also follows the announcement by NRG, the largest private generator in the US, with a portfolio the equivalent size of Australia’s entire grid, which announced last month that it would cut its carbon emissions by 50 per cent by 2030 and 90 per cent by 2050. It said this would establish a “clear course towards a clean energy future.”

The E.ON announcement is particularly significant, however, because it had once been one of the strongest opponents of Germany’s “energiewende” (energy transition).

“This is the most radical transformation E.ON could have chosen, but we think it makes strategic sense and could create more value and growth than the traditional integrated business model,” said UBS analysts of the news.

E.ON, UBS added, clearly believed there would be no renaissance of conventional generation, and recognised that “green utilities” would get a higher rating by investors.

© 2014 Solar Choice Pty Ltd

Giles Parkinson