Germany’s largest power supplier E.ON is quitting conventional energy to focus entirely on renewables. The overhaul comes amid mounting debt and as Germany gears up to phase out nuclear energy by 2022.
The energy giant announced plans to spin off its nuclear, oil, coal and gas operations – a move that will include selling its businesses in Spain and Portugal to Australian investment firm Macquarie for 2.5 billion euros ($ 3.11 billion).
E.ON said its trimmed-down operation would allow it to focus on green energy, distribution networks and customer solutions.
“We are convinced that it’s necessary to respond to dramatically altered global energy markets,” the company’s CEO Johannes Teyssen said in a statement late Sunday.
“E.ON’s existing broad business model can no longer properly address these new challenges,” he added. “Two separate, distinctly focused companies offer the best prospects for the future.”
Germany goes green
The overhaul comes as Germany plans to wean itself off nuclear power and shift to renewable energy sources by 2022.
The country’s Economy Minister Sigmar Gabriel welcomed the announcement, hailing E.ON as the “first company to draw the consequences of a dramatic change in the field of energy supplies,” according to German daily Rheinische Post. “This definitely creates new opportunities,” Gabriel said.
Germany’s benchmark DAX share index jumped at the news, reflecting hopes that the new strategy could pump new life into the company, which is currently staring at a jarring 31-billion-euro mountain of debt. The price slump on the wholesale electricity market has added to the misery, with E.ON bracing itself for fourth-quarter impairment charges of 4.5 billion euros on its operations in southern Europe.
Critics worry that the company is now trying to offload its bad assets and that the new offshoot won’t be able to generate enough revenue in the green energy environment to finance the phase-out and demolition of its nuclear plants.
“I fear that E.ON is creating a ‘bad bank’ for its seven nuclear plants, which will have to be bailed out by the German taxpayer,” said Bärbel Höhn of the Greens and chairwoman of the parliamentary committee on environment, nature conservation and nuclear safety.
However, E.ON’s Teyssen rejected the criticism, saying that “it’s not clear which will be more successful in five years – E.ON or the new company.”
He added that the new business would enter the market debt-free and with the 14.5-billion-provision that the company has currently reserved for the 2022 exit.
E.ON shareholders would continue to own a majority stake in both companies and are expected to sign off on the deal, which is scheduled to take effect in 2016.