E.ON, which is one of Europe’s largest utility firms, has issued a “new corporate strategy” in which the energy giant lay out its plans to focus on renewable energy while spinning off its fossil fuel assets in a separate company.
“We are convinced that it’s necessary to respond to dramatically altered global energy markets, technical innovation, and more diverse customer expectations with a bold new beginning,” said E.ON Supervisory Board Chairman Werner Wenning in a statement.
This move by E.ON is largely due to Germany’s Energiewende – the country’s transition away from nuclear and fossil fuels and towards clean, sustainable and renewable energy. E.ON is Germany’s largest utility and the company has done massive investments in fossil fuels, such as coal and gas, but also renewable energy, from generally hydro and offshore wind farms, in Germany and across Europe. Energiewende therefore plays a huge role for E.ON’s decision, and is part of this “dramatically altered energy market” that Wenning is talking about in his statement.
“E.ON’s existing broad business model can no longer properly address these new challenges,” Wenning said.
While E.ON will focus on renewable energy technologies and solutions, the new separate and independent company will take over E.ON’s former fossil fuel assets, energy trading, exploration and production globally. They have not yet named this new fossil fuel company but said that the spin-off will take place after 2016.
E.ON has around 60.000 employees and has said that there will be no job cuts following this decision. About 40.000 employees will remain with E.ON while the other 20.000 will transition to the new company. “We firmly believe that creating two independent companies, each with a distinct profile and mission, is the best way to secure our employees’ jobs, E.ON SE CEO Johannes Teyssen said.
This decision by E.ON will clearly add credibility to Energiewende and boost Germany’s renewable energy sector while encouraging further investments in renewables. But will it give E.ON customers access to clean energy and, more importantly maybe, will it be a blow to the fossil fuel industry? Damian Kahya who is the editor of Energydesk, Greenpeace's energy and climate blog, says no.
“Even when the deal goes through, the power you get will come from coal or gas because EON will still buy power from the open market. Indeed, it will probably buy power from the 'new company' and then sell it to you,” Kahya writes.
“EON has set up a really good deal for new, fossil fuel-heavy, company, which it will hold a minority stake in (for a while at least). What it's done is keep all of the debt with the parent firm, the EON that does renewables and the like - and left the new company, which owns the gas and coal plants, almost entirely debt-free. Because the new firm also holds EON’s existing hydro and nuclear stakes it may actually generate more money from renewables than the parent company.”
E.ON currently has €31 billion in net debt and this split makes sense economically as it will make it easier for both the new E.ON and the new fossil fuel company to attract investors. Kahya explains:
“Investors who like to put their money somewhere safe didn’t necessarily see EON as a safe bet (the share price has fallen over the past five years) but the company wanted their money to build power grids and offshore wind turbines, safe investments backed by the government. On the other hand the fossil fuel bit of the firm was essentially competing against itself in an effort to stave off competition from clean energy. EON is part of a EU lobby group which has actively campaigned against subsidies for renewables. In splitting the company EON’s created a firm which your pension fund can buy into — an outfit which owns regulated power grids and subsidy-funded offshore wind farms and dominant positions supplying power to consumers.”
This move by E.ON – to dump nuclear and fossil fuels in favour of renewables – might not dramatically change either the renewable or fossil fuel industry. But it’s still good news and it might point towards a new trend where large national energy companies starts to divest, or at least separate themselves away, from fossil fuels.