Handelsblatt Exclusive Sources: RWE Split Is Possible

RWE, Germany’s second-largest utility, is simplifying its energy operations, which could in future lead to a separation of traditional electricity production from alternative sources, Handelsblatt has learned.
How long can RWE cling to coal power plants?

When RWE chief executive Peter Terium outlined his strategy in March, three words were especially important to him: “Step by step.”

Faced with a government-mandated shift to renewable energy and the shutdown of nuclear plants in Germany by 2022, RWE is handling the many problems “one after another,” the Dutch-born chief executive said at a press conference on its 2014 results.

Germany’s second-largest utility, however, is setting up a new corporate structure that might result in a split of operations, similar to what is being undertaken by its larger rival, E.ON, Handelsblatt has learned from people familiar with the matter.

A spokeswoman at RWE on Thursday told Handelsblatt Global Edition that RWE's policy-setting supervisory board planned to meet next Monday, but declined to say what would be discussed. She said the company did not want to comment on the substance of the Handelsblatt report.

"When something is decided, we will communicate it,'' she said.

E.ON shocked the market in December when it announced it would split the company in two: One to run its core business of conventional coal-based electricity generation with large power plants and the other focusing on renewable energy.

Under the government’s Energiewende, or energy transformation program, Germany in 2011 announced plans to phase out nuclear energy by 2022 and draw at least 80 percent of energy from renewables by 2050. The decision was taken by the German chancellor, Angela Merkel, as a reaction to the Fukushima nuclear accident in Japan.

RWE should become quicker and more hard-hitting in searching for new revenue.

Since then, Germany has offered billions of euros in subsidies to makers of wind turbines and solar energy firms to build out the nation’s renewable energy grid. The subsidies have led to a glut of electricity on the market, which has cut wholesale electricity prices in half and led to billions of euros of losses at E.ON, RWE and rivals such as Vattenfall from Sweden and Karlsruhe-based EnBW. Some utilities have closed down brand new coal power plants.

In the restructuring that Mr. Terium will present to the supervisory board on Monday, he will radically slash, merge or entirely dissolve the roughly 100 subsidiaries that the corporation has in Germany.

A splitting-off of electricity production is not on the agenda but could happen in the future. Even when management is still playing down the issue, company sources told Handelsblatt that the plans for a splitting-off of conventional electricity production in nuclear, coal and gas fired power plants, which RWE has also considered, were only “postponed, not cancelled.”

And in fact the planned restructuring has the graceful side effect of electricity production being easily split off in the medium-term. While Mr. Terium is radically trimming the “legal structures” in distribution, as he calls the proliferation of subsidiaries, and is bringing the management of them to headquarters, electricity generation is still largely independent.

Although there is a plan to merge the German RWE Power unit with the Europe-wide interim holding company RWE Generation, this could be split off as a block in the medium-term.

Presumably Mr. Terium will shy away from hitting the 15,000 employees of RWE Generation. The labor representatives are insisting on a commitment to electricity generation, in order for them to agree to the restructuring plans.

RWE’s influential municipal shareholders, who own almost a quarter of the utility, are not getting sentimental about the traditional core business.

“It is obvious that a separation is being initiated here,” one of their representatives told Handelsblatt.

Mr. Terium is holding all options open for RWE Generation: from an initial public offering up to the contribution of shares in the much discussed possible foundation for the decommissioning of nuclear power plants.

The municipal shareholders are more skeptical of the centralization of distribution. They fear that the corporation will lose contact with its municipal partners on the ground.

“The energy world is continuously becoming more decentralized and RWE is betting on centralization. How does that fit together?” another representative of the municipalities told Handelsblatt.

RWE Results by Sector-01



In contrast, in the areas of distribution, grids and renewable energies — namely the businesses that are supposed to produce new growth — the restructuring is supposed to make these operations more powerful in the group.

The interim holding for grids and distribution, RWE Deutschland, which has been powerful so far, will likely only remain as a shell for the holdings in public utilities and regional suppliers. The subsidiary RWE Vertrieb AG will be completely dissolved. In its place, Mr. Terium is concentrating management of the future business in RWE’s headquarters, which will become more operational.

To this purpose, the chief executive wants to expand the board of management, which so far has consisted of him, his deputy and chief operating officer Rolf Martin Schmitz, finance head Bernhard Günther and human resources executive Uwe Tigges.

The distribution and grids businesses are to be represented in the future with their own operating officer on the executive board, directly under Mr. Terium’s control. The development of new products will be a matter for the boss. RWE should become quicker and more hard-hitting in searching for new revenue.

144 -WTB 2014 resume



Another business of the future, renewable energies, will likely get its own chief operating officer, according to company sources, a development contrary to original plans.

On the other hand, it is still being discussed if the classic electricity production really should be represented with its own operating officer, or if it will simply be under the control of the group’s operating executive Mr. Schmitz. The alignment to the new energy world would then also be implemented at RWE, the sources said.

 

Jürgen Flauger covers the energy market for Handelsblatt, including electricity and gas providers, and energy policy. Gilbert Kreijger, an editor with Handelsblatt Global Edition, contributed to this article. To contact the author: [email protected]