Kai Peppmeier remembers vividly his first working day at the north German town of Itzehoe, situated on a tributary of the river Elbe. Times were hard at the wind farm operator Prokon, which had just entered preliminary insolvency. Administrator Dietmar Penzlin had hired Mr. Peppmeier and his colleague Andreas Knaup as restructuring experts.
"You can leave your tie at home," an employee said to Mr. Peppmeier, by way of a greeting. He'd entered a world of tree-huggers, where work clothes amounted to heavy metal T-shirts, jeans and sneakers. The company's motor pool consists of Romanian made Dacias.
Today, two years later, Mr. Peppmeier's job is almost over. Prokon was released from insolvency in July 2015. On April 11 it got a new managing director: Heiko Wuttke, who previously worked for Vattenfall. Prokon has been restructured. But it is now diving into part two of a previously unprecedented process - and this could prove more difficult than part one.
Some 75,000 small investors had invested €1.5 billion ($1.63 billion) in Prokon profit participation rights. Today the balance sheet shows total assets of €850 million. The rest of the initial investment is gone. Despite these painful losses, 38,000 investors were determined to remain loyal to their green investment. They registered as cooperative owners, and now they want their environmental beliefs to turn a profit. But as the context is competitive, will Prokon manage to survive this new chapter?
Founder Carsten Rodbertus hated banks and often wandered around the office barefoot. In the end, his chaotic bookkeeping was his downfall. But, these days, anyone visiting the company premises has to concede that Prokon is not bastion of the alternative tree-hugger community.
Its headquarters are modern, light-filled buildings with a lot of wood and designer lighting fixtures in the generous stairwell. The company also has a large spare parts warehouse for the wind turbines it makes, as well as an enormous warehouse for repairs.
There are three offices adorned with maps and sketched plans in the main building: the project development department for new wind farms. There is also a monitoring room with enormous screens, where red lights flash whenever there is a problem with a wind turbine.
When that happens, the company immediately sends its technicians to the wind farm. The quality of its core business was not Prokon's downfall. It was just that Mr. Rodbertus had raised far more money than he could spend in a reasonable manner. He had also promised higher returns than the wind farms could generate.
The feeling we are a family is still there...I hope that is preserved after our restructuring. Philip Hohgrebe, member of the firm's council
Prokon currently operates 55 wind farms with a total generating capacity of 553 megawatts, or the capacity of half a nuclear power plant. The plants operate with fixed compensation for electricity fed into the grid, generating about €70 million in annual revenues.
Prokon has packaged this part of the business, under insolvency administrator Penzlin, into a bond for the investors. The bond is worth €500 million and becomes negotiable beginning in the late summer of 2016. The bond matures in 2030 and will be repaid by then. It is also expected to yield annual interest of 3.5 percent. Hardly anything can go wrong with this part of the investment.
But what about the cooperative shares? Investors left €200 million in capital from their insolvency dividend in the company. The money is intended to promote the long-term survival of the company through the funding of new projects. This is where things could become significantly more challenging in 2017.
According to the federal government's plans, guaranteed feed-in compensation for green energy will still exist in the future. But project operators like Prokon must submit to a bidding process. The lower the feed-in compensation estimated by the bidder, the higher are its chances of being awarded the contract.
Writing in the Federal Registry, published by the justice department, Prokon noted that "significantly lower feed-in compensation can be expected." The overall market has also become much tighter, and the number of permits issued could decline significantly.
In 2014, German government agencies approved wind energy projects with a total output of 4,750 megawatts. That number will decline to only 2,300 megawatts in 2017, estimates Dirk Briese of market research institute Windresearch. The ongoing shortage of area in high-wind project locations tends to increase leasing costs, according to Prokon's annual report.
This means that more and more projects are likely to fall through the cracks. Prokon has plans to install about 700 megawatts of power-generating capacity in Germany. Of that total, plants with about 100 megawatts are likely to be approved before the new rules are approved. In other words, there is quite a lot in the pipeline.
Still, more projects will fall through the cracks than in the past. The cost of planning a single project can easily run into six-digit sums, putting pressure on firms. "There will be a wave of consolidations, and medium-sized operators could potentially fail," Mr. Briese warns.
Mr. Peppmeier disagrees, saying that Prokon could keep pace with tougher price competition. And, he adds, "we have the entire supply chain, from planning the plants through operation, maintenance and selling electricity."
This, he explains, makes Prokon more flexible that larger companies, partly because the decision-making process is less complex. Is this true?
A third of the company's roughly 300 employees do nothing but maintain and service the wind farms. They climb to dizzying heights to align rotor blades or perform maintenance on the gearing mechanism.
Less than 3 percent of the turbines fail as a result of damage. "This is a good rate," says Lars Velser of the German Wind Energy Association, "and it means that Prokon is a player in the big leagues." But now the same rate has become standard among the competition.
At least Prokon is headed in the right direction financially. The equity ratio recently increased to 23 percent, and the company has more than €50 million in cash assets. Heiko Wuttke is enthusiastic. "I was impressed by the large project pipeline, as well as by the quality of the operation of existing wind farms and the commitment of employees," he said.
The atmosphere is a legacy of the company's democratic roots. "Everyone did everything here in the past," says Philip Hohgrebe, a member of the firm's council. "Sometimes founder Rodbertus would ask people to stay late after work to sit down together and stick stamps on advertising mailers."
The marketing department for participation rights no longer exists, and the company now has a professional accounting and control department, along with the supervisors and structures a company of its size needs. "But the feeling we are a family is still there," says Mr. Hohgrebe. "I hope that this is preserved after our restructuring."
Despite all buffers, major corporations are likely to have deeper pockets in a tough competitive environment. But at Prokon, the mission is worth more than the last decimal point in its profits. That too could prove valuable in the company's fight for survival.
Gertrud Hussla covers finance and pension planning for Handelsblatt in the Düsseldorf bureau. To contact the author: [email protected]