RWE Board Approves Spinoff of Renewables, Grid Business

  • New company shares `may be used to cover nuclear provisions'
  • Municipal shareholders seek share price, dividend increase

RWE AG Chief Executive Officer Peter Terium won approval for a plan to spin off the German utility’s renewables, grid and retail businesses into a separate company.

RWE’s supervisory body unanimously agreed on the plan proposed on Dec. 1, the Essen-based utility said Friday in an e-mailed statement. Germany’s biggest power producer plans to sell about 10 percent of the new company in an initial public offering late next year. While more stakes may also be sold, RWE intends to keep a majority. 

RWE is embracing the survival strategy adopted by its peer EON SE as Germany’s shift to renewable energy forces utilities to expand beyond the traditional power-generation model built on fossil and nuclear fuels. Chancellor Angela Merkel plans to increase the nation’s share of alternative energy to as much as 60 percent of total demand within 20 years, compared with about 33 percent estimated for 2015.

“We will increase our capacity to invest in the energy world of tomorrow and, in turn, secure the viability of RWE as a whole,” Supervisory Board Chairman Manfred Schneider said in the statement. “The shares of the new company will be an asset that may be used to cover nuclear provisions if necessary,” the company said.

Slumping Prices

A threefold increase in renewable energy supply in the past decade has pushed wholesale power prices to the lowest since 2003, squeezing margins at conventional power stations. Adding to the burden are provisions for nuclear decommissioning that companies must set aside as the country shuts down all reactors by 2022.

“The new structure is an offer to new shareholders who want to build their strategy also internationally on renewables,” RWE’s municipal shareholders said in an e-mailed statement. “This possible capital inflow may strengthen the new unit’s business and lead to an increase of share price and dividend.”

The new company will be formed in April next year, Vera Buecker, a spokeswoman, said Friday by phone from Essen.

RWE is the worst performer in Germany’s benchmark DAX Index this year, losing 58 percent of its value, while EON has fallen 43 percent. That compares with a 6 percent gain for the index.

RWE’s 3.7 gigawatts of renewable generation accounts for 8 percent of the total group capacity, while more than 40 percent of its production is based on coal and lignite plants, according to figures on the company’s website.

By keeping a majority stake in the new company, RWE’s strategy differs from EON’s plan to split into two independent companies.

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