RWE Profile

Company: 
RWE
Author: 
Steve Thomas
Date published: 
2010

This is the second large German company (the other is E.on). In 2009, it completed the takeover of the Dutch company, Essent. It already had a major market position in the UK, Czech Republic, the Netherlands and Hungary

Corporate changes since 2007

RWE was still voicing its opposition to unbundling its electricity transmission network, RWE Transportnetz Strom, in September 2008.[1] In June 2009, it rebranded this as ‘Amprion’ and the company will now be directly managed by the CEO’s division, a move which RWE claims will allow it to meet the EU Electricity Directive’s provisions.[2]

However, again in contrast to EON, it offered in June 2008 to sell its gas transmission network, RWE Transportnetz Gas.[3] A consortium of Ruhrland municipal utilities led by Stadtwerke Bochum in partnership with Dutch group Gasunie have confirmed their interest in the 4,000km network, which covers the west German states of North Rhine Westphalia and Lower Saxony.[4] RWE chairman Jurgen Grossmann said the company did not need to sell assets to reduce debt, and would prefer to acquire foreign energy assets in exchange for the gas grid. In November 2009, it anticipated selling its German gas network in early 2010.[5]

In January 2009, RWE beat reported opposition from EDF, DONG and Vattenfall to win the contest, to buy the Dutch utility Essent for €9.3bn.[6] Essent's distribution networks and waste management operations were not included in the deal. However, it was blocked by the courts from acquiring Essent’s 50% stake in the Borssele nuclear power plant on the grounds that the acquisition undermined the public interest and that of the other shareholder, Dutch utility Delta NV[7]. In September 2009, the deal was completed with the Borssele plant excluded. The price reported was €7.3bn.[8]

RWE is trying to exit the water sector and it sold its Thames Water subsidiary in 2006. It had hoped to sell its American Water subsidiary in 2008 and in April 2008, it sold 39.5% of its stake via an Independent Public Offering (IPO) for US$1.3bn, but the financial crisis meant that the plan to sell the remainder of the shares in 2008 was abandoned. However, it continued to sell shares in 2009 and in November 2009, it announced that it would sell the remaining stake.[9] It announced it would use the proceeds to cut debt rather than pay out the proceeds as a special dividend.[10]

Corporate Structure

RWE is structured in six main divisions (see Table 16):

  • RWE Power: Mainly the German generation business;
  • RWE Innogy: The renewable business. This only started operation in February 2008 and is not yet financially significant;
  • RWE DEA: Produces oil and gas in Europe and Africa;
  • RWE Supply & Trading. This is primarily a vehicle for internal transactions
  • RWE Energy: The European sales and network business;
  • RWE Npower: The UK generation and energy retail business.

Table 1.         RWE operations by division (€m)

 

2007 Turnover

2007 EBITDA

2008 Turnover

2008 EBITDA

RWE Power

9454

3072

11417

3521

RWE DEA

1694

755

1976

747

Supply & Trading

17410

534

26810

484

RWE Energy

32546

2986

28473

2802

RWE NPower

8925

870

8628

714

Total

42507

7915

48950

8314

Source: Annual report and accounts, 2008.

Notes: EBITDA is earnings before interest, tax, depreciation and amortization.

Table 15 shows that while the RWE Energy division dominates turnover, profits derive mainly from the RWE Power business. Surprisingly, the two main businesses containing the retail sectors, RWE Energy and RWE NPower both declined in turnover and profitability, unlike comparable divisions in other companies. Profits and turnover were maintained partly by a large increase in turnover of the Supply & Trading divisions and an increase in profits in RWE Power.

The Future

RWE has more large generating stations under construction in Western Europe than any other utility (see Tables 5 and 8), nearly 60% of which is coal-fired. It has little renewable capacity under construction but has approval to build a significant volume of off-shore wind power, mostly in the UK.

Like EON and EDF, RWE’s main base outside its home market (Germany) is the UK. It continues to have important holdings mainly in Eastern Europe, in Poland (distribution), the Czech Republic (6 regional distributors and the gas transmission company) and Hungary (2 distributors and generation).

Its strategy is to expand its operations from Germany, UK, BENELux and Central and Eastern Europe to South East Europe and Turkey, although it failed to bid in the recent Turkish distribution company privatisations. On technology, it expects a ‘massive expansion of the share of renewable energies in our generating mix’.

In Poland, RWE withdrew from the bidding for a 67% stake in Enea, the publicly owned Polish electricity generator, and the government tender was abandoned, although RWE reserved its position so that if the process was re-opened it might still bid.[11]

In the UK, RWE has formed a partnership with EON to build nuclear plants there. It bought two sites at auction in April 2009 and has stated it hopes to build at least 6000MW of nuclear capacity there (technology still to be decided).[12] RWE had also planned to build nuclear plants in Bulgaria and Romania, although it withdrew from the Bulgarian project (Belene) in October 2009.[13]

RWE’s main nuclear capability is in Germany and its annual report makes it clear that its priority is to keep this plant is operation as long as possible:[14]

‘Nuclear power generation emits practically no carbon dioxide, and if nuclear power stations are shut down, they will have to be replaced by higher-emission fossil fuel-fired power plants. This is because renewables-based facilities are not capable of generating the same amounts of base-load power. We could prevent up to an additional 15 million metric tons of CO2 emissions per year merely by extending the lifetimes of our two Biblis units.’

In January 2010, the removal of the phase-out policy was still being negotiated but there was a strong expectation that it would be removed before the plants scheduled to be closed in 2010, including Biblis A which is operated by RWE, had been shut down. RWE plans to retrofit a coal fired power plant in Germany (Hamm, 1530MW) which it is building (expected completion 2011) with Carbon Capture and Storage (CCS) technology. It also plans to build a plant in UK and is actively working to develop CCS technology. Whilst it does mention renewable technologies, these represent only about 2% of its generation and renewable make up a small part of its investment plans. RWE’s debt levels were relatively low and this put it in a good position to buy Essent. Unlike most other countries in Europe, German utilities have access to the decommissioning funds built up to pay to dismantle their nuclear plants. This has provided them with access to low-cost capital. There are no proposals to change this position.

  • [1] European Daily Electricity Markets ‘Future of the German power grid remains hot topic in industry circles, TSOs disagree’ September 22, 2008
  • [2] Power in Europe ‘RWE rejigs grid reporting’ July 13, 2009, p 14
  • [3] Utility Week ‘GASRWE confirms plans to sell gas network’, June 6, 2008.
  • [4] Utility Week ‘Grids line up for divestment’ June 26, 2009
  • [5] Global Insight ‘RWE to Sell German Gas Transmission Grid Early Next Year’ November 13, 2009
  • [6] Agence France Press, 2009 ‘German power group agrees 9.3-bln-eur takeover of Dutch peer’ January 12, 2009
  • [7] M&A Navigator ‘Court rejects German RWE buying 50% in Dutch nuclear plant’ July 13, 2009
  • [8] Global Insight ‘RWE Closes Essent Takeover in Netherlands’ October 1, 2009.
  • [9] Associated Press ‘RWE to sell all of its American Water stake’ November 25, 2009.
  • [10] AAP Newsfeed ‘European shares fall on Dubai fears, banks slip at close’ December 1, 2009.
  • [11] Global Insight RWE Pulls Out of Privatisation Deal for Poland's Enea’ October 15, 2009
  • [12] Nucleonics Week ‘RWE npower/EON UK team, EDF winning bidders in UK land auction’ April 30, 2009, p 16
  • [13] European Daily Electricity Markets ‘RWE quits Bulgaria's Belene project’ October 28, 2009
  • [14] RWE, 2009 ‘Annual report, 2008’ RWE, Essen p 37. http://www.rwe.com/web/cms/mediablob/en/204612/data/110822/36048/rwe/investor-relations/financial-reports/Annual-report-2008-PDF-Download-.pdf