Eon and RWE just killed the utility as we know it
The complex asset swap and share issue they announced over the weekend—including the divvying up of RWE-controlled Innogy SE’s assets—is the last death knell for that all-encompassing model
A decade ago, Eon SE and RWE AG were two of Germany’s most valuable companies and their businesses were roughly similar: they generated power (much of it from coal and nuclear), ran energy networks and sold electricity to end consumers.
The complex asset swap and share issue they announced over the weekend—including the divvying up of RWE-controlled Innogy SE’s assets—is the last death knell for that all-encompassing model. Eon will become a company focused purely on energy networks and retail customers, while RWE will combine the two companies’ renewables businesses.
Each company heads off in a clear strategic direction, without needing a heavy cash outlay, and investors will get the chance to pick which model they prefer: one that’s essentially a buyer and distributor of energy (Eon) or one that’s a producer (RWE). Buying out the minority shareholders who own about 23% of Innogy will cost Eon about 5 billion euros ($6.2 billion), but it will get 1.5 billion euros cash from RWE in return.
Inexpensive or not, it’s natural to be confused by yet another upheaval in German utilities. It’s not even two years since the beleaguered RWE and Eon told investors that salvation lay in splitting their fossil power and renewable energy activities. This was in response to plunging wholesale power prices and Germany’s decision to shutter their nuclear power plants.
But both ended up with companies that lumped together the networks and retail businesses with renewables. It never quite felt like a permanent solution. In Innogy’s short life, it’s already warned on profits and parted company with a CEO.
The challenges for traditional utilities are myriad, so it makes sense for them to try to simplify where they can. Renewables projects are subject to huge price pressure. Battery storage and decentralized power generation are going to transform electricity networks. Meanwhile, energy efficiency is curtailing how much electricity we use, but utilities are still having to pay for electric vehicle charging infrastructure—which may cause demand to spike eventually.
