Essen, in Germany’s North West, isn’t an especially large city. With a population edging towards 600,000 it’s Germany’s ninth-largest and Europe’s 71st. But what it might lack in stature it more than makes up for in presence in Europe’s energy paradigm, and that rang especially true this week.
Essen is home to both RWE and E.ON and now, arguably, the centre of Europe’s energy transition.
When Johannes Teyssen remarked that the deal struck between the company he leads, E.On, and fellow energy giant RWE was complex, he might’ve undersold it.
He told a room full of journalists on Wednesday morning that the deal was one of the “most creatively designed deals in German industrial history”, many of whom would’ve concluded just as much upon pouring over the documents earlier on in the week.
Simply put, E.On is to acquire RWE’s renewables, networks and retail business innogy, or at least the 76.8% stake of it that RWE owns. It will also be making an offer to minority shareholders in a bid for control return. In return RWE is to take on E.On’s (and innogy’s) renewables divisions, but also 17.6% of E.On’s share capital. Some cash is also exchanging hands but, as Teyssen explained on Wednesday, finance is only an enabler in this transaction.
There were rumours, expressed in German national Die Welt, amongst other places, that a simpler, more complete merger of sorts was on the cards, but those rumours were shot down by RWE chief Rolf Martin Schmitz. Not planned, and nor would they be permissible, according to him. Given that this deal will require significant scrutiny from competitions and anti-trust authorities, it’s easy to see why a ‘RWE.On’ deal would just not work.
Nevertheless, this is still a titanic deal and one that promises to change the shape of European energy. RWE will become the third largest renewables company in Europe with an 8GW portfolio and another 1.5GW in the pipeline. E.On too would become one of Europe’s largest grids companies, with a customer service proposition to match. Had it also taken on RWE’s UK-facing retail business npower – whose merger with SSE is to be unaffected by this week’s news, according to Schmitz – then it may have been even more interesting.
Both Schmitz and Teyssen were keen to talk up how much of a potential game-changer the deal is. Schmitz the successful realignment of the two firms was crucial to making the energy transition a success. Teyssen said it made E.On the first utility to “break away from the circle of established European energy suppliers”.
The market would seem to have been in agreement. E.On shares rose from €8.45 on Friday 9 March to a peak of €9.46 during the week. RWE experienced an even more significant uptick, from €17.98 at last week’s close to just north of €20 briefly on Tuesday 13 March.
But more pertinently was the duo’s assertions that the deal placed Germany and Essen at the heart of Europe’s energy transition as a whole.
That’s a bold claim. The UK in particular has proven to be at the forefront of decentralised power growth in recent years and the sophistication of its grids is renowned in markets further flung than just Europe. France had made huge progress in mandating that its built environment is as green as possible and Macron wants to replace huge swathes of its retiring nuclear plant with solar capacity. Scandinavia has too been a hot bed of decarbonisation, so much so that Dong and Statoil have ditched connotations with fossil fuels from their brand identities.
But Essen’s claim is fair too. Germany’s Energiewende blazed a trail for other nations to follow and although a touch of political uncertainty surrounding Merkel’s future has resulted in rumours that legislation in the country could be watered down, it seems those fears may be unfounded. And in the newly-shaped E.On and RWE, it’s clear that Essen will be home to two entities at the very forefront of the transition.
Schmitz perhaps summarised it best in some of his closing remarks on Wednesday afternoon. This deal is one that positions RWE towards the summit of European energy not just today, “but tomorrow and the day after as well”.
The energy transition is in full swing, and energy’s leading players are only just getting started.
