Sale marks German nuclear retreat

Eon and RWE’s sale of Horizon Nuclear Power to Hitachi flowed from German energy policy, explains Simon Jones

Hitachi plans to build up to six nuclear plants in Britain following its purchase of Horizon Nuclear Power from joint owners Eon and RWE. With Japan set to phase out atomic power by 2040, the £690 million deal secures Hitachi much-needed design investments abroad. The Japanese engineering group has even moved beyond contract plant-building work with this acquisition to become in time a full-blown nuclear operator.

Heavily indebted Eon and RWE blamed their UK nuclear retreat on huge building costs and falling power prices. But the disposal is also an acknowledgement that Germany’s utility giants cannot buck the new energy priorities set by Berlin. Chancellor Angela Merkel’s response to the nuclear near-meltdown at Fukushima forced both firms to refocus on renewables and indirectly opened the door for the Japanese-led consortium.

Switch to solar

RWE now has no nuclear new-build projects in Germany or abroad. New RWE chief executive Peter Terium plans to abandon all future nuclear investments and switch instead to solar and other renewables. “We will stop investing in new nuclear power plants because we can no longer afford the financial risks and negative market conditions involved in such nuclear projects,” he says. “Given the current perspective, it was clearly a mistake to neglect solar technologies for so long. Solar parks are already competitive in southern Europe and have great potential in Germany.”

Terium admits RWE is playing catch-up over renewables, but still backs predecessor Jurgen Grossmann, who aligned RWE with the nuclear sector and fiercely opposed Germany’s political drive to simultaneously abandon nuclear and decarbonise power. “In his position, I would also have fought strongly to defend our nuclear interests,” he says. RWE wants to increase its renewable generation capacity share to at least 20 per cent by 2020.

Focus on Balkans

The strategic shift is one factor in RWE’s new focus on Balkan markets. In September, RWE Innogy and Republika Srpska (an autonomous region in Bosnia-­Herzegovina) signed a strategic agreement to develop five new hydro plants on the Drina and Velika Morava rivers. Work on the £370 million project starts in 2014.

“Hydropower is a key part of our strategy to expand the use of renewables,” says RWE Innogy chief executive Hans Bunting. “It gives us a common interest with southeastern Europe, where vast potential exists for hydropower projects. The Republika Srpska recognised this years ago and has steadily expanded its hydro capa­city ever since. We want to join in this expansion.” Bosnia hopes for up to £1.5 billion of foreign investments in several key energy projects to 2015.

RWE will also gain access to existing and future hydro capa­city in Serbia as part of a deal to develop a 750MW coal-fired thermal power plant at Nikola Tesla. Serbia is estimated to have 700GWh of untapped hydro capacity. A recent Serbian economic summit called for £8 billion of power sector investments over the next decade. RWE hopes for a good chunk of this business as the new government in Belgrade seeks German backing for eventual EU accession.

Change of strategy

Germany’s energy sector aims to build on existing ties with the wider Balkan region – where economic growth and closer integration with the EU are set to keep power demand expanding. However, RWE has opted not to pursue its interest in Croatia’s £800 million Plomin C project. The thermal plant no longer fits Terium’s European plant portfolio strategy.

RWE has also just sold its 25 per cent stake in Berliner Wasserbetriebe (BWB) to a fully owned unit of the Berlin Senate. The deal, retro­active to 1 January, raised £530 million including the purchase of two shareholder loans. Berlin has some of Europe’s highest water charges under part-­privatised BWB – Veolia still retains a 25 per cent stake in the utility. The capital’s local authority has campaigned to “remunicipalise” water and wastewater services.

Eon starts divestment

Meanwhile, Eon has begun to divest its business in Finland. The sale includes Eon Nordic’s 34 per cent stake in a consortium building the Fennovoima nuclear plant. Eon said the move was based on depressed economic conditions across Europe and a slump in nuclear earnings. It pledged to work with local partner Voimaosakeyhtio to find a new investor in the £5 billion Fennovoima ­project.

Eon will also sell its 20 per cent stake in local gas group Gasum. Eon’s northern regional manager Jonas Abrahamsson insists the firm will refocus its Scandinavian business in Sweden (where it operates one nuclear plant) and Denmark.

Simon Jones is a freelance journalist

This article first appeared in Utility Week’s print edition of 23rd November 2012.

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