German utility E.ON to split to focus on renewables, grids

Mon Dec 1, 2014 11:00am EST
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By Christoph Steitz

FRANKFURT (Reuters) - Germany's top utility E.ON (EONGn.DE: Quote) said it would split in two, spinning off power plants to focus on renewable energy and power grids, in a dramatic response to industry changes that could trigger similar moves at European peers.

Europe's power sector has been hit by weak energy demand in a sluggish economy, low wholesale power prices and a surge in demand for cleaner renewable energy which is replacing gas and coal-fired power plants.

The move is the boldest by a German company since Chancellor Angela Merkel's 'Energiewende' in 2011, a policy that encouraged cleaner energy and a move away from fossil and nuclear fuels, disrupting business models for utilities.

E.ON, whose market value plunged by near three quarters since 2008, said it would focus on renewables, distribution networks and tailor-made energy efficiency services to embrace changes in energy markets, technology and customer demand.

"We have seen the emergence of a new energy world," Chief Executive Johannes Teyssen said on Monday.

"E.ON's existing broad business model can no longer properly address these new challenges."

E.ON said existing provisions for the dismantling and disposal of nuclear and conventional assets would be fully covered in the new company's balance sheet, adding that unit would have a positive net financial position and an investment grade rating.

All outstanding bonds as well as all debt are to remain with E.ON, which said it was working hard to avoid its credit rating from getting downgraded by more than one notch as a result.   Continued...

The headquarters of German utility giant E.ON are seen before a news conference in Duesseldorf December 1, 2014.   REUTERS/Ina Fassbender