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EON boss – Fossil power sector set for more M&A in shrinking market

E.ON’s Johannes Teyssen was the headlining speaker at this year’s Financial Times Energy Transitions Conference in London and in a wide-ranging interview, he spoke about the likely consolidation of conventional power utilities, whether others should follow his company’s example, the pros and cons of the German energy transition, and why Germany now needs an Energiewende 2.0.

The German utility’s chief executive said his company’s decision to split, with its Uniper business being used to carry its traditional conventional fleet, and E.ON itself designated for new energy, was inevitable, given the forces shaping the power sector.

Johannes Teyssen of E.ON with interview Andrew Ward of FT“If you look back at previous FT conference you’ll see à‚ there’s been a fundamental change. A few years back there wouldn’t have been this consensus that we are going through this transition. It also took us a while to accept that it’s not just German politics, that this transition is fundamentally driven by technology and customer desire.”

Teyssen said it’s not important how quick the transition is, just to know that it will continue. The company recognised that the old world of conventional power will be needed for ‘some decades’ but the emerging customer centric, greener and decentralized business required specific attention.

“We at that time decided you cannot be in both worlds, because they co-exist but they need different strategies, have different capital needs, different costs of capital, different technologies and different cycles. We decided not to wait until too late and split the company.”


Asked if rival RWE has been more successful in ‘expunging’ its failing conventional power division in its split model, which created Innogy, Teyssen dismissed the validity of the question. However he did agree that in the dramatic restructuring of the businesses taking place, utilities were forced to show vulnerabilities they traditionally managed to keep well-hidden.

“I would not like to spend much time speculating about which way is better. In the end that’s financial structure. The question is – is the goal right? Which menu you take is somewhat secondary.”

“It does expose both sides (when business is split). With one side, you are clearly exposed to the commodity markets. The other is clearly exposed to the customers. You cannot cross subsidise anymore and you cannot hide anything but both management teams have taken quite radical measures right away which likely would not have happened if it was hidden inside and embedded.”

“Management often want to hide their weaknesses and hope and wait for transition or recovery. For example, there is an argument to be made that in the next decade power prices in Europe will be much higher for a while. Strategically its unimportant but practically, in how you run your assets, it’s highly important, because you can make a significant margin and Uniper’s focus on the other side is taking smart steps in line with that. For us (E.ON) the total level of commodity prices doesn’t matter because we try to optimise the customers margin and if the prices go up or down it’s something that not fundamentally for us. We are on the side of the customers and trying to optimise their lead.”

Teyssen believes all utilities are manoeuvring towards a similar goal in meeting the new demands evolving in the sector, and said it wasn’t for him to suggest others follow his company’s lead.

“If we are right I hope the others wait. If we are wrong, it’s up to others to decide.”

“If you watch Engie and where (Iberdrola under) Ignacio Galan really puts his capital the direction of others is quite similar. The question of whether they split or divest or retire and sell the assets, tis a function of your portfolio management. However, the manoeuvre towards the direction is somewhat different.”


One of the points Teyssen made more than once during FT Editor Andrew Ward’s interview was the importance of simultaneously developing the heat and electromobility sectors alongside the power space. The E.ON chief is concerned that an over emphasis on dedicating all resources to power could ultimately backfire.

“The system is not well prepared because we didn’t build the necessary transmission lines, we don’t have the storage facilities and we don’t truly have an energy transition in Germany, we have a power transition.”

“I disagree with one of the earlier speakers who wanted to finalise the power transition to 100 per cent first and then look after the other sectors. I think you have to have it hand in hand and much earlier. If you don’t electrify heat and mobility much earlier, and just concentrate on the power site, you will waste much power on the way that its getting too expensive.”

Teyssen told the audience of power professionals that there was a growing consciousness that Energiewende, or the energy transition in Germany, needs an upgrade, in that respect. He said while solar power would never have proliferated how it did globally without the German ‘jumpstart’, for German customers it was extremely wasteful and expensive in parts. He advocates a more rounded system and one fairer to all strata of society.

“The way the system is being remodelled is fundamentally right and has proven to be a success, but it’s now time for an energy transition 2.0- it purely focuses on the power system and it now needs to integrate other sectors. That won’t happen by itself. It needs policy.”

“All of the trucks are being parked on the power system and thus the fossil fuels from mobility and heat go on and excess power is regularly exported for free or even with money on top.”

“We need a redefinition of where we allocate the costs and how green policy enables green power to build e-mobility transformation and heat transformation.”

“The second thing is it needs to be fairly allocated through policy between different groups of people. The lowest 10 per cent earners in Germany pay five times the relative amount for the power transition than the richest 10 per cent.”

“The richest 10 per cent own also the houses where they can put the solar on top. The poorest live in flats where they cannot even participate even if they wished to, or had the capital. There is a need to reallocate some of those costs otherwise you create a social instability that is also unfair. Those things need to be reformed after the upcoming general election in Germany.”

“When you look at the subject on the party platforms its sufficiently vague because reallocating costs always means someone has to pay more.”

The elephant in the room for Germany is coal-fired power, as Ward pointed out that 40 per cent of the company’s energy mix still came from coal, despite renewable energy’s explosion. With nuclear off the menu and storage underdeveloped, was that likely to continue?

Teyssen chose to ignore the detail on coal, instead pointing out how strongly storage technology is, in fact, developing.

“I think we will see tremendous growth of batteries ” we, as a company, are already seeing significant market share in solar and battery ” we need as much distributed generation as possible rather than centralisation because it’s counterintuitive to just focus on big power plants and solar farms. We should as much as possible have [small-scale generators] that are integrated into the system,” he said.

E.ON formally launched its solar-plus-battery offer last month, a consumer-facing offer to both E.ON customers and non-customers, proposing a rooftop solar installation that’s paired with a domestic battery and management system.


In recent weeks there has been speculation that power giants Engie and Innogy may merge in what is being referred to as a potential airbus for energy in line with new French president Emmanuel Macron’s vision for Franco-German cooperation.

Teyssen said Europe’s conventional electricity market will most likely see more mergers and acquisitions (M&A) of this nature as companies hunt a bigger share of a shrinking market, but didn’t see much evidence for similar outcomes in the space in which E.ON now resides.

“I would argue that in the conventional energy world I still see that scale and consolidation matters a lot. I am definitely sure that we will see more consolidation steps on the conventional side.”

“In the new energy or customer centric world, some changes might happen but I don’t think they will be driven by size and scale ” I think they are driven by capability needs and customer proximity and access. I am not so certain for example if you have a renewable fleet of 5 or 10 gGW that it makes such a tremendous difference. Also, I doubt if you own 10 or 20 DSOs that it makes much difference.

In his closing remarks E.ON’s chief executive hit out at the British Conservative Party’s plans for an energy price cap, saying it was “amazing” that it was even being considered in the UK.

He expressed disbelief that “the country that has built the liberalised energy world” was now debating whether to end it and move to state intervention.

“Sometimes if I close my eyes and hear some of the words I wonder if I’m in France or in England. Has anybody regulated the bread prices lately? Change of power supplier is just a click away. It’s probably easier than to change your bread supplier where you might have to walk another block down the street.”


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