Management at E.ON are planning a new emphasis on its renewables, networks and retail business to compensate for the ending of its nuclear power operations in four years’ time.
Reuters reports that the German government plans final phase out of nuclear power by 2022. That legacy E.ON business contributed $443m or about a sixth, to its operating profit in the first nine months, but will now have to be replaced by more impetus on E.ON’s regulated gas and power grids, energy retail operations and renewable assets, mostly wind.
“We aim to compensate the expected profit deficit in the area of nuclear power by growing our other three divisions,” Leonhard Birnbaum, chief operating officer for E.ON’s networks and renewables, told Reuters.
There is more in the company’s coffers now to support the transformation, with EUR8bn taken in through a capital increase, a refund on nuclear fuel taxes and the sale of its remaining stake in Uniper, which it spun off in 2016.
Networks account for about two third of E.ON’s profits and form the core its business. They benefit from guaranteed returns on investments set by regulators and needed no acquisitions or disposals to grow, Birnbaum said.
“Our networks business is a fundamentally growing area, even without M&A … We see this growth not only in Germany, but also in Sweden and eastern Europe. Those are booming markets.”
But networks must also shoulder the cost of integrating large amounts of intermittent renewable energy sources, mostly solar and wind, which will require billions of euros in investment over the next few years.
E.ON’s network business also faces a profit squeeze, as Germany’s network agency plans to cut investment returns, causing grid operators to take legal action to protect their earnings.
If implemented in their current form, these lower returns would cut profit by about 150 million euros a year from 2019, Birnbaum said, adding that the exact impact was still unclear given ongoing legal proceedings.
Birnbaum said that a more efficient dismantling process of its nuclear plants could lead to lower costs, which would benefit the bottom line, adding E.ON hoped to ultimately spend less than the EUR9.6bn set aside for the task.