German utility E.ON has announced that it will split in two in response to a changing energy market.
In its new corporate strategy announced this week, the firm will spin off its nuclear and fossil fuel power generation, energy trading and exploration and production activities into a new company in order to focus on renewables, distribution networks and energy efficiency services. The split is expected to be completed in 2016.
According to a statement by CEO Johannes Teyssen, the radical move comes because “E.ON’s existing broad business model can no longer properly address” the challenges of “dramatically altered global energy markets, technical innovation, and more diverse customer expectations”.
Germany’s power sector has been hit hard by the country’s decision to boost renewables at the expense of fossil fuel-based generation and to shut down its nuclear plants. Teyssen said other utilities would need to follow suit. “We are the first to resolutely draw the conclusion from the change of the energy world,” he said today. “We’re convinced that energy companies will have to focus on one of the two energy worlds if they want to be successful.”
Indeed, market analysts seemed to approve of the move, and the firm’s shares rose by 5 per cent in today’s trading. German economy minister Sigmar Gabriel also endorsed the strategy, calling E.ON “the first company to confront the consequences of a fully changed world of energy”.
While some commentators have questioned the new company’s potential viability, Teyssen said E.ON is optimistic about its prospects and that it will be financially strong enough to cover the costs involved in shutting down its nuclear plants.
In 2013 E.ON’s renewables business pulled in 54 per cent of its total €9.32bn ($7.4bn) profits, while its power generation, upstream and trading activities netted around 35 per cent. For 2014, E.ON said it expects to post a substantial net loss.
The firm has been selling off its power assets, with its Spanish business the latest to go.