Energy giant EON to divest away from Europe

Germany's EON, the world's biggest private utilities group, unveiled a major strategic shift on Wednesday, turning its focus away from Europe and toward emerging markets to restore flagging profits.

Energy giant EON to divest away from Europe
Photo: DPA

The company, with annual sales of €80 billion ($110 billion), warned profits would fall in coming years and announced plans to offload €15 billion worth of assets by 2013.

“Europe’s main priority is to make its energy supply more efficient and climate friendlier. But other parts of the world still have a lot of catching up to do in terms of expanding their generation capacity,” it said.

“EON is a leading expert in building conventional and renewable generating facilities. Going forward, we intend to leverage our experience and expertise not only in Russia and North America but also in two other regions.”

According to press reports, these regions are Asia and South America. EON did not say which assets were on the block but press reports have identified its power grid in Britain, thought to be worth about €4 billion, and its 3.5-percent stake in Russian gas giant Gazprom.

Finance director Marcus Schenck gave little away at a news conference on Wednesday, saying only that the company was “studying all the options” with regard to its British grid.

The new strategy is motivated by the need to restore profitability, with the company indicating that operating profit would fall in 2011 and 2012 before returning to the level of 2010 in 2013.

It warned of “considerable business challenges” in the years ahead such as German plans for a tax on nuclear fuel, the auctioning of EU carbon allowances and tougher conditions in the gas market.

The company said in October that it was being forced to write down the value of assets Italy, Spain, and France on its accounts by €2.6 billion and on Thursday EON said its third-quarter loss was €389 million.

It said its dividend payout would fall from €1.50 per share this year to €1.30 per share for 2011 and 2012. The proportion of its profits that it pays out to shareholders would remain at 50 to 60 percent, it said, indicating that it expects earnings to be lower in 2011 and 2012.

The asset sales are also aimed at reducing its debt pile, estimated at €45 billion ($62 billion), built up in recent years with acquisitions across Europe.

EON also aims to improve profits through a simplified organisational setup and renewed efforts to enhance efficiency. This will deliver €600 million in annual earnings improvements by 2013, it said.

“EON will become more focused and at the same time more international. In Europe, we’re going to concentrate on what we can do best and on areas where we see the biggest opportunities for profitable growth,” the firm said.

“Outside Europe, we’re going to achieve additional business growth by deploying our expertise in areas where we’re a true outperformer,” chief executive Johannes Teyssen said.

The news caused EON’s share to rise over 4 percent.


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Could the Norwegian government introduce a cap on energy prices? 

Due to soaring prices, the Norwegian government is mulling over several solutions, including a potential price cap for electricity and limiting energy exports abroad. 

Could the Norwegian government introduce a cap on energy prices? 

High energy exports in the last 12 months, low filling levels in Norwegian reservoirs and an uncertain energy situation around Europe have led to soaring electricity prices in southern Norway. 

Last year the government introduced a scheme whereby it covers 80 percent of consumers’ energy bills where the price rose above 70 øre/kWh. The portion of the bill under 70 øre is paid in full by households. The portion the government covers will increase to 90 percent in October. 

Critics have argued that the current scheme still leaves households struggling with their bills. As a result, Norway’s government has said it is mulling its options to curb energy bills.

Norway primarily depends on hydroelectric dams to help it meet its energy needs. Still, reservoirs in southern Norway have been at the lowest level for ten years, public broadcaster NRK reports. 

Low reservoir filling over the past year has conceded with record exports with higher prices on the continent, making sending power abroad an enticing proposition.

Recently, exports have fallen significantly, and the government is considering introducing a limit to reduce the possibility of energy rationing being introduced this winter. 

“Restrictions on the export of electricity to Europe may be one of the measures that is needed,” Elisabeth Sæther, state secretary at the Ministry of Oil and Energy, told NRK. 

Earlier this week, Prime Minister Jonas Gahr Støre ruled out completely shutting off exports to the continent. 

“It is a dangerous thought and will not serve us well. It could give us more expensive power and lack of power in given situations. We will hardly be able to import power when we need it without contributing to other countries when they need it. There is a reciprocity in this,” he told the newspaper Aftenposten earlier in the week. 

Sæther also told NRK that the government was weighing up putting a maximum price on energy but warned that it could have unforeseen consequences. 

“We are afraid that a maximum price means that more water is drawn into the reservoirs, which we need for the winter. It is a serious situation. We must prevent ourselves from getting into a situation where we lack enough power this winter,” she told the broadcaster. 

At the end of May, the state-owned Statnett announced that the supply situation in Norway might be under strain – in some scenarios – all the way up to and through the winter, especially if Southern Norway experiences drier than usual weather in the second part of the year.