June 8, 2017

German repowering

by Breakingviews.

Like a cinematic vision of Frankenstein’s monster, German utilities RWE and E.ON have just been given a reviving jolt of electricity. The country’s top court ruled on Wednesday that they can reclaim their payments of a nuclear fuel tax to the tune of more than 6 billion euros. Thus re-animated, they can now start looking for a mate.

German power companies have scored two strikes against Chancellor Angela Merkel’s energy policy in the past six months. In December, the court ruled they should be compensated for Germany’s abrupt decision to shut down nuclear power plants after the Fukushima disaster in 2011. Now Merkel’s nuclear fuel tax of that same year has been deemed illegal. The companies get back what they paid, plus interest.

This windfall strengthens the utilities’ balance sheets, but more importantly it’s the third and final step in returning them to a more vigorous condition, after sharp declines in their share prices and large writedowns. Both RWE and E.ON have undergone fundamental corporate restructurings in the past year – the former spinning off its clean assets as Innogy, and the latter listing its dirtier ones as Uniper. They also reached a deal with authorities over their nuclear decommissioning liabilities.

That creates scope for mergers. Reuters reported that RWE is in talks with French utility Engie over its three-quarters stake in Innogy. And Finnish utility Fortum may be interested in buying E.ON’s stake in Uniper, Bloomberg reported. There is life yet in the sector.

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