Swedish energy group
Vattenfall is planning to offload its lossmaking east German lignite mines to a
Czech consortium, in a move aimed at cutting its carbon emissions and reducing
its exposure to low European electricity and coal prices.
EPH, one of central Europe's
largest energy groups, has agreed to acquire the assets in partnership with PPF
Investments, controlled by Petr Kellner, the Czech Republic's richest
man.
Like other traditional
utilities with operations in Germany, Vattenfall has become a casualty of the
country's Energiewende — a radical energy policy that involves shifting towards
renewables and away from nuclear and fossil fuels.
The policy has created an
excess of power supply. Over the past five years, the wholesale price of
electricity in Germany has dropped from €60 per megawatt hour to €20 MWh,
hammering the profit margins of energy companies that generate power from
natural gas and coal. More recently, the price of coal has also fallen sharply
along with that of oil and gas.
Lignite, or brown coal,
provides more than 25 per cent of Germany’s electricity, according to figures
published in 2015. But the German government is determined to derive less power
from coal in the coming years.
Magnus Hall, Vattenfall's
chief executive, told the Financial Times he expected German electricity prices
to stay at "extremely low levels" for years.
"There is no light at
the end of the tunnel," he added. With the lignite deal, Vattenfall will
be reducing its exposure to the "pure electricity price", and leaving
it more focused on "low-cost hydro and nuclear power in Sweden", said
Mr Hall.
The divestment is also part
of a strategy imposed by the Swedish government, Vattenfall's owner, to derive
more power from clean sources of energy and less from highly polluting fossil
fuels.
Mr Hall said three-quarters
of the company’s electricity generation would now be from "climate
neutral" sources, compared with a half before the deal.
The sale includes all of
Vattenfall's lignite assets in Germany — five open cast mines, three power
plants and 50 per cent stake in a fourth — with a total workforce of
7,500.
€20 MWh
Wholesale price of
electricity in Germany, down from €60 MWh five years ago
Following the deal,
Vattenfall said it would record a writedown of between SKr22bn ($2.7bn) and
SKr27bn in its results for the second quarter of this year.
But Vattenfall added that
it would have expected to take a bigger writedown had it retained the lignite
assets.
One person close to the
deal said the transaction had therefore generated €1.3bn in positive value for
Vattenfall.
Prague-based EPH said the
deal involves it taking €3.4bn worth of assets and €2bn of liabilities and
provisions, including those for decommissioning. Vattenfall will provide about
€1.7bn in cash as part of the transaction, added EPH.
EPH, which already owns a
lignite mine in east Germany, said it was confident that the energy source
would "continue to play an important role" in Germany as a
"bridging technology" and back-up to intermittent wind and solar.
Coal is still a major
energy source in countries such as the Czech Republic and Poland, where
governments are both unwilling to wind down mines that employ hundreds of
thousands of people and sceptical of the benefits of renewables.
Vattenfall said it expected
to finalise the deal, which requires government approval, in a couple of
months.
(Financial
Times, 18 April, 2016)