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RWE to 'hit the ground running' on renewables after asset swap

RWE AG is gearing up to capitalize on its imminent takeover of the sizeable renewables businesses at rival E.ON SE and subsidiary Innogy SE, with CEO Rolf Martin Schmitz saying the utility will "hit the ground running" with an active and diversified development pipeline.

"The coming months will be one of the most exciting periods in our company's history," Schmitz told journalists on an Aug. 14 call to discuss RWE's second-quarter financial results, which saw earnings boosted by a sharp rise in its trading business. Strong performance in the division, which CFO Markus Krebber said was due to successful strategies across commodities, earlier led the company to increase its full-year profit guidance.

But going forward, renewables will drive RWE's growth. After taking over E.ON and Innogy's assets, 60% of the utility's earnings will come from renewables, with only a fifth coming from conventional energy and 10% each from trading and financial investments. Schmitz highlighted that the combined EBITDA from renewables activities at E.ON and Innogy in the first half of 2019 totaled over €800 million.

By comparison, RWE reported adjusted EBITDA in its standalone business of €1.13 billion in the first half of this year, up 37% from €825 million in the same period in 2018.

"This is an excellent basis for our new business ... the 'new RWE' has been gaining momentum for a long time now," Schmitz said, adding that "attractive projects" at E.ON and Innogy are driving the momentum. That includes large onshore wind farms in the U.S. like the 220-MW Cranell and 151-MW Peyton Creek projects that E.ON is building in Texas, as well as Innogy's 250-MW Scioto Ridge project in Ohio.

In total, Innogy has 3.6 GW of renewables in operation and a further 1.4 GW under construction, it said in a recent earnings release. E.ON reported 5.7 GW of pro-rated renewables capacity in operation at the end of last year, but has announced more projects since then. The majority of both companies' portfolios is onshore, although RWE emphasizes that the deal will also make it the second-largest developer of offshore wind in the world, behind Denmark's Ørsted A/S.

RWE expects to make net investments of €1.5 billion per year into renewables, focusing on favorable markets like the U.S., Schmitz said. Onshore renewable developers have been struggling in RWE's home market of Germany, where lengthening permitting procedures and lawsuits have slowed down wind installations, in particular.

The company expects the asset swap, which will see E.ON take over Innogy's grid and retail businesses, to get final approval in late September or early October. The European Commission is still in the middle of an extended probe into the deal caused by concerns over E.ON's future competitive advantage in European retail markets.

After the deal closes, RWE expects to take operational control of the renewables assets before the end of the year. The company has already been entitled to the economic value of the assets to be transferred since the start of 2018.

"We are making the investments and we are covering the costs," Schmitz said. "Therefore, all of the renewable energy operations run by E.ON and Innogy have been paying into the 'new RWE' for one-and-a-half years."