
| Wind turbines in front of RWE's Neurath coal-fired power plant in Germany. |
Germany's RWE AG is about to embark on a spending spree to cement its position as one of the largest renewables utilities in the world, leveraging a complex deal to acquire a global wind and solar portfolio while starting on the long road to phasing out its legacy coal-fired fleet.
"Today begins the era of the new RWE," CEO Rolf Martin Schmitz said during a press conference at the company's new headquarters in Essen, Germany, on Sept. 30, less than two weeks after it sealed a deal with rival utility E.ON SE to reshuffle their respective businesses. "Our company will be the all-in provider in the area of power generation," Schmitz said.
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As part of the transaction, first announced roughly 18 months ago, RWE is absorbing all the renewables assets currently held by E.ON and former RWE subsidiary Innogy SE. The rest of Innogy's business, largely comprising retail and networks, is going to E.ON.
With the deal approved, Schmitz's new RWE is starting off on a strong foot: through the asset swap, it is catapulted to fourth place in the worldwide league table of renewables producers outside of China, behind Iberdrola SA, NextEra Energy Inc. and Enel SpA, according to the company.
It will also become the second-biggest offshore wind developer in the world, trailing only Denmark's Ørsted A/S.
More than a third of the company's existing renewables base is located across the U.S., where E.ON has been working on its largest single-phase project to date, and a quarter is in the U.K., including some of the country's largest offshore wind farms.
But the overall portfolio is well-diversified and, aside from Europe and the Americas, the company now wants to pursue additional growth markets in Asia, such as in Japan and India. Although one-fifth of the current assets stand in Germany, Schmitz has said that RWE is unlikely to spend big in its home market, owing to stalling expansion of renewables there.
"If there are good projects and sufficient network capacity, we will participate in auctions [in Germany]", he said during the press conference. But at the moment, "there's no business for us," he added.
The CEO also cautioned that RWE had no interest in investing in merchant renewables without subsidy support or other mechanisms to stabilize revenues.


Spending spree
To stay ahead, RWE plans to put €1.5 billion in net capital expenditure towards adding between 2 GW and 3 GW of offshore and onshore wind, solar photovoltaic and energy storage capacity every year. Including project partnerships, the total investment could run to €3 billion, CFO Markus Krebber said on Monday.
Part of the extra money will come from increased earnings, since RWE expects to roughly double its EBITDA from around €1.6 billion it had targeted for 2019 to over €3 billion next year. During the first six months of this year, strong results in RWE's trading business have pushed full-year expectations higher.
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"We are doubling our financial clout with this transaction," Krebber said.
While conventional generation from coal, gas and nuclear plants has made up a large share of the utility's earnings since it split off Innogy in 2016, renewables will now make up the bulk, at around 60%.
A fifth will come from conventional power plants and 10% each from trading and financial investments, including German transmission grid operator Amprion GmbH, Austrian supplier KELAG Kärntner Elektrizitätswirtschafts AG and E.ON.
Nuclear energy will disappear from the mix by 2022 and coal capacity will also start to recede as phaseout policies in the U.K., Netherlands and, particularly, Germany start to bite.
Coal baggage
For now, RWE still operates vast open-cast mining areas producing millions of tonnes of lignite — the most polluting coal — every year, in turn supporting around 8.5 GW of power plants in Germany. That excludes additional capacity in the country's stand-by reserve.
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Despite RWE's share price rally so far this year, "investors are not fully reflecting this positive transformation," analysts at Barclays said in a note in August.
Sam Arie, an analyst at UBS, agrees that although the coal business still carries risk, the deal also makes RWE into one of the most concentrated large-cap renewables developers and, crucially, one of the most sensitive to incremental project wins: a typical offshore wind farm could lift its shares by around 4%, more than twice as much as for Ørsted, according to Arie.
The utility also has a large gas fleet, which CFO Krebber emphasized would become increasingly important as a bridge fuel for renewables. "We want to expand that further," he said.
Asked at the press conference whether he would consider more company acquisitions, Schmitz said only that the new RWE had the means to stay a relevant player. But, nodding at Krebber next to him on the podium, he wouldn't rule out additional M&A either.
"The two of us, we still want to do some things," he said.





