Will Scottish Power’s Spanish owner follow German giant E.ON and split to focus on renewables?

E.On logoGermany’s top utility E.ON today announced that it is to split in two, spinning off power plants to focus on renewable energy and power grids in a dramatic response to industry changes that could trigger similar moves at European peers.

Europe’s power sector has been hit by weak energy demand in a sluggish economy, low wholesale power prices and a surge in demand for cleaner renewable energy which is replacing gas and coal-fired power plants.

The move is the boldest by a German company since Chancellor Angela Merkel’s ‘Energiewende’ 2011 policy that encouraged cleaner energy and a move away from fossil and nuclear fuels, disrupting business models for utilities.

E.ON – whose market value has plunged by near three quarters since 2008 – said it would focus on renewables, distribution networks and tailor-made energy efficiency services to embrace changes in energy markets, technology and customer demand.

“We have seen the emergence of a new energy world,” Chief Executive Johannes Teyssen said today. “E.ON’s existing broad business model can no longer properly address these new challenges.”

E.ON said existing provisions for the dismantling and disposal of nuclear and conventional assets would be fully covered in the new company’s balance sheet, adding that unit would have a positive net financial position and an investment-grade bond rating.

“We see this as an extremely brave but progressive move by E.ON,” RBS Capital Markets analyst John Musk. “The question now becomes if other integrated utilities will follow suit.”

E.ON also said it would conduct a strategic review of its exploration and production business in the North Sea.

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