RWE Forms New Renewables Unit,To Invest EUR1 Billion Year

Nov 21, 2007 - Jan Hromadko - Dow Jones News

FRANKFURT -(Dow Jones)- RWE AG (RWE.XE) Wednesday said it will bundle its renewable energy operations in a new unit from Feb. 1, 2008, amid plans to generate more than 20% of its power production from renewable energy sources by 2020, from 5% currently.

The new unit, called RWE Innogy, will invest at least EUR1 billion per year from 2008 and will focus on organic growth and strategic acquisitions of companies and renewables facilities, RWE said. It aims to become a leading European generator in the area of renewable energies, the company added.

The pooling of renewable energy operations doesn't come as a surprise, however the targeted investment volume is significant, said Sal. Oppenheim analyst Matthias Heck, who rates the company as a buy.

Heck said RWE's previous investment volume in renewable energies was around EUR140 million per year, adding that around 20% of RWE overall investment budget will go toward renewables from next year.

However, Heck added that it will likely be a couple of years until the company will be able to cover its capital costs in the renewable energies sector.

At 1133 GMT, RWE shares traded lower EUR1.20 or 1.3% at EUR90.59, outperforming a lower broader market.

RWE Chief Executive Juergen Grossmann told reporters at a press conference that RWE's investment criteria will also apply to investment conducted by RWE Innogy.

"This means: we expect additional, noteworthy contributions to value creation from the business area (of)renewable energies," he said.

RWE is stepping up investment in renewable energies at a time where other major European peers are already heavily investing in this area.

RWE's main domestic competitor E.ON AG (EOA.XE) said at the end of May that it will pool its renewable energy operations in a separate unit. In the past few months, E.ON has invested more than EUR1 billion in the acquisition of wind farms in the U.S. and Spain. Earlier this month, E.ON raised its investment plan for renewable energies to EUR6 billion to be invested by 2010 from the previously planned EUR3 billion.

RWE Innogy's focus will be wind power generation projects - both onshore and offshore. Additionally, the unit seeks to grow in the areas of hydro-power generation, biomass, solar energy, geothermal energy as well as tidal power projects.

European countries, such as the U.K., France, Germany and Italy, will be RWE Innogy's core markets for investment. However, Grossmann didn't rule out investing in renewable energies in the U.S. if the right opportunities arise.

"First of all we want to achieve our goals in Europe, but I cannot rule out investment in the U.S., if we come across a wind project in the U.S. that we like," Grossmann said.

Head of the new unit will be Fritz Vahrenhold, who has been chief executive of wind power company RePower Systems AG (RPW.XE), which is majority-owned by India's Suzlon Energy Inc. (532667.BY).

In the press conference Vahrenholt said the company will primarily invest in wind power generation given that this is the most economic of all renewable energy sources that requires the least state aid.

RWE already operates significant wind power assets in the U.K. as well as smaller wind farms in Spain, France and Poland. In the U.K., RWE operates the 60 megawatt North Hoyle offshore wind farm, one of the country's largest, off the coast of Wales.

RWE will pool around 1.5 gigawatts of generation capacity in the new unit RWE Innogy, including wind power assets from its U.K. market unit npower as well as hydro power assets from its main generation unit RWE Power.

Grossmann said that he wouldn't rule out an initial public offering of the new unit in the longer term, but added that such a move isn't currently on the agenda. In any case, RWE wouldn't aim at selling a majority of the new unit in any IPO, Grossmann said.

Company Web site: http://www.rwe.com

-By Jan Hromadko, Dow Jones Newswires; +49 69 29 725 503; jan.hromadko@ dowjones.com