German Green Energy Giants Join Forces In Novel Merger

EON and RWE swap assets to become a market leader.


EON and RWE, European utilities and Germany’s leading energy companies, agreed in March to swap assets in order to separate renewable energy and conventional assets, and consolidate renewables to create a market leader.

The corporate structure of the transaction is unique. According to the companies, EON buys RWE’s shares in Innogy, a subsidiary with both a strong renewable energy portfolio and distribution grids and power retail, while RWE gets EON’s renewable business, including minority interests in two nuclear power plants. RWE is the majority owner of Innogy, and part of its strategy was to secure RWE’s future in a world shifting to renewable energy. Challenges in UK and Netherland renewable markets have impacted Innogy and RWE’s profitability.

While Germany’s official Energiewende strategy calls for a transition from fossil fuel and nuclear energy to renewable energy, and reduction of emissions by 40 percent by 2020 compared to 1990 levels, the recently formed German government is more conservative than the previous governments. The new German grand coalition agreed to a ‘softer’ version of the climate goals of 2020, and also rejected the idea of an immediate closure of all coal-fired power plants and ‘coal exit’. This is a positive development for RWE, one of Europe’s leading fossil fuel energy producers.

The EON-RWE transaction should be understood in the context of Germany’s leading renewable energy status. This past January, for the first time in its history, Germany faced a symbolic milestone by covering around 100% of electricity use with renewable energy, and for 2017 it produced with renewable sources 36.1% of total power consumption. The impressive milestone was driven by significant wind, hydropower and biomass sources. Higher use of oil and gas in transport, heating and industry would lead EON and RWE to export its surplus energy from coal, gas, and nuclear to other European markets that are lagging behind.

Both companies’ CEOs worked to explain that this is not a legal or economic merger, as the companies faced antitrust and pricing claims. Klaus Muller, manager of the Federation of German Consumer Organizations, for example, notes that “the takeover of RWE’s stakes in Innogy by EON will lead to a higher concentration of utilities in the German energy market.”