Les Échos, Dec. 19th
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| Courtesy 4.bp.blogspot.com |
E.ON, GDF Suez, EDF’s models: marching on the new revolution in the energy sector
VERONIQUE
LE BILLON / DEPUTY
SERVICE MANAGER AND ANNE FEITZ / REPORTER,
ON DEC. 19TH
In order to solve its crisis, E.ON, Germany’s number one, made a radical turn by splitting its activities in two parts. Would GDF Suez and EDF, France’s energy giants, avoid such a upheaval?
By Anne Feitz and Véronique Le Billon, journalists in
the Industry service
Two weeks ago, when E.ON announced that the company
intended to split its activities in two parts, it aroused various interests in
the market and made its competitors think about the future of their strategies. Indeed, E.ON’s solution is radical: this strategy consisted in grouping its conventional assets –
particularly its nuclear, gas and coal plants – within a company rated
separately, in order to focus on a new E.ON based on renewables, grids and
energy services. Not only E.ON’s growth has been hampered
by Germany’s decision to go out from nuclear, but also common conditions faced by all European
energy actors worsen the situation:
the decrease of energy
demand, then the competition of renewables and low cost coal finally the
volatility of power price. Would GDF Suez and EDF, France’s energy
giants, escape such a upheaval?
Confronting this difficult position, GDF Suez
announced radical measures to start with the new year: Gérard Mestrallet’s group decided to depreciate its European thermal
plants and storage sites by €14,9 billion suddenly, thus amounting to a
dramatic net loss of €9,7 billion in its 2013 statement. According to the CEO,
this measure intended to depreciate “the
older era” in order to focus on energy transition in Europe (namely on
renewables and energy services) and on development in growing countries. That’s a two-speed strategy, which may go further, according to several
analysts. “GDF Suez would do better if it
gives the choice to investors between several rated entities, which would
herald different level of risk (such as stable revenues because of regulated
tariffs, growth on emerging markets, then free energy markets), as E.ON is
trying to do”, said Michel Debs, analyst by Crédit Suisse. Nevertheless, it’s too early now. “We
have activities and production projects of thermal and renewable energy
everywhere in the world, it’s highly logical to keep the integrated model of
the group”, the group retorts.
Moreover GDF Suez is
not in the emergency situation E.ON is facing right now: Cofely, the group’s subsidiary positioned in services, has already
recorded a €15 billion turn-over. Since the buying out of International
Power, the company has boasted strong positions on the international market: 55% of its produced power is produced out of Europe. “The group did not waste time to build its
strategy, it’s credible abroad and has a true experience”, says Arnaud
Leroi, associate by Bain & Company.
On its side, EDF enjoys its position of quasi monopoly
either in power production or in distribution, together with central regulated
tariffs. “There is a French exception,
because we are positioned on a “cost plus” model: we take the costs, we add them then we add a margin. Thus there is no particular problem”, deems an
expert of the sector. EDF’s facility park will be fully
working whatever happens: whereas solar and wind energy, whose
production takes profit of a purchase obligation and whose marginal production
cost is nearly non-existent, the nuclear park and hydraulic power plants record
very competitive costs and they compose the main part of EDF production
facilities.” The strategy will be revised
if we enter the era of consumer-producer or in the time of micro networks, but
this situation looks very unlikely in France up to ten or fifteen years”,
said Michel Debs.
Nevertheless, EDF is confronting the contradictory
orders of a protean State: supplying the less expensive possible
power – even by suffering from a tariff deficit, invest, hire and maximize the
dividend… above all that, by abiding by European directives of market
liberalization and according to a new-born constraint: reducing the nuclear part in power production from 75% to 50% by 2025. With
the cancellation of regulated tariffs for professionals within one year, EDF
may also loose some market shares.
Furthermore, the new
way to calculate tariffs for households now is based on market price, which is
a bearish condition which weighs on EDF’s profitability. “France’s position is quite under pressure to consider different
options, but the country does not need to find solutions in a hurry. Maybe if EDF intends to reduce its investments, things
may happen”, says
an analyst.
In order to avoid a crisis in the sector, both French
groups try to reduce their exposition to market risks in a similar way. In the joint-venture dedicated to build two EPR in Great Britain, EDF
intends to limit its investment up to 45 or 50% in order not to consolidate
this stake in its accounts. The company will do the same within
Amundi, the subsidiary for developing renewables. Then GDF Suez has followed the same scheme in inviting partners in projects
located in Canada, Brazil and Australia, and in the field of renewables in
France, to avoid consolidating these investments and reduce its indebtedness. Moreover, energy groups are looking for guaranteed incomes: for instance, in Great Britain, EDF has dealt a guaranteed price for the power the company
will produce during thirty five years, which will warrant a kind of pre-existing
profitability similar to that produced in a quasi-infrastructure. GDF Suez and EDF investment in marine wind energy, which benefits from a
purchase obligation, enables also the companies to collect fixed revenues on
the long term. Finally and even if GDF Suez is ahead of
EDF in this field, diversifying in services will allow them to get a lower risk
profile with an activity deemed less profitable but far less demanding in capital
than the other activities in their portfolio.
Anne Feitz
Journalist in the Industry service
Véronique Le Billon
Journalist in the Industry service
Some important points
As Germany’s E.ON
announced a change of model in early December, in order to focus on renewables,
grids and services, this revolutionary position leads other competitors to
revise their own strategies.
Facing the same difficult environment as E.ON, GDF Suez already announced radical measures for the new year, by depreciating nearly €15 billion on its European thermal plants and storage sites.
Even if EDF seems quite protected by the quasi monopoly the company detains on either power production or distribution, and also by regulated tariffs, the growth of decentralized means of production will lead the company to strategic changes sooner or later.
Facing the same difficult environment as E.ON, GDF Suez already announced radical measures for the new year, by depreciating nearly €15 billion on its European thermal plants and storage sites.
Even if EDF seems quite protected by the quasi monopoly the company detains on either power production or distribution, and also by regulated tariffs, the growth of decentralized means of production will lead the company to strategic changes sooner or later.
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