Continued rigorous implementation of the strategy in a deteriorated environment /
Sustained fall in the price of electricity makes further efficiency measures necessary /
Extension of the strategy horizon to the period after 2020
Karlsruhe. “EnBW is remaining true to its strategic orientation. Despite the difficult market conditions, we are making good progress with restructuring the company because we are concentrating on defining and implementing our strategy and its measures.” This was the conclusion drawn by EnBW CEO Frank Mastiaux at this year's Annual General Meeting in Karlsruhe. The upheaval on the energy markets in Germany and Europe has escalated noticeably. Therefore, the company will rapidly and resolutely adapt itself to the current deterioration in market conditions and also the long-term technological trends and challenges. This will also define the key areas of focus for the current financial year. “We have successfully demonstrated our ability to change over the last few years. Resolute and quick action is and will remain a decisive competitive advantage especially during the German Energiewende. We will remain true to this principle in 2016.”
The sustained fall in electricity prices has significantly intensified the economic pressure on conventional generation. Mastiaux: “Even though it has occurred more quickly than expected, this development unfortunately corresponds to our long-term forecasts. We already anticipated when presenting our strategy in the middle of 2013 that earnings from conventional generation would fall by 80 percent by 2020. We aim to fully compensate for this fall in earnings by 2020 through the expansion of renewable energies, the grids business and customer-oriented sales.”
Major steps in the expansion of renewable energies and the gas business
Important progress was made with the full commissioning of the Baltic Sea wind farm EnBW Baltic 2 in September 2015. In the past year, EnBW connected around 500 megawatts of generation capacity from wind energy to the grid. The secured project pipeline has grown to 1,100 megawatts for onshore wind power plants and 1,600 megawatts for offshore wind power plants. As planned, the grids business has also become the stable backbone of the company. The distribution grid subsidiary Netze BW alone invested around 480 million euro in the maintenance and expansion of the grid in 2015. Around 1.5 billion euro and thus more than 80 percent of the Group's investment in 2015 was made in the Grids and Renewable Energies segments – the growth fields identified as being the most important.
In the Sales segment, the focus was placed primarily on pushing forward the customer-oriented realignment and improving competitiveness. The aim is to further optimise the sales organisation and concentrate the supplied services on those that are sufficiently in demand. At the same time, the Group-wide innovation management system is bearing fruit: There are currently nine projects being developed at the Group's own Innovation Campus and the first have already been successfully launched onto the market.
The now completed acquisition of the East German gas supply company VNG meant that another important step in the restructuring of the company was achieved in 2015. As a result, EnBW will rise to become the third largest supplier of gas on the German market and has at the same time settled the position relating to its shareholding in EWE. In the long term, the gas business should contribute between 15 and 20 percent of the Group operating result and become a stable pillar supporting the realignment of the company. EnBW considers gas to be an attractive market that offers good perspectives for the supply of heat and for industrial applications in the chemical and petrochemical sectors. Furthermore, due to its relatively low CO2 emissions, gas more than any other fossil fuel is most suited as the partner for renewable energies in the restructuring of the energy system.
Stable earnings performance in 2015 but high impairment losses on power plants
In the past financial year, EnBW was able to slightly increase revenue to around 21.2 billion euro. In contrast, the operating result (adjusted EBITDA) fell by almost 3 percent to around 2.1 billion euro and was thus in line with expectations. “This almost stable performance despite the clear negative market trends is primarily attributable to the resolute implementation of our growth initiatives and efficiency measures”, commented Mastiaux on the figures. It was necessary for EnBW to make further impairment losses on its power plants of 700 million euro and increase provisions for onerous contracts for electricity procurement agreements which no longer cover costs by 240 million euro in 2015.
Outlook for 2016
Due to the continuing deterioration in market conditions, EnBW anticipates an operating result in 2016 of between five and ten percent below the figure in 2015. While significantly lower earnings are expected in the Sales and Generation and Trading segments, the Grids and Renewable Energies segments should deliver greatly increased contributions. The Renewable Energies segment is set to contribute more than 300 million euro to the Group operating result for the first time.
The recommendations made by the “Nuclear Power Commission” (KFK) are viewed both positively and negatively by Mastiaux: He welcomes the appropriate measure of bringing together responsibility for carrying out tasks and ensuring financial security. In future, energy companies will be responsible both operationally and financially for dismantling work, while the German government will be responsible for intermediate and final storage. This creates clarity and enables the improved operative implementation of tasks. The recommended transfer of provisions accumulated for the intermediate and final storage to the German government was expected from the very beginning. Nevertheless, the level of the risk premium proposed by the commission at 35 percent is difficult to objectively justify. Yet above all, it represents a considerable additional burden on the energy companies in what is already a very tense economic situation. “We regard the German Energiewende first and foremost as an opportunity and want to be able to implement the changes required of us in real life. But to achieve this we must be able, however, to invest, for example, in further wind farms both on land and at sea, in the expansion of the electricity and gas grids and in innovative products for our customers. The high level of the risk premium will remove much of our ability to invest. This cannot be in the interest of the Energiewende.”
Three focal points for 2016 – continuation of the strategy after 2020 under consideration
Due to the structural consequences of falling wholesale prices, the withdrawal of the first investors from coal-based energy generation and the World Climate Summit in Paris, the massive upheaval on national and international energy markets is continuing to escalate. In addition, there are new developments such as cross-sector digitalisation and the increasing importance of the Energiewende in the urban environment. Mastiaux: “The Energiewende is not only accelerating and becoming more international, these developments are also lending it a new quality. Therefore, we will concentrate on three focal points in 2016 in order to be able to respond to any new opportunities and challenges with short-term and long-term measures.”
- The continued resolute implementation of the 2020 strategy and its measures. The focus in terms of growth will continue to be placed on renewable energies, the grids business and customer-oriented sales. In the wind energy sector, ENBW will push on with its onshore projects with an output of up to 300 megawatts and offshore tackle its next major stage of expansion with projects such as Hohe See (around 500 megawatts) and Kriegers Flak (around 500 megawatts). In the Grids and Generation and Trading sectors, the measures and projects that have already been initiated will be continued, such as the merging of the EnBW gas business with VNG.
- In view of the continued fall in electricity prices, other measures for improving efficiency are unavoidable. The fall in the price of electricity has cost EnBW around 1.5 billion euro in earnings since 2012. It was possible to save more than 750 million euro by 2015 with the “Fokus” efficiency programme, while further measures should achieve an additional 400 million euro in cost savings by 2020. “These savings and measures were sufficient and successful for the conditions prevalent at the time. They have secured our stability up to now”, stated Mastiaux. “In view of the historically low price of electricity, we can only conclude when looking ahead that they will no longer be sufficient. We need to do more and are currently investigating a variety of options.”
- With the 2020 strategy launched three years ago, EnBW already resolutely set the long-term course for the restructuring of the company in line with the Energiewende at an early stage. EnBW will continue to identify and analyse important trends and changes on the energy markets in good time in order to benefit from them using suitable strategies and measures. Therefore, the management of the company will be dealing intensively with the question of how the company will position itself in the future beyond 2020 – the time horizon for the current strategy.
“We will continue to keep our eye on the ball in view of the high rate of change on the market”, concluded Mastiaux.