RWE and Essent to Develop Sustainable Power Projects in The Netherlands

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Researched by Industrial Info Resources (Sugar Land, Texas)--Leading German energy firm RWE AG (OTC:RWEOY) (Essen) and Dutch utilities company Essent NV (Arnhem) have signed an agreement to invest in sustainable energy projects in The Netherlands. The agreement, which also includes a development plan, is in line with RWE's commitments to develop and execute renewable and sustainable energy programs in the country during 2009-13.

Salient points in the agreement include:

• Building onshore and offshore windfarms with a combined power generation capacity of 2,000-2,500 megawatts (MW)
• The modernization of power plants in the country
• Investments of about $2.68 billion to develop coal-fired and biomass plants of 1,560 MW by 2012
• The expansion of Dutch gas storage capacity to provide energy security
• The development of modern facilities at Maasbracht and Moerdijk
• Enhanced focus on research and implementation of innovative and sustainable energy technologies, such as decentralized power generation
• The development of micro combined-cycle power plants and heat pumps

The companies have agreed to work toward lowering carbon dioxide and greenhouse gas emissions and improving customer relations and services.

The partnership will help Essent to focus on increasing power production through low carbon sources. By 2020, the company is expected to augment its power contribution from sustainable sources to 25% while also enhancing its energy efficiency rate from the current level of 42.5% to 50%.

The agreement also includes setting up the Essent Sustainable Development Foundation (ESDF), which will oversee and review the development plan. The ESDF will consist of three primary units -- foundation board, sustainability development council, and vendor board. The foundation board, which will be formed by representatives of primary selling stakeholders, will oversee adherence to the development plan. The sustainability council, which will consist of three members each from RWE and Essent and an elected chairman, will be responsible for implementing the development plan. The vendor board will have representation from every selling stakeholder.

In January this year, RWE, in its bid to take control of the operations of Essent, announced that it was acquiring all outstanding and issued shares of the latter. The enterprise value was estimated at about $12.46 billion. However, in April this year, the Dutch provincial parliament of Noord Brabant, the largest stakeholder in Essent with an interest of 31%, put a spoke in the wheel by voting against the buyout. Approval from 80% of the shareholders was mandatory for the buyout. Essent has investments from many Dutch municipalities and provinces. The provinces of Limburg, Overijssel, Flevoland, Drenthe, Noord Brabant, and Groningen hold stakes of 16%, 18%, 0.02%, 2.3%, 31% and 6%, respectively. The rest is held by the municipality of Friesland.

While the other provincial parliaments approved the deal, the socialist members of the Noord Brabant parliament were not in favor of privatizing a prominent public utility. There were concerns that the deal did not guarantee development of sustainable energy in the country. The Dutch Minister of Economy was also apprehensive about the impact of the takeover on competition within the energy sector in the country. The matter was also taken up with the European Commission. Eventually, on May 15, the Noord Brabant parliament gave its approval, voting 58% in favor of the deal.

However, RWE indicated that it was not taking over Essent's waste management and electricity distribution operations. RWE has been operating in The Netherlands through its subsidiary, RWE Energy Nederland NV (Hoofddorp), which delivers power and gas to over 340,000 residential and 50,000 industrial consumers. The buyout would add 5.3 million customers to RWE's energy network, which includes 1 million customers in Germany and 250,000 in Belgium. Following this transaction, the total customer base of RWE is likely to reach 34 million, with 12.5 million electricity and 21.5 million gas customers. On completion of the acquisition, the total installed power generation capacity of RWE across Europe would be around 51,000 MW. The partnership is also expected to strengthen RWE's leadership position in Central and Northwestern Europe.

RWE, one of the top five energy utilities in Europe, recorded revenue of $57 billion in 2007 and $66 billion in 2008. The company, which employs more than 66,000 people, is the largest power generator in Germany and second largest in the United Kingdom. Essent, which employs around 10,600 people, posted revenue of $9.78 billion in 2007 and $12 billion in 2008. Essent, which will work as RWE's operating company in Belgium and The Netherlands, is expected to benefit from larger investments and a bigger market share in the rapidly expanding and liberalizing European energy sector.

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