Nuclear write-off

German utility stocks have taken a beating as Berlin presses on with plans to close all 17 of the country's nuclear power plants by 2022

Essen-based RWE was trading at 38.87 euros ($56.28) on Friday, down more than four euros from mid-May and dramatically lower than the 58.21 euros it traded at a year ago.

That prompted CEO Jürgen Grossman to tell the Süddeutsche Zeitung newspaper on Friday that his company "is worried about our stock's loss of value" and fears increasing vulnerability to a hostile takeover.

"Politicians would do well to scrutinize the consequences of their actions," Grossmann said. "One example would be the cost of the [nuclear] phase-out and its effect on electricity prices. And a number of companies will think long and hard about whether they are still well taken care of in Germany."

Foreign expansion

Hubertus Bardt, an energy and environmental policy expert at the Cologne Institute for Economic Research, said German energy companies are at an impasse.

"They need to become more independent of German politics and grow heavily in foreign markets," he told Deutsche Welle. "Then they'll have good chances again."

The recently-surfaced takeover fears highlight German energy companies' level of reliance on the country's political establishment, Bardt said. After weeks of political wrangling, the companies now face the loss of all electrical capacity generated by their unpopular nuclear plants.

"That's what's changed acutely in the past 10 weeks," he said. "That's what drove their stocks down and led to this speculation about takeovers becoming more realistic."

One concrete fear is that Russia's Gazprom could try to buy Dusseldorf-based E.ON's subsidiary Ruhrgas. Gazprom CEO Alexei Miller recently told the Süddeutsche Zeitung that the company would "review offers that go beyond purely financial investments and allow for consultation with the company."

For Bardt, however, a Gazprom takeover of Ruhrgas seems unlikely.

"The cartel office would surely examine that very closely," he said. "It's not certain a takeover would happen, even if both parties agreed on it."

Fossil fuels, smart grid

As Germany's nuclear phase-out begins to take effect, the country's power suppliers will have to replace their lost capacity with a mix of fossil fuel and renewable energy sources, meaning they will have to buy additional CO2 emission certificates.

Power companies will also continue to be saddled with extra taxes that were put in place to counterbalance the impact of an earlier, now-defunct decision to prolong the life spans of German nuclear plants.

Those taxes are likely to complicate power suppliers' efforts to invest in domestic renewable energies, Bardt said.

"A major challenge is that very few large electricity providers have invested in renewable energy sources," he said. "And large providers try to invest on a large scale. That makes renewable energies difficult for them to access."

Tobias Just, an analyst with Deutsche Bank Research in Frankfurt, said German energy providers will be equally hard-pressed to invest in foreign markets.

"It's hardly an unusual strategy for a company to leave its home market," Just told Deutsche Welle. "But that's difficult in a situation where one has lost an important source of income and still has heavy taxes to pay."

Unstable investments

To make matters worse, the state of flux that characterizes the current German government's energy policy makes soliciting investment difficult, Just added. Unless a smart grid is built to balance out the peaks and troughs of renewable sources like wind or solar, power suppliers will need fossil fuel plants to provide a reliable base of electricity.

"What investments are still safe to make?" Just asked. "That's a latent question which isn't going away. And it's thoroughly possible that opponents of nuclear energy won't be ready to welcome new coal plants to their area."

Just said German society has taken a clear stance in which "ending the use of nuclear power is politically more important than the risks associated with climate change."

Building a reliable power grid from renewable energies will require a stable environment for investors, he said. "The wide reversals in policy create insecurity, and insecurity always hinders investment significantly."

Author: Gerhard Schneibel
Editor: Sam Edmonds