Sweden Clears Sale of Vattenfall’s German Lignite Plants to EPH

(Bloomberg) -- Sweden approved the sale of Vattenfall AB’s German lignite plants and mines to Czech power producer Energeticky a Prumyslovy Holding AS and its financial partner PPF Investments Ltd. as the state-controlled Swedish utility seeks to divest its dirtiest power units.

“The divestment is strategically correct and the best financial alternative,” Swedish Enterprise Minister Mikael Damberg said Saturday at a press conference in Stockholm.

The Nordic region’s biggest power generator wants to focus on renewables and cut its exposure to fossil fuels including lignite coal, a rock formed from compressed peat that has been a mainstay of German power generation for almost a century. Last year Vattenfall wrote down the value of its German lignite assets by 15.2 billion Swedish kronor ($1.8 billion). Utilities in Europe are suffering from wholesale power prices trading near their lowest level since 2003 as the unprecedented shift to renewable energy squeezes margins at coal, gas and nuclear plants.

Vattenfall agreed in April to sell all its German lignite assets, liabilities and provisions including the cost of decommissioning and land re-cultivation to the Prague-based company, known as EPH. The liabilities come to about 2 billion euros ($2.2 billion), while the units’ fixed assets are worth about 3.4 billion euros and are expected to retain about 1.7 billion euros of cash, EPH said at the time.

Taxpayer Money

The alternative to selling the lignite assets would be to keep them and wind up the operations, Damberg said Saturday. That would be more costly than selling them, with a decision to keep the lignite operations resulting in additional costs of 10 billion kronor to 15 billion kronor, which would be taxpayer money, he said.

By taking over Vattenfall’s 8,000-megawatt lignite generation and corresponding mines in the German states of Brandenburg and Saxony, EPH will become the biggest power producer based in the Czech Republic, exceeding the capacity of government-controlled CEZ AS, which runs the country’s two nuclear plants.

EPH Expansion

Since its inception in 2009, EPH has expanded in the region, operating energy assets from Czech heating utilities and coal-fired plants to German lignite pits and a coal mine in Poland. It also bought the Eggborough plant in the U.K. in 2014 and last year acquired EON SE’s coal and gas-fired stations in Italy.

By purchasing fossil-fuel assets that most other utilities want to get rid of, EPH is betting that the dirty plants will be needed for years as a backup to less reliable renewable energy sources such as wind and sun. The Czech utility sees the lignite unit it’s acquiring initially losing money, while it expects it to turn profitable as Germany winds down its nuclear industry over the next six years and electricity prices start to recover, it said when the deal was announced.

The sale will give Vattenfall more resources to focus on renewables, Chairman Lars Nordstroem said in an April webcast announcing the accord. The deal is subject to clearance by the European Commission and is expected to be closed on Aug. 31, the company said Saturday in a statement.

To contact the reporters on this story: Tino Andresen in Dusseldorf at tandresen1@bloomberg.net, Ladka Bauerova in Prague at lbauerova@bloomberg.net, Niklas Magnusson in Stockholm at nmagnusson1@bloomberg.net. To contact the editors responsible for this story: Lars Paulsson at lpaulsson@bloomberg.net, Rob Verdonck, Kevin Costelloe