Green Energy Shift to Bring $120 Million a Year to Two Utilities

Fortum Oyj is looking to divest its consumer business and pushing into renewables and hydrogen as the Finnish utility aligns its strategy with its newly acquired German power company Uniper SE.

The joint plan comes eight months after Fortum secured majority ownership of Uniper in a fractious takeover battle fiercely resisted by the German company’s top management. A big challenge is consolidating Fortum’s green assets -- mostly nuclear and hydropower -- with Uniper’s large share of fossil-fuel generation.

Fortum’s new Chief Executive Officer Markus Rauramo is reshaping the business with the review, and potential sale, of the Consumer Solutions business, a unit that could fetch as much as 1 billion euros ($1.2 billion), said Elchin Mammadov, an analyst at Bloomberg Intelligence. Fortum will shutter more than 50% of coal-fired generation capacity by the end of 2025 to end up with about 5 gigawatts -- mostly through actions by Uniper.

The utilities’ collaboration will rest on three pillars of hydrogen, renewable energy and hydroelectric power, the Finnish and German companies said in a statement Thursday, adding they expect benefits of about 100 million euros a year by 2025.

The value unlocked by the combined companies undershot estimates of some analysts who expected Fortum to take steps to increase its 75% stake in Uniper. Fortum fell as much as 3% in Helsinki.

That target is “disappointing and reflects the fact that Fortum has not decided to go for domination and delisting of Uniper and combining the companies,” Markku Jarvinen, an analyst at Svenska Handelsbanken AB, wrote in a note. “Much of the synergy potential is thus left on the table.”

By comparison, German utility EON SE’s merger with RWE AG’s Innogy will deliver 740 million euros in synergies by 2022, BI’s Mammadov said.

The joint plan will see the expansion of hydrogen and renewable energy markets under Uniper, while Fortum will oversee hydropower in the Nordic region, where it has a strong presence.

Asset ownership will remain separate and investment decisions also have to be approved by the respective owner, according to the statement. Final decisions on the strategies’ implementation have to be approved by both companies.

Uniper and Fortum agreed on similar sustainability targets, and aim to be carbon neutral by 2050.

Details on the three-pillar strategy:
  • Renewables
    • Uniper plans to develop 1 gigawatt of solar and wind power generation through 2025 and 3 gigawatts in the following years. Acquisitions will be part of the expansion, and combined with Fortum’s development pipeline.

      Uniper also seeks to build a renewable portfolio in Russia.

    • Fortum targets to build 1.5 to 2 gigawatts of onshore wind and solar capacity by 2025, primarily in Europe.
  • Hydrogen

    • Uniper has more than 10 hydrogen projects in its business development pipeline and wants to leverage its presence in the fuel’s value chain, combining with Fortum’s presence in the Nordic countries.
  • Hydro

    • Both Uniper and Fortum have hydro plants in the Nordic countries, and said they will have one team for physical Nordic power trading.
Fortum’s financial targets:
  • It now targets financial net debt/comparable Ebitda below 2x and sets climate-dependent hurdle rates for new investments.
  • The board aims at a dividend of 1.12 euros per share for the year 2020, seeks to pay an “over time increasing dividend.”
  • Fortum continues to be committed to maintaining a credit rating of at least BBB.
  • 2021 capital expenditure for the whole group, including Uniper, is seen at about 1.4 billion euros, including maintenance and excluding acquisitions.

©2020 Bloomberg L.P.

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