One of Europe’s Greenest Utilities Is Buying Gas Pipelines

Austria’s biggest company, also one of Europe’s greenest utilities, is buying into natural gas pipelines to build a new hydrogen economy for power-hungry industries.

Verbund AG’S decision to purchase a network of pipelines this year perplexed some analysts. Unlike German and Italian utilities expanding in green power across the continent, the Austrian utility opted to deploy cash in domestic fossil-fuel infrastructure.

The acquisition turned Verbund, a hydropower specialist whose shares have outperformed peers by more than fourfold since 2016, into a major player in central Europe’s gas market.

The rationale to pay 271 million euros ($332 million) in September for a 51% stake in Gas Connect Austria lies in the long-term outlook for hydrogen, said Verbund’s Michael Strugl, who’ll replace chief executive officer Wolfgang Anzengruber next month.

“Connecting the gas grid and high voltage grid will give us opportunities to enable the energy transition,” Strugl said in an interview. “We will have to produce huge volumes of green hydrogen, but we cannot do this here in Austria and maybe not even in central Europe.”

Pipelines will be needed to connect hydrogen production centers -- powered by offshore wind farms in northern Europe and solar parks in the south -- with the heaviest industrial consumers of power, Strugl said. In the meantime, the gas network will give Verbund stable regulated cash flows. The company expects to hit the top end of its net income forecast this year, he said.

One of Europe’s Greenest Utilities Is Buying Gas Pipelines

Verbund last month became the first publicly-traded Austrian company to exceed a 20 billion-euro market value. Because about 95% of the utility’s power is already generated emissions free by its network of Alpine dams and pumped-hydro plants, the stock tends to closely track the rise and fall of European carbon permits.

“Hydropower is our backbone and in our DNA,” said Strugl, 57, who became Verbund’s deputy chairman last year after leading a provincial utility that provided power to some of the country’s biggest energy consumers.

State-controlled Verbund began recruiting researchers earlier this year to plug into a gas plant in Mellach, offering companies a test bed where they can monitor new hydrogen technologies under real-world conditions. It’s joined with Voestalpine AG to test the viability of green-hydrogen in steelmaking.

The around-the-clock availability of electricity that economies rely on will need to be managed differently as more intermittent wind and solar power enter the grid, said Strugl, who pointed to the excess renewable generation that increasingly turns prices negative. In the emergent power landscape, hydrogen will become more than just a fuel that heavy industry burns for heat.

“Hydrogen gives us the chance to use excess electricity as a form of storage, that can then be used when the prices are higher,” he said. “For long-term storage, green hydrogen will be important.”

©2020 Bloomberg L.P.

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