German utility strides into wind -- Gong on Dong auction

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On the back of its purchase of a portfolio of wind assets in Spain, German energy giant E.ON says it will be significantly expanding its renewable energy activities in coming years, investing EUR 3 billion by 2010, "mainly in the offshore sector." Oil and gas industry executive Frank Mastiaux is to head the company's brand new renewables division. To date, E.ON has only been a smallish wind market player with just 420 MW of operating wind power capacity to its name, little of which is in its home country, the world's leading wind power nation by far.

Indeed, E.ON chose Spain not Germany in which to kick-off its foray into serious wind station ownership. Fending off rival bids from wind industry heavyweights such as Neo Energía, the renewables arm of Portuguese utility Energías de Portugal, and French utility Electricité de France, E.ON emerged victorious in the battle to acquire Energi E2 Renovables Ibéricas (E2-I) from Danish utility Dong Energy. A promise to maintain the existing E2-I team and structure contributed to making E.ON the winner, according to Dong's Anders Eldrup.

E.ON's bid of EUR 722 million secures it 225 MW of wind stations in Spain and Portugal, 35 MW of small hydro and biomass plant, and a Spanish wind development portfolio totalling 560 MW, planned for completion over the next four years. E.ON also assumes a net debt of EUR 256 million.

With no utility scale wind projects left to acquire in Germany, southern Europe is seen by commentators as the most attractive alternative for a wind market entry, especially Spain and Italy. At around EUR 1.5 million per megawatt paid for the Dong assets, the price was deemed "relatively reasonable" by one observer close to the deal. "Many big power players slow to catch on to wind as a mainstream energy technology have been chasing the train, prepared to pay EUR 2 million a megawatt or, in the case of the recent Trinergy deal [page 54], around EUR 3 million a megawatt."

The Spanish acquisition brings E.ON's online wind capacity to 645 MW and pushes its development pipeline to approximately 2.6 GW. E2-I is active in both Spain and Portugal, but all but 20 MW of the installed wind plant acquired by E.ON is in Spain, with 125 MW in the Aragón region alone. Of the 560 MW of projects acquired in various stages of development, the biggest chunk, 135 MW, is in the southern region of Andalucía and Aragón hosts 112 MW.

"By acquiring E2-I, we are making a decisive step towards occupying a leading position in Europe in the wind power sector," says E.ON. The E2-I assets are "of outstanding quality with superb load factors." Moreover, E.ON is gaining further leverage in Spain through an agreement to acquire conventional generation assets from the country's top utility, Endesa. These are somewhat of a consolation prize seen in the light of E.ON's much publicised failure to acquire the whole of Endesa.

Offshore focus

Dong's exit from the Spanish wind market began in January with the sale of assets it jointly owned with Spanish operator Corporación Eólica de Aragón. The company says it intends to focus its wind ventures on the north European market, particularly offshore. Dong has a stake in five of the world's eight operational offshore wind plants. Its share of offshore capacity will increase to just under 400 MW once the 100 MW Burbo Bank project off the coast of north-west England is complete next month. Next year Dong expects to complete a 200 MW expansion of the 160 MW Horns Rev plant off Denmark's North Sea Coast and the 100 MW Gunfleet Sands project on Britain's east coast.

E.ON's main focus so far is also offshore, with most of its announced 3000 MW-plus project pipeline destined for the North Sea and Baltic Sea (table). "If people understand offshore and have the capacity for the financing and higher risk, the rewards will be considerable," comments Mortimer Menzel, renewables financing expert at Augusta, a merchant bank.

E.ON's long term objective is to reduce the average specific carbon emissions of its power station fleet by 50% to 2030, compared to 1990. Specific emissions stood at 0.49 tonnes a megawatt hour in 2006, down from 0.72 tonnes/MWh in 1990, a drop of 32% without the help of renewable energies. The 2030 target of 0.36 tonnes/MWh is equivalent to the carbon emissions from one modern gas power station. E.ON is developing 4570 MW of gas power stations around Europe and six coal plant with a combined capacity of 6050 MW, five of which are in Europe and one in the US.

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