E.ON has set itself an ambitious target that many will dismiss as unreachable. Even company officials, including managing director for Europe climate and renewables Michael Lewis, admit it will be difficult to take 50% of its business portfolio from carbon dioxide-free energy provision by 2030. Despite renewable energy sources currently only making up about 6% of its portfolio, E.ON has explicitly stated it will meet this goal as the company sees huge potential in the market, and will aggressively pursue it in the coming years.
E.ON's shift into more carbon-neutral territory is of particular interest in that the Germany-based company started out as more of a traditional energy firm. But like many other major players in the sector, it recognised the potential of renewables to offer high growth and returns, while contributing to a cleaner environment, and has grown this area of the company almost tenfold over the past three years.
Mr Lewis, whose background is in engineering, says: “There are a number of ways of doing it and we have invested a large amount. I can’t give a definitive breakdown of what the process will look like because we don’t know yet. Our major focus will be in Europe and we are already present in most of the large European markets.”
According to greenfield investment monitor fDi Markets, E.ON is now the second biggest investor in renewables in the world, not far behind top investor Iberdrola. This summer it made a series of multimillion dollar wind energy investments in Sweden. By 2012, it plans to have invested €8bn as part of an expansion programme that began in 2007. This will focus primarily on Europe and in offshore wind projects, although there will also be investments in the US and in onshore sites.
Expansion into renewables depends on several physical and economic conditions. Mr Lewis says that “physical attractiveness” when it comes to wind and solar energy is hugely important as, without sun or wind, nothing can happen. He also stresses the importance of a stable regulatory environment and a solid subsidy system. Subsidies for the industry have come under criticism in recent years, and Mr Lewis is unafraid to address what has been a sensitive topic.
He says: “Subsidies are important but we don’t want to go around chasing them. We want the resources that will keep us there for the long term. One of the key things to understand is the issue of cost, and the cost has come down hugely. At some point, prices will reach parity. In fact, if you look back at when gas prices were high recently, wind energy in Texas was slightly cheaper.
“The role of the subsidy is to provide an initial boost to the industry. Manufacturers and operators can then get some scale and drive their businesses. We don’t expect subsidies to be there for ever.”
However, the plans for expansion will still largely depend on where the right regulatory and subsidy environment exists. Mr Lewis says while his company is constantly reviewing and comparing the attractiveness of other countries in Europe, for now the focus is on Germany, the UK, Italy, Spain, France, the Benelux countries and the Nordic region. It is not ruling out a new potential investment in an eastern European country in the future, but the mature markets are currently more attractive. fDi Markets recorded an investment project in Slovakia in April this year, and three other investments in Romania and Bulgaria in 2008, but Mr Lewis makes no mention of any activity in eastern Europe. The European countries that seem to interest him the most are Denmark and Germany.
E.ON is not currently active in Asia. Mr Lewis says the company is looking at expanding beyond traditional markets but he is short on details of where and when. While he believes there is “huge growth potential” in Asian markets, as he is primarily responsible for Europe, this would be out of his realm. However, he says: “People underestimate how quickly the industry is growing in China and India. I’m not up to speed on what incentives are provided in those countries, but they are growing out there so there is certainly a system in place."
Offshore on onshore?
Apart from regional expansion there is also the debate of onshore versus offshore wind projects. The company claims to be one of the few energy firms involved in both types. E.ON sees a great future for both sectors while noting there are pros and cons to each. Mr Lewis explains that a lot depends on location as there are untapped wind resources in both methods.
What he likes about offshore wind is that it is effectively geographically independent. In a lot of onshore projects, residents and planning commissions can block or hold up construction, whereas offshore projects do not run into these issues. The main issue with offshore is that construction projects are more expensive (though costs are coming down) and much riskier. Health and safety procedures are in place for E.ON but, nonetheless, planting a turbine in deep seas amid strong winds is no simple task.
Mr Lewis says: “In densely populated areas you can have problems that you don’t have offshore, plus you have a higher-powered and more constant wind. But all of that can be offset by capacity costs as installation is the problem.
“In places such as the US you can build huge onshore wind parks because the open space is there. In Europe you really need to go offshore, and that is really where the big capacity can be delivered. Most of that will happen in northern Europe.”
But when it comes to the overall expansion possibilities for the renewable energy industry, Mr Lewis is confident, and there is little he believes that needs to be changed for the market to really take off. He mentions that governments must be consistent with their tariff policies and that Europe is in need of a new energy grid system. These are both sizeable demands but, by and large, he says the EU has been clear, consistent and helpful with its targets.