Gas plants delay E.ON Italian asset sale – sources

Published on the ICIS Dashboard at 16:30

German utility E.ON is trying to sell its assets in Italy, but negotiations on the price of its gas-fired power plants is delaying the negotiation of the deal, market sources told ICIS. A spokesman from E.ON said the company is not commenting.

But sources from the market said the German utility has put on sale its assets in the country, which include a number of power plants, a 9% share in the TAP pipeline currently under development and a 46% stake in the Offshore LNG Toscana terminal. Such a move was deemed as likely by industry experts polled by ICIS in December 2013 ( see EDEM 4 December 2013 ).

E.ON’s power assets in Italy include wind, solar and hydro plants, as well as gas-fired plants such as the 1.5GW Ostiglia and 1.4GW Tavazzano-Montanaso plants in the north of the country. The profitability of gas-fired power production has reduced sharply under current market conditions, marked by overcapacity in the system, prioritised renewable energy production and low demand due to the persisting economic stagnation in Italy.

The German utility also owns a number of coal-fired plants, most notably the hard-coal Fiume Santo plant in Sardinia, which was scaled down to 598MW in December 2013 after the closure of 320MW of oil-fired power units.

The Fiume Santo plant is pivotal in the Sardinia region, where limited power transmission capacity with the mainland leaves it isolated and, typically, to higher wholesale electricity prices on the Italian MGP day-ahead market for the region.

According to E.ON data, total production output of Italian assets in 2013 amounted to 15.2TWh, up 15% from 2012. Total accounted installed capacity of the company’s production assets was 5.1GW, down from 5.9GW in 2012.

Several Italian players have shown interest in some specific assets, sources said. For instance, Italian energy company ERG would be interested in buying E.ON’s wind farms in the country, ICIS understands. ERG could not be reached for comment.

According to sources E.ON would not be willing to sell its assets separately, but rather as a whole. As a consequence, interested investors are trying to put together a joint bid to buy up E.ON’s assets, ICIS understands.

One source informed on the negotiations told ICIS the lack of profitability of E.ON’s combined-cycle gas turbine (CCGT) plants is delaying the negotiations, while the German utility is asking for a much higher price than what interested buyers are willing to pay. The source said that if the market conditions improve, or the capacity market kicks in, the agreement could move on, but unless gas-fired plants’ profitability in Italy recovers, the negotiations might be stuck.

“At the moment, none of the CCGT plants could produce electricity with a [profit] margin,” he said. He added that if the group of investors decides to split the plants, “the company that ends with the CCGT would take home a big loss”.

Alleged interested companies in the deal include Italian utilities Edison and A2A, which were both unavailable for comment, and Swiss utility Alpiq, which did not want to comment. Chinese and European investors are also supposed to be interested.

Chinese investors are targeting a number of Italian assets. China’s State Grid International Development, part of the transmission system operator (TSO) State Grid Corporation of China, recently struck an agreement to acquire 35% of CDP Reti for a reported €2.1bn. CDP Reti is a subsidiary of Italy’s public savings fund Cassa Depositi e Prestiti, which controls 30% of the Italian gas TSO Snam and 29.85% of the Italian electricity TSO Terna.

Italy’s infrastructure investment fund F2i has also been active in Italy’s energy sector recently and might play a role. On 31 July, F2i agreed to buy into a new entity involving renewable assets from arms of Italian utility Edison and French utility EDF ( see EDEM 31 July 2014 ).

French-headquartered GDF SUEZ was reported not to be interested in purchasing a share in E.ON assets, as they have just restructured in Italy, sources said. Matilde Mereghetti and Riccardo Patrian