EPH takes huge gamble by buying Eon's Italian power assets

By bne IntelliNews January 12, 2015

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Eon has agreed to sell its coal and gas assets in Italy to Czech-Slovak energy holding Energeticky a Prumyslovy Holding (EPH), the German utility said in a statement on January 12. The value of the deal was not announced.

Eon's Italian assets have a total generation capacity of nearly 4,500MW, including a 600MW coal-fired power plant in Sardinia (Fiume Santo) and six gas-fired power plants located on the Italian mainland and in Sicily.

The transaction, subject to the approval of the European Union competition authority, is expected to close in the second quarter. The divestment of the Italian assets is part of Eon's ongoing restructuring aimed at focusing on renewable energy and distribution grids.

This is EPH's second acquisition outside its core market in Central Europe in less than three months. In November EPH said it bought the UK's coal-fired power plant Eggborough.

EPH is the Czech Republic's biggest heat supplier and the second biggest electricity producer in the country. The group operates electricity, gas and mining companies in the Czech Republic, Slovakia and Germany.

In Germany EPH owns brown-coal mining company Mibrag and has expressed interest in taking over the German lignite assets of Swedish firm Vattenfall. Besides Vattenfall's assets, EPH is also eyeing Italian Enel's 66% stake in Slovak dominant power producer Slovenske Elektrarne (SE).

If EPH, owned by closely-held Slovak financial group J&T, buys all of those assets it would have over 16GW of installed capacity, making it larger than its domestic competitor, the state-controlled utility CEZ (which has around 15GW). This would more than double EPH's current debt level, which is reckoned to be as high as €5bn according to the Czech media.

As James de Candole of Candole Partners noted in bne recently, EPH is embarking on this spending spree as Eon and other large European power groups retreat from coal-fired and other conventional generation. With the European power market down in the dumps, those giants are now betting on renewables due to rising carbon taxes and the huge investment needed to make older generation assets comply with EU emissions standards.

EPH, on the other hand, is betting on a "capacity market" scheme, that would see owners compensated for maintaining generation assets, even if they are not operated, because of energy security concerns in the EU. Candole Partners - a long time critic of both EPH and CEZ - describes that gamble as "breathtaking".

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