(Bloomberg) -- German utility EON SE ramped up investments by more than 20% in the first half of the year as it pushes for higher returns to help drive the energy transition.
As one of Europe’s largest distribution-grid operators, EON plays a key role in the economy’s electrification. The continent aims to be climate-neutral by the middle of the century, an endeavor that requires a huge build-out of grids so that millions of clean-energy generators can be connected.
Spending on the energy shift amounted to €2.9 billion ($3.2 billion) in the first half, the company said in an earnings release Wednesday. In March, EON announced total investments of about €42 billion through 2028, with the bulk of that destined for German projects and improvements to networks and infrastructure.
But the company also warned that the regulated rate of return on grid spending in Germany “lags significantly” behind other countries with comparable investment risk. He called for a long-term framework that provides adequate returns.
“If regulation would improve, we could increase our investments even further,” Chief Executive Officer Leonhard Birnbaum said in an interview with Bloomberg Television. “And the amount of returns we can achieve on infrastructure investments depends on the regulation.”
EON shares dropped 0.6% by 1:29 p.m. local time in Frankfurt trading. They are up 1.4% this year, outperforming the Stoxx 600 Utilities Index, which is down 2%.
Investor Returns
Germany’s energy regulator raised investor returns for new energy networks at the beginning of this year. Grid operators said the hike was too moderate and also pushed for higher rates on existing infrastructure. Another decision on regulated returns of power and gas network operators is being challenged in court.
The regulator has to weigh both the interests of grid operators and those of customers, who would likely to see higher electricity prices at a time when the nation is already struggling with a bleak economic outlook.
Despite the increased investments, network operators can’t quickly serve large industrial customers — with connections in areas including the UK and the Netherlands taking as much as nine years, Birnbaum said in the TV interview. Linking up a data center around Frankfurt is “today out of question,” he added. “Every possible grid connection that we have is already booked like a decade in advance.”
EON was upgraded to outperform earlier this month by Bernstein, with analyst Deepa Venkateswaran saying the utility is best-placed to take advantage of Germany’s push to accelerate investments in electricity distribution.
Second-quarter adjusted earnings before interest, taxes, depreciation and amortization fell 14% to €4.87 billion, after one-time positive effects from a year earlier weren’t repeated. EON still expects full-year profit of €8.8 billion to €9 billion.
--With assistance from Guy Johnson and Petra Sorge.
(Updates with context throughout.)
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