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EON Boosts Power-Grid Spending by 20% as Europe Electrifies

High voltage electricity power lines near cooling towers at the Jaenschwalde lignite coal-fired power plant, in Peitz, Germany, on Tuesday, Nov. 7, 2023. German Economy Minister Robert Habeck pushed back against doubts that Europe’s largest economy can phase out coal by 2030 after ramping up its use in the aftermath of the energy crisis. Photographer: Krisztian Bocsi/Bloomberg (Krisztian Bocsi/Bloomberg)

(Bloomberg) -- German utility EON SE ramped up investments by 20% in the first nine months of the year to help drive the energy transition. 

Spending rose to €4.7 billion ($5 billion) from January through September, the company said Thursday in an earnings release. 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.

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. 

The majority of the investments in the period were spent on EON’s Energy Networks division, focusing on expansions, modernizations and digitization of the grids. 

Adjusted earnings before interest, taxes, depreciation and amortization for the first nine months fell 14% to €6.7 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.

EON’s shares have seen some weakness in recent weeks, potentially driven by political uncertainty in Germany, according to Citigroup Inc. analyst Piotr Dzieciolowski. They fell 0.3% on Thursday in Frankfurt. 

The agenda for the energy sector by conservative party CDU, which could be leading the new German government after the election in February, “calls for more efficiency and is unlikely to reduce the pace of EON investments,” Dzieciolowski said in a note. 

One uncertainty for the utility is a pending court case on the German energy regulator’s decision on grid returns, which will impact EON’s earnings. Grid operators have criticized the investor returns for new energy networks that were introduced at the beginning of the year, saying they were too low.

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EON’s increase in spending differs from other German energy companies, including Uniper SE and RWE AG. The power producers both said they have to delay or potentially cut investments in the coming years, citing slower progress in the hydrogen industry in Europe. 

(Updates with analyst comment from sixth paragraph.)

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