Closure would allow Engie to engage with the German government’s newly formed Coal Exit Committee, which is expected to present a positive economic framework for coal phaseout.
The three relevant coal power plants are Farge, Wilhelmshaven and Zolling, all of which Engie is presently planning to sell.
Regarding European regulatory headwinds, the EU is aiming to cut carbon emissions by 80% by 2050, decarbonise the power sector and regularly upgrade air pollutant emissions reduction targets.
Engie is a global, Paris-based industrial company specialising in gas, electricity and energy services that was 24.1% owned by the French state as of Dec. 31, 2017. The company has correctly acknowledged a profound change underway in energy markets toward lowcarbon sources.
Companies have two broad choices in coal asset divestment: closing and decommissioning, or selling. Recently, Engie has preferred selling over closing. This briefing focuses on Engie’s strategy along these lines in Germany, where the company is presently trying to sell three power plants: Farge, Wilhelmshaven and Zolling. Bidders reportedly include two privatelyowned, Czech-based investors: EPH and Seven Energy.
To underscore the problems facing coal, we use a simplified discounted cash flow (DCF) analysis of available and estimated data for sales and costs at Engie’s newest of these three power plants (Wilhelmshaven), which it brought online in 2015. We find that the power plant has a negative present value as measured by EBITDA.
We consider the various outcomes for Engie, between sale and closure of the power plants:
We conclude that Engie should reconsider its plan to sell its German assets. We find that benefits from closing the power plants— living up to corporate responsibility standards, preventing rivals from gaining market share and embracing the Coal Exit Commission— outweigh the benefits of selling.
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