Utility Week

UTILITY Week 11th December

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Finance & Investment This week RWE 'still at risk' in spite of break-up plan Analysts sceptical of company's proposed spin off of retail, networks and renewables interests RWE's plans to navigate the changing energy landscape by undertaking an Eon-style busi- ness split might not be enough to meet the challenges it faces. The warning came from ana- lysts at Investec who say they are "sceptical" about the company's value creation logic. Shares in RWE, the par- ent of Npower, rocketed 20 per cent aer the split was announced. Under the plans RWE will separate its retail, networks and renewables interests to form a new com- pany with stronger growth potential than its centralised thermal generation and nuclear-focused interests. But Investec argues that the balance sheet threat posed by nuclear decommissioning and its carbon-inten- sive generating fleet will remain. Also, there is a risk in implementing the overhaul, Investec said. "The idea is that the deal unlocks value for existing shareholders through higher transparency and greater investment capacity, but we would argue that a good deal of this is optical rather than fundamental. "We are sceptical about whether investors will attribute full value to a subsidiary with a relatively small free-float, and the likelihood of further offerings." RWE said its new company spin-off will create a "platform for growth" which will "strengthen the viabil- ity of the group overall". The company will remain a majority shareholder of the spin-off but will focus on its beleaguered conventional power generation and energy trading operations. JA WATER Wessex blames price controls for profit fall Wessex Water has reported a 4 per cent drop in operating profit to £120.2 million in the first half of 2015/16, blaming Ofwat's regulated price controls. The company said its total turnover had fallen from £270.6 million to £262.2 million in the first half because of a 5.9 per cent price cut imposed by Ofwat. Wessex noted that it had topped the league table for customer satisfaction for the first six months of 2015/16, continu- ing to be the best performing water and sewerage company in England and Wales by Ofwat. Chief executive Colin Skel- lett said: "Our interim results show we retain our position as the leading water and sewer- age company and that's largely due to focused investment and our dedicated and professional workforce." WATER Market opening 'may hit earnings' The unexpected plans to introduce competition in the domestic water market will increase business risk and could hit the earnings of incumbent water companies, according to analysts at Moody's. In an investor note, analysts said fluctuations in customer numbers will increase cash flow volatility and, where revenue losses cannot be offset by sav- ings, pressure earnings. The note also suggested the introduction of domestic compe- tition before the upcoming price review in 2019 may require the re-opening of the existing price control, creating "significant uncertainty" for companies and their investors. ELECTRICITY Smart EV charging eases strain on grid Domestic electric vehicle (EV) charging control technol- ogy could save £2.2 billion in network reinforcement costs by 2050, Scottish and Southern Energy Power Distribution's Low Carbon Networks Fund project has revealed. However, project lead EA Technology said car makers and the energy industry would need to work together more closely to make it happen. The three-year My Electric Avenue project, which also involved Northern Powergrid, trialled Esprit, a technology that when fitted to a local electricity distribution grid can control the charging of domestic EVs. This prevents overloading of under- ground cables, overhead lines and substations, and could save billions in replacement costs. RWEs' networks business will be spun off UTILITY WEEK | 11TH - 17TH DECEMBER 2015 | 21 Stock watch 990 980 970 960 950 940 UNITED UTILITIES SHARE PRICE, 3 - 8 DECEMBER 3 Dec 4 Dec 7 Dec 8 Dec 1,050 1,000 950 900 850 800 UNITED UTILITIES SHARE PRICE, JANUARY - NOVEMBER 2015 Jan Mar May Jul Sept Nov United Utilities's share price dipped aer historic rainfall in the North West of England that caused severe flooding across the region. Shares fell 3 per cent from 983.50 pence on Thursday 3 December to 947.50 pence on 8 December. However, trading levels remain around 5 per cent higher than lows seen aer UU's cryptosporidium outbreak over the summer.

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