STEAG GmbH, Essen/Germany, is looking back on a satisfactory business year 2019. In a difficult market environment, the energy company has successfully maintained its position, achieved its earnings targets and increased its profitability. This creates a sound basis for mastering the major challenges of the current year.
The German Parliament is expected to pass the Act on the Reduction and Termination of Coal-fired Power Generation (KVBG) in the summer. As things stand at present, this will probably mean that operators of hard coal fired power plants will have to shut down their plants quickly by 2030 at the latest and not, as in the case of lignite, by 2038. Hard coal is also at a disadvantage in terms of compensation payments compared with lignite. “This is a clear departure from the recommendations of the Commission on Growth, Structural Change and Employment,” criticizes Joachim Rumstadt, Chairman of the Board of Management of STEAG.
If the Federal Government does not take account of the objections, which are shared not only by STEAG and other operators of hard coal fired power plants, but also by the Upper House of Parliament, STEAG reserves the right to take legal action against the Act. “We accept the will of the people and the political decision to abandon coal-fired power generation in Germany,” Rumstadt clarifies. “But we cannot agree with the currently planned legal implementation.”
The COVID-19 corona virus pandemic is a further exacerbating factor. The Ifo business climate index, an important early indicator of economic developments in Germany, recently plummeted to its lowest level ever. The damage caused by the standstill in public life and large parts of the economy around the globe is considerable. Even if the restrictions are slowly eased and a gradual return to normality is initiated, economic researchers expect a severe recession in 2020, not only in Germany and Europe, but almost everywhere in the world.
STEAG, one of the major electricity and heat producers in Germany and an international operator of power generation plants, is also clearly feeling the effects of the pandemic. Large energy consumers, especially from industry, are cutting back or shutting down their production. As a result, demand for electricity is falling and electricity prices are dropping. “The start of 2020 was quite encouraging, because in the first three months we were well ahead of our plans,” says Rumstadt. “But now there is a clear reversal.” That applies in particular to Turkey, an important electricity market for STEAG. In addition, 140 employees of the German subsidiary STEAG Technischer Service are currently on short-time work. This is due to the fact that maintenance measures at the company’s own power plants or at plants of external customers have been postponed or reduced to a minimum. The introduction of short time is also being examined in other business units. At the same time, STEAG has taken consistent protective measures for its own employees to ensure that a secure supply of electricity and heat is guaranteed by the company at all times.
Moreover, the increasingly deteriorating economic conditions are making the transformation process, which has been successful to date and in which STEAG – like all energy companies with a comparable business model – finds itself because of the energy transition, more difficult. Further milestones were reached in 2019 in the company’s transformation, which began in 2016 with the “STEAG 2022” project. Here are four examples:
- Strategic acquisition in the photovoltaic sector (Figure 1). STEAG has succeeded in making a strategically important acquisition in the renewables sector. Thanks to the extensive know-how and the international network of the youngest group subsidiary STEAG Solar Energy Solutions, or SENS for short, STEAG has taken a major step forward in the growth market of photovoltaics (PV). SENS’s core competencies include the development and turnkey installation of large ground-mounted PV plants. In Sicily, SENS is developing around 440 MW of ground-mounted PV capacity together with a financial investor. In terms of figures, the systems cover the electricity needs of around 350,000 households with CO2-free energy.
- Hydrogen project on the Saar. With the “Fenne HydroHub” project supported by the Federal Ministry for Economic Affairs and Energy as part of the “Living Labs for the Energy Transition” program, STEAG is helping to develop Saarland further as a traditional location for the energy industry. The focus is on hydrogen, the combustion of which avoids climate-damaging emissions. At the site of the STEAG Fenne power plant in Völklingen, large quantities of green hydrogen are to be produced with the aid of an electrolyzer when there is a surplus of wind and solar energy. This can then be used in a variety of ways, e. g., in Saarland-based steel companies which need it for their industrial processes. However, it can also be fed into the regional gas network and additionally supplies public hydrogen filling stations in Saarland. In addition, hydrogen can be used to generate electricity again. Furthermore, the heat generated during the production of hydrogen can be fed into the Fernwärmeverbund Saar (FVS) district heating network.
- New combined cycle power plant in the heart of the Ruhr area. At the Herne site, STEAG and its partner Siemens are building a new and highly efficient combined cycle power plant. The plant, which is scheduled to go into regular operation in mid-2022, operates on the principle of combined heat and power (CHP) and will provide an environmentally friendly district heating supply to a calculated 300,000 households in the heart of the Ruhr area. By investing a sum in the mid hundreds of million euros, which the project partners are sharing equally, STEAG and Siemens are actively contributing to the success of the energy transition. In the period of transition to climate-neutral power generation, low-CO2 natural gas power generation will be indispensable as a bridging technology. Combined cycle gas turbine plants will form the backbone of a secure energy supply in Germany after the phase-out of nuclear power and the end of coal-fired power generation. In the long term, green hydrogen has the potential to replace fossil fuels in power generation and could also be used in the Herne CCGT plant.
- Efficient industrial solution for BP. STEAG is constructing a new process steam supply system for the BP petroleum company on the site of the BP refinery in the Scholven district of Gelsenkirchen. Refinery gases which have been flared and therefore unused to date are burned and thus made available for energy production. This protects the environment and conserves resources. And in the event that less process steam is drawn from the refinery than is available from burning the refinery gases, electricity is produced with the excess steam by means of a condensing turbine. The “Steam” project ensures the best possible energy recovery from the previously unused refinery gases.
These four examples alone show that STEAG takes the resolutions of the Paris Climate Protection Agreement and the CO2 reduction targets of the EU into account in its business activities. Compared to 1990, STEAG reduced its CO2 emissions by 79 % by the end of 2019. Long before the coal phase-out law is passed, STEAG has already decommissioned a large part of its hard coal fired power plants in Germany, using its own financial resources.
For STEAG, the year 2020 is also marked by the strategic repositioning of the company. Teams of experts from the Group’s various divisions have been working for months on the further development of the corporate strategy. “Thanks to the technical and energy management expertise that STEAG has acquired in its more than 80 years of corporate history, we will successfully position ourselves on the energy markets of the future,” Rumstadt is convinced.
The consistently pursued Group restructuring is also paying off in terms of the expanded opportunities for financing the company. The process for a green ESG rating was successfully completed at the beginning of the year. This rating, which assesses environmental issues in particular, is becoming increasingly important as a selection criterion for institutional investors. On this basis, STEAG aims to offer green financing instruments for the first time.
Owing to the overall lower level of capacity utilization at STEAG’s domestic hard coal-fired power plants and the resulting, now netted out presentation of trading transactions, consolidated sales fell in 2019 from 2.9 bn € in the previous year to 2.1 bn €. However, Group earnings improved significantly compared with 2018. Earnings before interest and taxes (EBIT) rose from 160.6 M € in 2018 to 210.2 M €. Positive one-off effects also contributed to this.
Consolidated earnings after taxes amounted to 131.9 M €, a multiple of the previous year’s figure of 12.7 M €. As in the previous year, 45 M € will be transferred to the shareholder Kommunale Beteiligungsgesellschaft KSBG.
Total liquidity in the Group amounted to 432.9 M € at the end of the business year, compared with 565.5 M € in the previous year. The increase in free cash flow from 100.5 M € in 2018 to 218.5 M € is positive.
At the beginning of the year, STEAG’s management had forecast an increase in sales to 2.4 bn € for the current business year. In the absence of favorable one-off effects of a similar magnitude to those reported for 2019, earnings before interest and taxes (EBIT) were initially expected to fall by around 10 %. Due to the negative effects of the COVID-19 crisis on the economy, STEAG’s management now assumes that the original plans can no longer be achieved despite the measures already introduced to increase earnings.
Investments of up to 212 M € are planned for 2020. Around 120 M € of this will be spent on growth projects. STEAG invested 136.9 M € in 2019. (STEAG/Si.)