09/12/2016“STEAG 2022”: Strategic Perspective in the Energy Industry

Holistic view and analysis of all business segments // Timely, active addressing of changed market conditions // Framework for orientation in this changed market environment // Assurance of the company’s economic efficiency

The reorientation of energy policy in Germany has substantially and lastingly changed the general conditions for power generation in large conventional power plants. The priority accorded to renewables gives rise to volume
and price effects that put considerable pressure on the profits especially of the owners and operators of fossilfired power plants. The STEAG Group reacted to this at an early stage by optimizing its cost and revenue structure. With a comprehensive project that takes all business segments into account, STEAG now is adapting itself in a still more global way to these impacts of the politically determined energy market. In the STEAG 2022 project the company’s current positioning was reviewed and the fields defined on which it will focus in future. The aim of STEAG 2022 is to ensure economic competitiveness and develop medium-range growth prospects.

The STEAG 2022 project has six key elements that increasingly will be the mark of STEAG in future:

  • Operator and optimizer of its own power plants in a dynamic market environment
  • Diversified player in the energy trading markets relevant to STEAG
  • Competitor in the international market for energy services and power plant operations
  • Service provider for safe dismantling of nuclear facilities
  • Growing developer and operator in the area of distributed energy supply
  • Focused competitor for new projects, acquisitions and regional project development in attractive growth markets

STEAG 2022 is the Essen-based energy company’s response to a market environment which is rapidly and permanently changing both nationally and internationally. STEAG successfully addressed this foreseeable trend during the past years with active optimization measures and flexibility-enhancing programs. However, now the financial performance figures increasingly are coming under pressure. “Through efficiency enhancement, portfolio measures and growth projects STEAG therefore will improve earnings, cut costs and create scope for investment. In future, services will contribute more to advance the company. International activities retain their great importance since they offer better opportunities than the declining business in Germany,” says Joachim Rumstadt, Chairman of the Executive Board of STEAG GmbH.

With the implementation of STEAG 2022 the company will position itself as a technology-neutral, innovative and agile provider for the operation of power generation systems, energy services and trading, at home and abroad.

Power plant operator

STEAG has decades of experience in the operation of its own power plants. Over the past years, with its combination of expertise and technical capabilities, for example minimum-load reducing measures, fuel flexibility and the interplay of business activities, the company has achieved competitive advantages. This has enabled the STEAG Group to keep its power plants in the market. Despite this ongoing optimization and steady capacity utilization, the exacerbation of the market situation now leads to appreciable revenue shortfalls. A part of the considerations, therefore, is to remove power plants from the market, temporarily or permanently, that have ceased to generate positive returns. In consequence the STEAG Group will have to cut several hundred jobs. In addition, we are studying the possibility of the timely disposal of assets that have now hit their peak of value creation, such as district heating in Germany and wind power plants abroad – that is, to take advantage of the seller’s market that has developed to generate liquidity.

Energy marketer

After the expiry of the long-term electricity supply and capacity provision contracts with RWE, in minimum time STEAG prepared for the asset-backed marketing of its own power plant output and set up its own trading organisation. This business model, involving individual market assessments and early anticipation of market developments, making allowance for them in the employed strategies and products while adhering to a defined risk framework, was steadily and successfully further developed. However, the reduction of domestic power plant capacity necessarily will result in realignment in the area of trading. Within the scope of STEAG 2022, selective and successive expansion of the marketing of foreign generation capacities will take place.

Energy services provider

The emphasis of the growth strategy is on service, investments und acquisitions – in many different markets and in many cases also in cooperation with partners. Services are an extraordinarily attractive growth area owing to the special expertise of STEAG. STEAG has outstanding know-how in many fields of the power industry that should benefit not only STEAG’s own power plants in future, but increasingly will be offered also to third party companies and power plant owners in the national and international markets. This includes engineering and construction, operation, maintenance along with the marketing of power plants and power plant by-products.

Service provider for the dismantling of nuclear facilities

Promising new projects are in sight, for example, in the area of nuclear decommissioning. This market is rapidly growing in Germany and internationally and offers great market potential. STEAG already is a sought-after service partner for the safe dismantling of nuclear installations. The next task is to develop this further – with our own skill set and with specialized partners as well.

Developer and operator in the area of distributed energy supply

In the distributed energy supply segment, STEAG achieved notable successes in the market last year with its Ford Saarlouis and TU Darmstadt projects. With activities of this kind the company plans in the context of STEAG 2022 to further improve its positioning for distributed contracting projects. The emphasis will be on exploiting additional market potential in the area of smaller-scale systems and tapping into new customer groups.

Acquirer of new projects

In the past two years STEAG invested some 600 million euros to extend its generation portfolio by about 450 MW chiefly in the area of renewable energies. The clear focus was on wind farms, with a capital spending volume of about 500 million euros. It is planned to further expand the business activities in the onshore wind sector in connection with STEAG 2022. A stronger focus will be placed in Germany and France on joining projects in the earlier phases and, where possible, value-enhancing sale of the projects to third parties. In addition, district heating projects in Poland afford attractive growth opportunities. In new-build projects, STEAG will operate on the market on a technology-neutral basis. Hard coal, wind, geothermal energy and waste-toenergy plants will be the focus since they permit the use of existing know-how. And projects for the control power market – like the six innovative large-scale battery systems that STEAG has installed at locations in the Ruhr District and in the Saarland – also will be pursued further. Acquisitions, too, clearly are gaining in importance for the purpose of obtaining short-term profit and liquidity contributions.

All these instruments should help to transform the group in a comprehensive way in order to ensure the economic efficiency of STEAG and develop a viable, value-maintaining structure for the overall group.

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Frauke Riva
Head of Corporate
+49 201 801 4253