By Geoffrey Smith
Investing.com -- Europe’s electricity giants have had a hard time moving beyond fossil and nuclear fuels into renewables, but the continent’s climate policy agenda leaves them no choice.
The two said on Monday they intend to have up to 7 gigawatts of installed capacity – the equivalent of eight or nine old-style gas or coal-fired generation plants - operating by 2025, with another 5 to 10 gigawatts at an advanced stage of development. They have cooperated at a project level already since 2013, and already have 5.5 GW in construction or under development, but that is still a hefty expansion plan.
The logic of the deal seems clear enough, although it may be a slow burner in terms of value creation. EDP’s stock rose 1% on Tuesday and is up another 0.2% today. Engie’s would have been up a similar amount had it not gone ex-dividend.
Their aim is to become the second-largest wind farm developers in the world behind Denmark’s Oersted (CO:ORSTED), and leap-frogging Spain’s Iberdrola (MC:IBE). Orsted has been one of the biggest stock market successes in Europe of recent years, up more than 125% since its IPO in June 2016, skilfully exploiting a sector where government subsidies and market dynamics are in constant flux.
Iberdrola has needed longer to take off but its stock has risen 35% since October. Conspicuously, both of those stocks have been immune to the general increase in market volatility in the last eight months.
Both EDP and Engie could do with a little bit of Orsted/Iberdrola magic.
EDP is looking to move beyond the collapse of a takeover attempt by China Three Gorges, a state-controlled generator. Its stock lost some 15% from the start of April as that episode unravelled.
Engie investors, meanwhile, have yet to buy into CEO Isabelle Kocher’s plans to streamline the sprawling business, although she made a promising start in February by promising to get out of 20 of its 70 markets. It has a headache with its investment in the new Nord Stream 2 gas pipeline, which has landed it in the U.S. administration’s crosshairs. The U.S. confirmed on Monday that it is preparing new sanctions against the Russian-controlled pipeline, in which Engie has a 10% stake.
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