Franco-German energy plan to focus on renewables, not mergers

Reuters News
Posted: Jan 15, 2014 1:19 PM

By Julien Ponthus and Geert De Clercq

PARIS (Reuters) - French President Francois Hollande's surprise announcement of a Franco-German energy joint venture did not target major utilities but renewable energy and electricity networks, his aides said on Wednesday.

A top government source told Reuters a joint French-German cabinet meeting on February 19 in Paris will discuss cooperation in renewable energy following Hollande's proposal on Tuesday.

Ministers will also discuss smart grids, energy efficiency and electricity storage in response to Hollande's call, made at his New Year news conference, for a Franco-German energy firm modeled on aerospace group Airbus.

Hollande's plan baffled French and German industrialists and raised eyebrows in Berlin, but the source said Hollande had discussed energy cooperation with German Chancellor Angela Merkel during her visit to Paris on December 18.

"We have a strong interest in the closest possible cooperation on energy policy whether on a political or corporate level," a spokesman for the German Economy Ministry, which is responsible for energy, told reporters.

A source at a major French energy firm said management was completely taken aback by the announcement.

Sources ruled out an imminent capital operation or alliance between French state-controlled utility EDF or partly state-owned gas and power group GDF Suez and one of the major German utilities such as E.ON or RWE.

"The president's goal is to coordinate our energy transitions and to find ways to take industrial initiatives together," the French source said.

Hollande wants French and German energy firms to pool their capacities in the way Airbus brought together engineering and production skills from the two countries.

"If it had not been for Airbus, our companies would now be subcontractors to international aviation firms," the source said, adding that while the industries were different, the challenges were similar.

However, industry sources say easy cooperation between the large state-driven French energy companies and the nimbler private German firms should not be taken for granted.

While Airbus is a commercial success, the firm's complex bi-national governance has made the company hard to manage and has been the source of many time-consuming disputes.

An alliance between French state-controlled nuclear group Areva and Siemens in the nuclear sector lasted only a few years and ended in acrimony and legal battles before the two sides parted in 2009-2010.

Helmut Edelmann, director utilities at Ernst & Young, said that if Germany and France could agree on a common line on the area of renewable energy, a joint venture might work, but it would have to overcome huge cultural differences.

The French power market is centralized, largely government-owned and relies heavily on nuclear power, while the German market is very fragmented, mainly private and is completely pulling out of nuclear power by 2022.

"From my point of view, the differences are simply too big," he said.

The government source said that Hollande's Airbus example does not mean the cooperation necessarily runs via the large listed companies that dominate the energy sector in both countries.

"The idea is not to put the likes of Siemens, Schneider or GDF Suez into one mega-company," the source said, adding that capital alliances could not be ruled out.

Cooperation will likely take the form of joint ventures and industrial alliances, and small and medium-sized companies will play a major role.

The German Economy Ministry spokesman said Hollande's cooperation idea will be intensively discussed in the coming weeks and months.

"If I understand it correctly, the French president was not suggesting a 1-1 transfer of the Airbus model to other branches, he was saying that this kind of close cooperation on different levels can be a be a guide and we share that view," he said.

(Additional reporting by Madeline Chambers in Berlin, Benjamin Mallet in Paris and Christopher Steitz in Frankfurt; writing by Geert De Clercq; editing by David Evans)