Qatar funds RWE’s $6.8bn green energy deal in US

RWE is doubling down on the world’s second-biggest renewables market with the acquisition of a portfolio of US solar parks and wind farms from Consolidated Edison Inc in a $6.8bn deal funded by Qatar.

RWE late on Saturday night announced that it was acquiring the green energy arm of its New York-based peer. The transaction, which is one of the biggest green deals in US history, will be funded by Qatar’s sovereign wealth fund, which is providing €2.4bn of cash and will take a 9 per cent stake in the German company in return.

The funding will be provided by a mandatory convertible bond that will turn the Qatar Investment Authority into RWE’s single largest shareholder.

Qatar already holds stakes in Volkswagen and Porsche, while the country’s royal family is the single largest investor in Germany’s biggest lender, Deutsche Bank.

RWE has been the country’s best-performing blue-chip over the past 12 months, with profits buoyed by large rises in electricity prices due to Europe’s worsening energy crisis in the wake of Russia’s invasion of Ukraine. In July, it raised its profit outlook by more than a third.

Over the past year, shares in RWE are up 24 per cent while the wider German market has lost 21 per cent during the same period.

“For us, the deal is a milestone, in particular with regard to our North America business,” chief executive Markus Krebber told the Financial Times, adding that the US’s main push into green energy was still to come.

Krebber described the US as “one of the most attractive and fastest-growing markets for renewable energy”, pointing to President Joe Biden’s Inflation Reduction Act, which includes some of the most significant climate change legislation enacted in the US, with $369bn dedicated to climate and clean energy programmes.

“This is providing a stable investment framework that companies want. There is clarity that the investment conditions will be very good over the coming 10 years,” said Krebber, adding that Biden’s plan did not trigger the acquisition but made it “even more attractive”.

Consolidated Edison said that it would abandon a previously planned $850mn capital increase, adding that it will continue to make “significant investments” in green energy projects in New York.

The acquisition, which will mean 500 employees switching from Consolidated Edison to RWE, almost doubles the German group’s green electricity generation capacity in the US to 7 gigawatts, turning the German group into the fourth-largest renewables player.

RWE’s development pipeline will grow to 24 gigawatts. “We now have one of the largest development pipelines [in the United States]. We want to invest significantly into future growth,” Krebber said.

After the deal, solar will account for 40 per cent of the group’s US portfolio, compared with just 3 per cent at the moment.

The solar parks and wind farms acquired from Consolidated Edison currently generate $600mn in earnings before interest, tax, depreciation and amortisation. Including debt, RWE is valuing the new assets at 11 times ebitda including debt. The German group said it would continue to pay out a dividend of at least €0.90 per share as the transaction will be earnings accretive from year one.

Historically, RWE has been one of Europe’s single largest carbon dioxide emitters as it owns lignite mines and coal-fired power plants in western Germany. The Essen-based group says it wants to be carbon-neutral in under 20 years and plans to invest €50bn in green energy by 2030, with Krebber saying the company is committed to be “one of the world’s leading drivers of the global energy transition”.

Last year, RWE’s carbon dioxide emissions rose 24 per cent, according to its sustainability report. Germany is bringing old, idled coal-fired power plants back on the grid as it braces for potential energy shortages during the winter if Russian gas deliveries are halted.