CLEAN ENERGY - General Electric, Siemens vie for Alstom's affections
Alstom has caught the eye of two global energy giants: the French power generation and transmission equipment manufacturer is due to make an announcement by Wednesday morning, as both potential acquirers meet with the French government to plead their case.
The first party to announce its interest was General Electric (GE) on 24 April: CEO Jeff Immelt met with French President Francois Hollande on Monday to discuss the US company’s binding offer to buy Alstom’s turbines and power grid equipment business for some USD 13bn. Immelt described the meeting as “open, friendly and productive”.
Wind turbine manufacturing plays a comparably small role in the revenue of these two industrial giants. But through the acquisition of Alstom, GE would carve a toehold in the European offshore wind sector. As of year-end 2013, Alstom held contracts for 940MW of offshore wind turbines, behind Siemens (6.3GW), Areva (2.3GW), and Vestas (1GW). Notably, Alstom recently agreed to supply 30MW of turbines to Deepwater Wind's Block Island project in the US. Onshore, both Alstom's turbine manufacturing unit and GE's equivalent have struggled to compete with companies like Enercon, Vestas and Siemens in Europe. Alstom and GE’s largest market, as measured by installed capacity, is Spain, where wind development has stalled in the wake of retroactive cuts and a moratorium on new-build subsidies.
In contrast, French industry minister Arnaud Montebourg on Sunday expressed his support for the other potential purchaser – Germany’s Siemens – which has mooted an asset swap with its French rival: under the deal, Alstom would get some of the German company’s transport assets and a cash payment in exchange for its power business. Siemens is reportedly willing to match or beat the financial terms of GE’s binding offer and make guarantees for jobs. The German government has voiced its support for a Siemens-Alstom deal, with the economy minister spokesperson Stefan Rouenhoff saying the proposed cooperation offers great potential from an industrial-policy standpoint. Siemens’ executive and supervisory boards will convene on Tuesday to decide whether to bid for Alstom, after its CEO Joe Kaeser met with Hollande on Monday. The company is making preparations to bid for the French player’s assets, under the condition that it gains the same access to financial information as GE has, people familiar with the plans told Bloomberg News on 29 April.
Alstom has said it is continuing to review both options and will make an announcement by tomorrow morning. A deal between Siemens and Alstom would create two leading European entities in the energy and rail industries and help to address the concerns of the French government regarding potential job cuts with GE’s proposal. A tie-up of Alstom with GE is likely to have fewer product overlaps than the German offer and to face less opposition from European competition regulators.
In France, the government can intervene to protect companies deemed to be of national importance from being acquired. Alstom has already been subject to state intervention after it had to be rescued in a EUR 4.4bn bail-out in 2004. The government has no direct shareholding in Alstom, though the company depends in part on orders from the state-owned SNCF railway network and utlity EdF which is 84% government-owned. Alstom surged as much as 18% in Paris trading on 24 April – the day the news hit the headlines – the biggest jump since 2004. Its shares have been suspended since Friday.
In other company news this week, Plug Power announced on Friday that it expects to raise USD 124.3m in a follow-on share offering that may fund acquisitions. The company priced 22.6m shares at USD 5.50 each, the US fuel cell manufacturer said – more than the 15m shares it said on 22 April it expected to sell. The offering is expected to close on Wednesday. Plug started trading in 1999 and has had a history of getting through tough times in part through the help of large backers. This time, fellow hydrogen player Air Liquide emerged to help it get past the impasse by taking an equity stake. A long-term lesson to be taken from watching Plug's ongoing efforts is that the company has identified a useful niche application in fuel cell lift trucks, enabling it to compete successfully against battery vehicles in one of the few areas where the latter have done well. It remains to be seen if Plug will be able to transition into adjacent market segments to facilitate more rapid growth.
In company results, the first Q1 earnings results suggest that 2014 may bode well for some renewables manufacturers: China’s biggest wind-turbine maker Xinjiang Goldwind said Q1 profit rose 57% on higher demand, with sales increasing 51% to CNY 1.43bn (USD 229m). Along with peers Vestas of Denmark and Spain’s Gamesa, Goldwind has sought to cut costs to improve profitability. As a result, expense reductions helped the Chinese company double operating profit last quarter from a year earlier and will help increase first-half earnings as much as 300%, it forecast.
In the US, solar manufacturer SunPower reported higher-than-expected profit in Q1 as surging demand for rooftop systems helped the company double its gross margins. These increased to 23.5% last quarter from 9.3% a year earlier. The increase was due in part to the company’s efforts in the residential and commercial markets, where smaller systems generate higher returns. That gives SunPower a more diverse sales model than competitors including Yingli and Trina Solar, which both notified investors this month that Q1 shipments will fall short of the companies’ forecasts.
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CARBON -EU carbon reversed an upward trend as volumes increased
Carbon allowances were on track for a weekly gain before falling as much as 12.6% on Friday as trading volumes surged.
European Union allowances (EUAs) for December 2014 ended the week 8.6% down. EUAs for delivery in December, the benchmark contract, finished Friday’s session on London’s ICE Futures Europe exchange at EUR 5.12/t, compared with EUR 5.60/t at the close of the previous week.
EUA market activity was relatively light most of last week, following a four-day holiday weekend in many parts of Europe. Only 10.7Mt of front-year EUAs traded on Tuesday, compared with the 15-day moving average of 21.8Mt. The front year contract stayed above EUR 5.60/t for most of the week and reached a high of EUR 5.92/t on Thursday.
Prices plummeted on Friday – to a low of EUR 5.04/t – as trading volume rose 162% from the previous day to 41.8Mt.
UN Certified Emission Reduction credits (CERs) for December 2014 lost EUR 0.01/t last week to end at EUR 0.16/t.
EU ETS and global carbon price (EUR/tCO2e)