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12/03/2015

Transmission and distribution system operators, a strategic asset waking up investors' appetite

 
Since 1996, Europe has adopted three energy packages, which have generalized the unbundling of the production, supply and management activities of the transmission and distribution systems. In many countries, those changes have deeply modified the TSOs' operation and shareholder structure.

 

Existing shareholding schemes are numerous, since private institutional actors take over more and more frequently from the national authorities that are currently short of funding. Hence many options are possible: national monopolies; regional (public or private) monopolies' competition; partially or totally listed capital; capital from energy actors or from infrastructure funds.

Dominique Maillard, president of the French RTE, mentioned a possible sale of RTE's shares as "an industrial project and not based on a financial project" , this article decodes this possibility in relation with European TSOs' situation.

Arbitration between fresh money and influence from public authorities

Public authorities are seeking to retain an important decision-making power on their TSOs in spite of a general divestment trend. Indeed, among the electricity chain, the TSOs guarantee their country's security of supply and independence. According to the countries' history, that power appears at various levels:

At national level in France and in the Netherlands:

  • RTE is a 100% subsidiary of EDF, which is 84%-owned by the French State;
  • In October 2013, the Dutch government renewed its intention to retain the totality of its electricity operator Tennet .

At regional or local level in Germany, Switzerland and Belgium:

  • Transet, a German TSO, is almost entirely held by the Bade-Wurtemberg state and by an aggregate of several districts;
  • Swissgrid, a Swiss TSO, is owned by 21 cantonal energy actors, among which Axpo Holding and Alpiq Holding;
  • 47.73% of Elia, the Belgian electricity operator, are owned by Walloon and Flemish intercommunal organizations through two holdings (Publi-T and Publipart).

Nevertheless a need for liquidity often opposes this need for governance and this encourages some countries to dispose of part of their shares in national TSOs. The challenge for those countries is thus to sell the most without losing their decision-making power. In France, the authorities recently stated that they "can reduce their shares without losing power, it is not necessary to have so much capital tied up to exert as much influence" . Several tricks were put in place in Europe in order to overcome this dilemma:

  • The Spanish state only owns 5% of Enagas but prohibited other shareholders from holding a higher proportion than this. However, the state does not hold the majority ;
  • The Belgian state granted itself a "specific" share ("golden share") in the gas operator Fluxys. It guarantees several rights including a veto in board meetings ;
  • The French state voted the Florange law in March and doubled its voting right in RTE. It allows it to sell part of its shares without losing decision-making power .

Finally, England is distinct from its neighbouring countries due to a nearly total privatization of its national electricity operator National Grid. National Grid's capital is floating in majority and 29%-owned by institutional actors (investment funds, banks, insurance companies). Indeed, this TSO was originally held by 12 regional electricity companies. When it got listed on the London Stock Exchange in 1995, those regional firms sold most of their shares in less than one year.

Figure 1: Map of shareholding positions of several European TSOs

Source : Sia Partners' analysis

Selling shares, but to whom?

Due to its size, its strategic character and its economic reliability, a TSO can be of interest for several investor profiles, responding to different stakes.

  • Other energy actors, especially foreign TSOs, which have a specific interest in expanding their grid or widening their fields of competences. It was the case for the Dutch TSO Tennet that bought out the high-voltage grid E.ON in 2010, or for the Belgian TSO Elia that bought out the TSO activity of the German Vattenfall. In those two cases, the expansion of their respective grids allowed those actors to create synergies such as, for instance, developing a specific expertise for integrating grids in the CWE zone (Central Western Europe).
  • Individual actors that invest occasionally in the company's shares. In that case, the TSO decides to open up part of its capital on the stock exchange. This part of the capital, which is not held by fixed or strategic actors, is called "floating".
  • Institutional actors that take a several dozen percent ownership in a sustainable way. They are generally banks, insurance companies or investment funds that are looking for a steady and predictive return on investment, instead of a decision-making power in the firm. This happened in France in 2013 when the state funds of Singapore GIC became a 35%-shareholder in TIGF by associating with two energy actors: the Snam (Italian natural gas TSO) and EDF .

A consortium, the best way of bringing together complementary interests

The "industrial project" mentioned by RTE is thus not an isolated case in a context where European TSOs are more and more interested in creating supranational actors. Those groupings bring considerable advantages allowing them to better tackle upcoming challenges, concerning the rise of intermittent energies' share or the improvement of interconnections between countries.

Nonetheless, the implementation of such projects needs important funds. It seems hardly conceivable that only energy actors could take part. The presence of institutional actors in the sale of a TSO's shares is not always conflicting with the objective of achieving an industrial project. Instead, it could allow to provide the means of succeeding. Based on the high number of buyers attracted by the sale of TIGF, we can bet that potential buyers could be numerous if such a project was created.

Sia Partners - Baptiste Possémé, Maximilien d'Andigné

The article in French is available here.

References:

http://www.lesechos.fr/economie-france/budget-fiscalite/0203939920087-ma...

http://annualreport.tennet.eu/2013/annualreport/letter-from-the-ceo/lett...

http://www.lejdd.fr/Economie/La-grande-braderie-de-l-Etat-rendue-possibl...

http://www.enagas.es/WEBCORP-static/Informe_Anual_2013_en/files/assets/c...

http://www.fluxys.com/belgium/en/financial%20info/generalmeeting/goldens...

http://press.edf.com/fichiers/fckeditor/Commun/Presse/Communiques/EDF/20...

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