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28 November 2019

Eneco buyout may lead Rotterdam hydrogen push for Mitsubishi

A highly significant Netherlands energy firm Eneco, has fallen into the control of Mitsubishi Corporation this week, in a €4.1 billion deal which also involved Chubu, the third largest Japanese energy supplier, which took a 20% share, in an all cash deal.

Eneco is a spin out, triggered by a law change in 2006, and completed in 2017, into a grid operator which continues as Stedin NV, and energy generator Eneco Groep NV.

As soon as that was complete, the 53 Netherland municipalities which owned it, began to get agitated its value potentially falling. They felt that the energy market was rife with change, and did not want to jeopardize the value they had built up in Eneco, worried about risks to its business model, falling energy prices and clients losses – none of which seem to have materialized.

At first, these shareholders pursued a sell-off strategy, then an IPO, and finally looked for the right type of buyer for the business. Eneco owns 2,118 MW of capacity, much of it renewable, with 1,367 MW of it in onshore wind, and last year produced 4,876 GWh from these assets.

Meanwhile the Stedin Group has gone on to also sell off subsidiary Joulz which helps businesses work with ‘behind the meter’ with distributed generation assets. UK investor 3i has just acquired this. This leaves Stedin to focus on grid management and it is able to buy capacity where it likes for its existing 2 million customers.

Mitsubishi is thought to have stolen the deal right from under the nose of Netherland oil group Shell and French group Total. Other bidders were rumored to be French utility Engie, Italy’s Enel and Austrian energy group Verbund, though the negotiations were not public. US private equity group KKR was also thought to have been in the bidding.

Shell has promised to spend $3 billion a year transitioning in green energy, but clearly it either undervalued the asset, or more likely wanted to squeeze as much profit out of the business as possible, post deal, and planned to cut away large chunks of its workforce – so it could continue with the types of margins that oil companies are used to. Which is probably where Mitsubishi managed to land the prize.

Mitsubishi says it will not only let Eneco continue to operate with its full staff, but work at arms’ length, and says it will also transfer 400 MW of its own offshore wind to Eneco’s control.

When you look at the broader energy picture, it is seen as very different by Japanese companies from the rest of the world. Hydrogen is one of its key precepts for taking on renewables, and effectively looking for that as a way to replace oil and gas. Japan has never had any raw materials that offered it a route to domestic energy security, which is why it had shifted heavily towards nuclear for the past 40 years.

But already it is seeing that with the arrival of EVs in volume, it will need more electricity than it has already, and it has consistently pushed a policy of using intermittent renewables to generate hydrogen, which can be used both to generate electricity in the winter months, and also to power both cars and heating systems directly. It can also be used as a fuel for powering ocean going ships.

The only problem is that Japan has not moved fast enough to enable hydrogen fueled cars and as a result EVs are virtually being forced in its car makers. But Japanese interests see no reason to push towards natural gas as an interim fuel as the US has, and cannot continue to build out nuclear after the disaster of Fukushima. So it’s plan has drifted back and forwards from hydrogen to floating wind to offshore wind, and onshore is typified by being the largest floating solar country – due to land being too expensive to allocate it entirely to a single fuel, so lake surfaces are used instead.

Back in April green hydrogen got a boost in the Rotterdam port area, the backyard of Stedin and Eneco, when BP and Nouryon, and the Port of Rotterdam agreed a route forward to add electrolysis to the BP refinery there.

Hydrogen is already used to de-sulphurize products, but this group also want to extend this to fuel. It says it will be able to build a 250 MW water electrolysis system which would output some 45,000 tons of green hydrogen a year, which would make it the largest site of its kind in Europe.

BP back in early 2017 began to talk about sustainable electricity coming out of its Rotterdam base, specifically then highlighting the production of fuels. TNO, Stedin, Smartport, Uniper, BP Refinery Rotterdam and Port of Rotterdam Authority said at the time they would investigate a power-to-gas plant in the Rotterdam port area, as well as the necessary amendments to regulations. The parties signed a cooperation agreement in January.

Notice Eneco’s old partner in there in Stedin, and we can see how a renewables supplier would be in a good position to provide power for such a project, which could be instrumental to adding hydrogen into the mix in this part of the world – driving costs, and therefore prices, down. Already the Stedin Group is examining alternative methods of heating and is running a demonstration project to heat homes in the Rozenburg area of Rotterdam entirely with hydrogen, using existing gas pipelines for delivery and a boiler inside a nearby block of flats.

Which is perhaps why Mitsubishi is so keen to allow the Eneco brand to continue, and for its culture and corporate identity to remain unchanged and for its HQ to remain in Rotterdam.

The deal to buy Eneco is backed by its board and a committee representing shareholders, but must still be finally approved in early 2020 by its municipal investors. The Dutch Climate Agreement calls for a reduction of CO2 and the production and use of hydrogen, which aligns directly with Japans plans.

In January this year things got more serious due to the news that there will be a series of huge wind farms built offshore from the Netherlands, in the North Sea. This will make available a huge amount of green electricity and using it to generate Green Hydrogen is the preferred option from many oil based businesses in the coming decades. One point where that electricity could hit land is via the Tennet grid at Maasvlakte, very close to Rotterdam. The hydrogen could then be used as a transport fuel or added to the gas grid.

So eventually the BP venture could be used to stimulate further hydrogen demand and act as a focal point for the Netherlands being a keen ally of the Japanese hydrogen ambition.

Meanwhile anyone involved will get a big know-how leap ahead of rivals and perhaps use the additions at its refinery to make bolder Green Hydrogen moves around Europe at a later date.

On October 30 at the Future Investment Initiative panel on ‘Fueling the Future’, Akimasa Muyama, Director, Senior Executive Vice President and Chief Technology Officer at Mitsubishi Hitachi Power Systems make it clear that this cluster of companies believes in what he called the ‘Hydrogen Society’.

And said, “The acceleration in the evolution of Hydrogen technology along with the optimization of the hydrogen supply chain has prompted many leading governments and organizations today to prioritize hydrogen in their energy sourcing strategies. MHPS continues to collaborate with Japanese, as well as International, stakeholders to pioneer projects around the world that are going to be pivotal in demonstrating how hydrogen can competitively fulfil expectations.”

Muyama brought in countries like Saudi Arabia which he said could evolve into supply hubs of commercially competitive hydrogen fuel. Clearly, his company has also found one in the Rotterdam region. And he said he would pioneer the world’s first hydrogen storage and combustion power plant in 2020.

Then he introduced a new hybrid, a cross between pure hydrogen and natural gas with a 30% hydrogen 70% natural gas fuel mix and Mitsubishi has already built a handful of plants to that specification including a 440MW natural gas unit to 100% hydrogen fuel for commercial operation in the Netherlands.

This is a neat idea, because it has the same effect as Carbon Capture, without all the effort, slowly diluting the carbon element of the mix over time for gas. Mitsubishi said back in May that it would build a 1 GW plant for this type in the US soon. All of which explains why a Japanese power firm like Chubu came along for the ride.