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Czechs want to buy coal power plants

Thursday, 22 March 2018 | Tagesspiegel BACKGROUND Energy & Climate | Jens Tartler

What other energy providers want to get rid of, Sev.en Energy out of Prague wants to acquire. The company wants to collect coal-fired capacity throughout Europe and derive profits from the power plants for as long as possible.

When you ask Alan Svoboda about the longer-term future of coal-fired electricity generation, he says: "There is no longer-term future. In 30 years, there will be nothing left. Then we will be re-cultivating the last lignite mines.”

Svoboda is executive director at Sev.en Energy, a Czech company, and is currently visiting Germany. He is here to probe the market – in other words, to buy coal-fired power plants that no longer fit into the portfolio of companies like EnBW, because these have shifted their focus to renewable energies. “We are looking for investment opportunities that may not make sense in the long term, but do serve for a transitional period towards a largely carbon-free energy system. Eventually, however, it will come to an end – even if only due to rising CO2 prices”, says Svoboda, who had a management position at the Czech energy supplier ČEZ from 2004 until 2014 and was also a partner in the consulting firm McKinsey. While at ČEZ, he was charged with insider trading. However, he was acquitted both in the criminal proceedings and by the Czech National Bank.

Besides Germany, Svoboda is also looking at the markets in Great Britain, Italy, the Netherlands, Belgium, Spain, Poland and Greece. However, he believes that investments are more problematic in these last two countries, because government influence on the energy sector is still very pronounced there. Svoboda plans to announce the first purchase outside the Czech Republic, where Sev.en Energy has been acquiring coal mines and power plants for about seven years, before the end of 2018. And there are more negotiations in the pipeline, he promises.

Such ambitious acquisition plans raise the question as to what it is that Sev.en Energy can do better than the previous owners of these coal-fired power plants. Svoboda refers to economies of scale and scope. In conventional power plants, the management and engineers are specialized – in some locations, only a small amount of waste biomass from forestry and agriculture is burnt with coal. Marketing of the electricity throughout Europe from all power plants is handled by the trading team in Liechtenstein. The team is not based there for tax reasons, but because it is a location that is easy to reach from Switzerland, Austria and the Czech Republic, says Svoboda.

The manager points out that coal-fired power plants in the Czech Republic are significantly more profitable than those in Germany. This is because personnel and service costs are only one-fifth of that in Germany. Svoboda emphasizes that the profit from an investment in Germany would not primarily be derived from the proceeds from the electricity market, but from remuneration for reserve capacities. However, this means placing their faith in politics.

At the moment, Sev.en Energy is profitable. The company, which has over 2,600 employees, showed a profit of EUR 284 million in 2017. It is producing around ten million tonnes of lignite per year and, according to its own statements, intends to generate at least 4.5 terawatt hours of electricity in 2018. Sev.en Energy is wholly owned by Pavel Tykač, who made his fortune with the company Czech Coal. Sev.en Energy claims to be debt free, which should facilitate quick acquisitions.

The company’s main competitor, EPH, is also from Prague. When Vattenfall sold its German lignite business in 2016, Sev.en Energy was outbid by EPH. Svoboda has no idea how much EPH offered at the time. He attributes their defeat primarily to the fact that EPH had already acquired the East German company Mibrag in 2012 and was therefore more “visible” than Sev.en Energy. But that is about to change.

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