Activist investor Elliott Management has built a 5% stake in RWE and has backed the German utility’s plan to cut renewable energy investment until 2030 by 22% to €35bn. But will this increase its influence on renewable energy policy in Europe?
Nobody in the renewables industry can have been shocked when BP turned its back on its green investment plans last month. The company’s income from fossil fuels dwarfed its returns from technologies including wind and solar, so the shift was little surprise.
BP has also come under growing pressure from activist investor Elliott Management to pivot away from green energy in favour of more profitable oil and gas activities. Just last week, Elliott met BP’s management to discuss management changes and cost-cutting. The investor is seeking to use its 5% stake to push through big changes at the oil giant.
But is RWE now set to come under similar pressure? On Monday, Elliott revealed that it has grown a 5% stake in the German utility and is now coming out publicly to influence RWE strategy. For example, Elliott welcomed a commitment by RWE last week to cut its spending on renewable energy projects by €10bn, or 22%, between 2025 and 2030.
RWE announced in its 2024 annual results on Thursday (20th March) that it is applying stricter investment criteria to its new projects due to tougher market conditions, such as regulatory uncertainties, supply chain constraints, geopolitical risks, and higher interest rates. It is now targeting an average internal rate of return of more than 8.5% for its new projects, compared to an average of 8% previously.
The company is particularly looking to rein in spending on European hydrogen projects and announced in November it is reducing investments in US offshore wind in response to the hostile attitude of the Trump administration. This month, RWE has also revealed it is cutting 73 jobs in its US offshore wind development team by early May.
Elliott has welcomed the change in RWE’s strategy. In a statement released on Monday (24th March), it said the planned reduction in investments “represent an important first step towards more disciplined capital allocation”. The investor added that it shares “the market’s disappointment with the lack of clarity regarding the Company’s commitment to enhance shareholder returns” and called on RWE to accelerate its share buyback plans because of “the announced capex reduction and RWE’s persistent undervaluation”.
We will see how much influence Elliott wields over RWE’s plans in the coming weeks. RWE is a sizeable player in renewables, not least in offshore wind where it operates 19 offshore wind farms totalling 4GW and is looking to grow this to 10GW by 2030. But the utility also has natural gas and coal in its wider non-renewable energy mix.
If RWE wants to change its own strategy and focus on projects with higher internal rates of return then that’s its own business. It has a commitment to act in the best interests of its shareholders and sees being more selective about projects will help it achieve that.
But there is a concern from some in the industry that RWE will seek to use its influence to push governments to water down their long-term renewables goals. For example, last Thursday, RWE chief executive Markus Krebber said Germany should reduce its goal of 70GW installed offshore wind capacity by 2045. Instead, it said the government should focus on how it can use sites more efficiently to reduce the impacts of wake effects and so-called wind theft on projects. You can read more about this in our analysis last week.
On the face of it this could be a sensible way to reduce wake disputes at projects in the German section of the North Sea. However, RWE’s political statements like this will now come under greater scrutiny because of the influence Elliott is seeking to wield over the utility’s investment strategy. Elliott Management has made no secret of its desire for BP to abandon all its renewable energy projects, and such hostility could affect RWE too.
It is little surprise that Krebber’s statement has provoked a strong reaction from trade body the Federal Association of Offshore Wind Energy (BWO). The BWO hit back at those advocating that Germany waters down its offshore targets, though did not name RWE or Krebber specifically in its response.
Stefan Thimm, managing director at BWO, said: “Offshore wind is the cornerstone of a successful energy transition and industrial transformation. The current debate about targets is a sham. Those who cut back on expansion today may save on grid expansion – but in the long run they will have to pay significantly higher costs for energy imports and a strategic dependency [on other countries].”
BWO called for further moves to further boost the business case for offshore wind, by encouraging countries in Europe to cooperate with their neighbours; awarding longer leases so operators can run their offshore wind projects for longer; and offer flexibility in developers’ delivery timetables to plan for squeezes in the supply chain.
The debate in Germany will continue and the businesses investing in this infrastructure have every right to their say. Politics and business can never be separate. But the rise of activist investors will bring new dynamics that put some in the sector on edge.
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