Nuon Vattenfall merger

By Benedict De Meulemeester

By Benedict De Meulemeester on 8/07/2009

Dutch utility Nuon will become part of the larger Swedish-German Vattenfall concern, see here. As such the traditional Dutch energy supplier joins a strong player with a well-diversified power production park. After Essent, Nuon is the second Dutch energy company that gets swallowed by a German company (Essent was taken over by RWE). This is a remarkable evolution. In the past two years we have seen Dutch and German wholesale markets grow closer together. Spot and forward prices on the German EEX and the Dutch APX/Endex markets are moving hand in hand. With these mergers, it looks like important players such as Vattenfall and RWE are preparing for further integration of the two markets.

Despite the feelings of some Dutch, I believe that this takeover is a good evolution. I believe that the creation of strong utilities with a pan-European presence can improve the competition. This would be further enhanced if we continue towards the full-scale integration of the wholesale market (the single copper plate). The future energy market will probably consist of a league of strong giant pan-European players and a bunch of niche players, offering good products and services to consumers with a specific energy demand. In such a market, there will be no place for utilities such as Nuon and Essent, strong in their own country but small on a European scale. They are too big to become a niche market player but too small to become a giant. Moreover, their undiversified power production park with mostly gas-fired plants would continue to be a structural weakness. Joining Vattenfall and RWE is therefore an intelligent strategic choice.

At some point there was some talk about Nuon being taken over by Italian energy company Eni. This would have made an interesting combination in the Benelux. Eni has taken over Distrigas, Belgium's dominant gas market player. With Nuon, a power branche would have been added to this. But OK, Nuon has chosen Vattenfall with its nuclear, coal-fired and renewable power plants. We wish all our contacts at Nuon a smooth and rapid integration process. And we secretly hope that some interesting new proposals will be the result of this alliance.

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