PNE CEO calls for moderate reorientation of energy policy
Mr Wuttke, the market environment has changed significantly for PNE over the past three years, and medium-term business and financial targets have now been adjusted.
That's right. Material costs and interest rates have risen, while electricity sales prices have fallen. These changed conditions have prompted us to adjust our targets. Nevertheless, we will continue to grow in terms of operating profit and the capacity of our own operations.
Did the changed circumstances and adjustments to the course lead to the restructuring of the entire PNE Management Board last year?
That is speculation. In my view, the adjustments we formulated in the first quarter of this year were necessary. The „Scale up 2.0“ strategy, which PNE presented at a capital market day in autumn 2022, was very strongly focused on acquiring renewable energy plants for our own operations. That is still correct. However, the acquisitions must also be financially viable under changed market conditions.
About the person
Heiko Wuttke's first few months as CEO of wind farm developer PNE could have gone less well. Since the graduate engineer took up his post on 13 January, the company's share price has risen by almost 30%, with its market value climbing to over 1.1 billion euros. The 57-year-old, who comes from Twistringen in Lower Saxony, has long been familiar with the renewable energy sector. After working in onshore sales at Repower Systems and as head of German project development in the wind division of Swedish electricity supplier Vattenfall, Wuttke became CEO of the energy cooperative Prokon in 2016. In 2022, he took over as head of the consulting firm 8.2. At wind farm developer PNE, Wuttke is a member of a three-person executive board that was renewed last year.
Were they no longer viable?
The assumptions made in 2022, when the war in Ukraine began and price increases led to the central bank's interest rate turnaround, have lost their validity over the past few years. Higher interest rates, increased material costs and lower electricity prices prompted us to adjust our corporate strategy slightly at the beginning of this year. The aim is to achieve a better balance, a balanced mix between building up our own portfolio and selling projects. In this way, we want to optimise value creation and cash flow, strengthen our balance sheet and improve profitability.
With the course correction, targets for the end of 2027 have been changed. To what extent?
We expect that by the end of 2027, we will have an in-house portfolio of wind farms with a total capacity of around 1.1 gigawatts (GW) instead of 1.5 GW in operation or under construction. In 2024, the nominal capacity of our in-house operations increased by a good 50 MW to 428.5 MW due to the completion and takeover of wind farms. We now have around 492 MW in operation and a further 214 MW under construction. Growth as an independent power producer (IPP) will continue in the coming years.
Is the previous portfolio target still valid?
In the longer term, we are sticking to our plan of achieving an owned portfolio of 1.5 GW in operation or under construction. We are not specifying a year. We first need to look at our own resources and stable cash flows. In order to grow more strongly, our capital opportunities need to improve.
The equity ratio has decreased from around 25% in 2022 to around 15% last year. Are you sticking to the previous business model with the three segments of project development, power generation and services?
Yes. One thing is clear: we need to grow profitably. And that is what we are doing. We are forecasting an operating result before depreciation and amortisation (EBITDA) of around 140 million euros for 2027. That is only 10 million euros less than we announced in 2022. In 2024, we were at 69 million euros. The decrease in the equity ratio is a result of increased investments in our own operations, the changed market environment with higher expenses for machinery, materials and personnel, as well as increased financing costs on the one hand and lower electricity prices on the other.
How do you assess the financial situation of your company?
The financial situation is stable, even when certain valuation issues relating to inventory and the project pipeline are taken into account. But it is important that we manage our finances sensibly. We are careful to ensure that we grow at a reasonable pace. At present, we are not raising significant growth capital.
Is a capital increase not an option?
Yes, it is. However, a necessary resolution was not passed at the last Annual General Meeting.
Repeatedly not.
That's true. We have to work with the decision that has been made. That means we have to generate the growth opportunities ourselves. Trees are not growing to the sky at the moment, but they are continuing to grow.
What about external financing?
For us, external financing for investments is usually non-recourse financing for individual projects, not general corporate financing.
In 2022, PNE issued a bond worth 55 million euros with a five-year term and a 5% coupon to improve its financing structure and finance growth, and recently increased this to 65 million euros. Can you imagine further issues?
We will consider whether to extend or increase the bond at the latest next year.
You indicate that PNE must generate growth opportunities itself. What does that mean in detail?
We sell certain projects that we develop instead of adding them to our own portfolio. This allows us to generate revenue to finance our growth with the projects that we want to take on ourselves. We are also streamlining our portfolio in certain markets. Last year, we sold our US business to the American investor Lotus Infrastructure, and at the beginning of this year we sold our Swedish companies to the Norwegian utility Aneo. Further portfolio streamlining in the onshore wind and photovoltaic sectors will follow where we cannot expect satisfactory returns in the near future.
Where?
We are planning streamlining measures in Panama and Turkey.
You are reducing your international presence.
We are currently present in 14 markets, including services, and in future there may be ten or twelve markets. Outside Europe, we are currently active in five countries in terms of project development in the wind and photovoltaic sectors: Canada, Panama, South Africa, Turkey and Vietnam. We will withdraw from two markets. We are taking a close look at others. In Europe, we are generally satisfied with our business in Germany, France, Poland, Italy and Spain. However, progress in grid connections is important. There are bottlenecks in this area that are delaying the implementation of projects. This applies not least to Romania.
Over what period of time are you aiming to streamline your portfolio?
Starting today, over two and a half years, until the end of 2027. However, we also have to wait and see how certain issues in Germany and Europe develop in view of the growing volatility. With renewables accounting for more than 60% of the energy mix, the issue of grid connection is a pressing one. It will be important for us to develop projects in the right locations, not just those with high wind or sunshine, but those that best serve the energy grid. We face a number of challenges, but we believe we are well equipped for the coming years.
What gives you confidence?
Our growth is not being completely slowed down. If we reach around 1.1 GW of installed capacity in our own operations by the end of 2027, that still means that we will more than double our current capacity. The pace of growth is slowing down somewhat. We are focusing more on profitable growth.
You referred to the increased costs in recent years. What role do savings play now?
We are looking more closely at many areas to see if we can reduce costs and how urgent expenditures are. However, we are not pursuing a specific savings programme. Above all, we are trying to manage projects much better by creating closer interfaces between suppliers and our planning and by accelerating projects so that capital is tied up for less time.
Are more project sales the biggest lever for improving the situation?
Yes.
Politically, the wind has recently turned against renewables. To what extent will this affect project sales?
I am glad that we were able to sell our US business last year. The political framework has shifted significantly. In Germany, we have not felt any major impact so far after the formation of the new government. Nevertheless, I would like to emphasise that there must be no disruption to the energy industry in Germany. As an industry and the economy as a whole, we are not just looking at a four-year legislative period. We depend on investment security. That is why we need political conditions that are as reliable as possible across legislative periods. The German renewable energy industry does not need another Altmaier setback.
Are you concerned about statements made by the new Federal Minister for Economic Affairs?
Statements about the expansion of renewables in recent years certainly make you sit up and take notice. If the political direction is now being adjusted, it must not be reversed too far. Focusing primarily on the old energy industry in order to keep Germany stable cannot be the solution for an economic sector that employs hundreds of thousands of people. The framework conditions for the renewable energy sector must not change so much that a real break occurs.
You mean the pace of expansion?
The pace of expansion, but also tenders and market design. Changes to the Renewable Energy Sources Act must take the effects into account. A lot can be destroyed.
Back to your company: How do you assess the prospects for revenues from the planned project sales?
Good. It will be important for us to be able to show how good our projects are. But the framework conditions are also important.
How large is the share of projects up for sale in Germany and abroad?
The number of projects – not the output in megawatts – is divided roughly one-third in Germany and two-thirds in international markets.
In view of the current challenges, wouldn't it be appropriate to suspend dividend payments?
Suspending the dividend payment for 2024 was not up for discussion given the scale involved. We are financially and balance sheet healthy, delivered solid results last year and achieved a very respectable operating result well above guidance. In addition, we are continuing to grow.
Are the adjustments to the corporate strategy and medium-term targets supported by all shareholders?
Yes, that is my impression. The Annual General Meeting in May went smoothly. There were questions during the general debate, but the adjustments to the orientation and targets were not met with rejection.
Will PNE remain independent? Your largest shareholder, Morgan Stanley Infrastructure, which currently holds over 50% of the voting rights, held talks in the past about selling its PNE shares, which were concluded at the beginning of 2023.
It is normal for speculation to arise from time to time when private equity firms are among the owners. I cannot comment further on this.
A word on the current financial year: does the previous forecast still apply?
Yes. In terms of projects, business performance is in line with our expectations. We will not implement most of the projects until the second half of the year. Due to low wind levels, the yield from existing plants has not been as good as expected so far. However, this affects the entire industry. We are nevertheless sticking to our forecast for 2025, which envisages an increase in EBITDA to between 70 and 110 million euros.
