Berlin takes over district heating network from Vattenfall

Nationalization - Berlin takes over district heating network from Vattenfall

After electricity and water, Berlin's next important supply network is now moving into public hands: the Senate is taking over the district heating sector from Swedish energy group Vattenfall, as both sides announced on Tuesday. According to Finance Senator Michael Evers (CDU), the purchase will cost the state around 1.6 billion euros. The purchase price is based on a company value of just under two billion euros.

The purchase is to be handled by a state-owned financing company. According to the Senator for Finance, it will receive equity from the state budget and loans from Investitionsbank Berlin (IBB), which the Senate intends to back with a state guarantee. "The Senate will present a financing concept with all the details to the House of Representatives for approval in the form of a supplementary budget in the first quarter of 2024," announced Evers.

With the purchase, the Senate is also putting out feelers for the Berlin gas network, which is currently operated by the private company Gasag. Vattenfall has granted the Senate a purchase option for its own Gasag shares. The Swedes own around 31.6 percent of the group. According to the Senate, it will examine whether Berlin will exercise this option in the coming year.

Governing Mayor Kai Wegner spoke of a historic day for Berlin. Senator for Economic Affairs Franziska Giffey (SPD) said: "We are bringing the heat back home, we are bringing the heat back into Berlin state hands."

Critics, on the other hand, are asking the question: isn't Berlin tying itself to a company that works primarily with fossil fuels and will have to be restructured at great expense over the next two decades? Such skepticism comes not least from the business community. "Berlin is taking on an enormous financial risk by taking over the heating network," said Alexander Schirp, Managing Director of the Berlin-Brandenburg Business Associations (UVB).

"This is because the city is also taking on the obligation to develop the heating network towards climate neutrality within a few years. This will require investments of several billion euros." This sum will far exceed the purchase price.

"We are taking this path because, despite the necessary investments, we assume that this company will be a profitable business," said Giffey. The investments are also unavoidable if Berlin takes the goal of climate neutrality seriously. Getting the energy and supply grids into state ownership is an important component of this.

As the Senate announced on Tuesday, this requires integrated network development, particularly for district heating and gas. The state is counting on the future support of Gasag and its other shareholders Eon and Engie.

But what do Berliners gain from the purchase of the district heating network? The most important promise is security of supply, said Finance Senator Evers. Added to this is the contribution to achieving the climate targets - Black-Red is aiming for climate neutrality before 2045.

Another aspect is fair pricing, which is not based on the returns of a private applicant. "As the owner, the state of Berlin is the best guarantee that there will be no price gouging here."

Christian Barthélémy, Chairman of the Management Board of Vattenfall GmbH in Germany, said that Vattenfall was putting district heating in good hands.

In mid-2021, the then red-red-green state government had already taken over the electricity grid from Vattenfall for around 2.14 billion euros. The capital's water supply has been in public hands for some time.

In May 2022, Vattenfall announced that it was putting its district heating business for 1.4 million apartments in Berlin to the test. The Berlin Senate then expressed its interest in purchasing the company and took part in the bidding process, which Vattenfall began in early December 2022. At the end of October this year, the Senate and Vattenfall entered into exclusive negotiations.

Vattenfall wants to move away from fossil fuels and put its district heating business in Berlin to the test. However, a final decision on a sale was still pending. The company had only recently announced investments of 200 million euros in the network. Both an industrial heat pump and a new steam turbine are to be installed at the Reuter West site.