Dutch-German Energy Grid Deal Falters Amid Budget Strains

The Dutch government is exploring options for selling or initiating an IPO for TenneT's German arm after a sale to the German government failed due to budget constraints. The collapse hampers both nations' green energy goals. Alternatives include private sales, partial sales, or minority stakes. TenneT aims to continue its extensive investment plan.

The Dutch government said on Thursday it would try to find another buyer or seek an IPO for the German arm of its state-owned electric grid company, after a sale to the German government foundered on Berlin's budget strains. The collapse of talks is a headache for grid company TenneT, which is pursuing a 160 billion euro ($171 billion) investment plan, Europe's largest, and will hamper both countries' efforts to meet green energy targets.

In a letter to parliament, Dutch finance minister Steven van Weyenburg said he was informed on Wednesday by German officials that the deal for TenneT's German arm, estimated at 20-25 billion euros, would not go through. He said he was disappointed by the news, given Berlin had requested the deal itself in 2022 to facilitate its energy transition. TenneT is the sole grid operator in the Netherlands and the largest in Germany.

"TenneT is preparing concrete options for a private sale, or partial sale, or initial public offering of TenneT Germany," Van Weyenburg wrote. "The German state has informed me it will support these alternative scenarios."

A German government source told Reuters a complete purchase was off the table but Berlin might still buy a minority stake. TenneT said in a separate statement it intended to follow through on its huge investment plan in the coming decade, much of it needed to build the network to support wind farms in the North Sea.

Both sides said they were close to a deal in 2023 before a constitutional court verdict triggered a budget crisis in Germany. That led Dutch Prime Minister Mark Rutte to make a personal plea to German Chancellor Olaf Scholz last month to make a bid and relieve Dutch taxpayers from funding the German grid.

TenneT said Germany's budget problems were squarely to blame for the deal's failure. "This announcement comes after the Federal Government of Germany informed the Dutch State that it cannot deliver on the planned transaction due to budgetary challenges," it said.

Reflecting disagreement over spending plans in Germany's ruling coalition, Economy Ministry Robert Habeck said on Thursday he was unhappy about not buying German businesses, when asked about TenneT during a visit to South Korea. Germany's heavy industry, under pressure to replace fossil fuels with renewable electricity, says transmission fees are rising because the expansion of solar and wind energy has created grid bottlenecks.

"An acceleration of grid upgrades must be given priority", VIK, a lobby group for energy-intensive German manufacturers, said, when asked to comment on the failed deal. The former CEO of chemicals giant BASF, Martin Brudermueller, now chair of Mercedes-Benz, told daily FAZ in March that Berlin should consider buying and subsidising the entire national grid to revive the energy transition.

Dutch finance minister Van Weyenburg said the Netherlands' budget for 2024 faced a 1.6 billion euro shortfall, as expected proceeds from the sale would not materialise, and the country would have to seek short and long-term refinancing for TenneT. The Dutch government has already given TenneT a 25 billion euro loan for 2024 and 2025.

The company has around 20 billion euros in bond debt, and in May the Dutch government estimated it needed 31 billion euros in fresh equity, 13 billion on the Dutch side and 18 billion on the German side. TenneT bonds fell on Thursday, with a November 2026 bond down around half a cent at 95.7 cents on the dollar, its lowest since November 2023, and its biggest daily drop in a month.

($1 = 0.9331 euros)

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